How To Start a Crypto Exchange: Guidelines & Strategy

 

The popularity of cryptocurrency continues to grow. Approximately 200,000 Bitcoin transactions happen every day. With 45 million crypto users in the United States, 16% of Americans say they’ve bought or traded a cryptocurrency. 

For most people, the first step in trading cryptocurrency is finding a reputable crypto exchange so they have a safe, consistent platform for their transactions. Many exchanges are privately owned and operated, and savvy entrepreneurs are taking advantage of opportunities in the crypto marketplace to start their own crypto exchanges.

It’s easier than you think to start your own crypto exchange. In this guide, we’ll cover everything you need to know about starting your own crypto exchange, including:

• What a crypto exchange is
• Core features of a cryptocurrency exchange development
• Benefits of running a crypto exchange
• How to launch your own crypto exchange

 

What Is a Cryptocurrency Exchange?

A crypto exchange is a platform where people can buy and sell cryptocurrencies. Investors can use a crypto exchange to exchange their crypto for other assets. This blockchain platform is the liaison between people making crypto transactions. 

Crypto exchanges work just like stock exchanges. However, crypto exchanges use blockchain technology and are exclusive to crypto traders. Investors use these platforms because very few traditional investment firms offer crypto options. 

Once a person creates an account with a crypto exchange, they can buy or sell a wide variety of cryptocurrencies, such as:

• Bitcoin (BTC)
• Dogecoin (DOGE)
• Ethereum (ETH)
• Litecoin (LTC)

 

There are dozens of available crypto exchanges, and each offers different services to their users. 

For example, some crypto exchanges allow people to transfer their virtual assets straight to their wallets. Other exchanges won’t. 

Crypto exchanges work in two different models:

1. Fiat-to-Crypto: This type of exchange allows users to trade their local currency for crypto and vice versa. 
2. Crypto-to-Crypto: This exchange allows users to exchange digital currencies with one another. 

There are also three types of crypto exchanges: centralized, decentralized, and hybrid:

1. Centralized: These exchanges rely on a third party to facilitate transactions between users. A centralized crypto exchange is easy to use but may be prone to attacks from hackers. The most popular centralized exchanges are Binance and Coinbase. 
2. Decentralized: Decentralized exchanges operate without a third party. Much like crypto itself, they are open-source and leverage peer-to-peer transactions. 
3. Hybrid: These are a mixture of both centralized and decentralized exchanges. The goal here is to offer the convenience of a centralized exchange and the security of a decentralized exchange. 

All crypto traders will use an exchange to participate in the crypto marketplace, presenting a great business venture for fledgling investors. 

How Long Does It Take To Start a Crypto Exchange?

There are two ways to start a cryptocurrency exchange platform. You can either build one from scratch or use a white-label solution like AlphaPoint. Building a cryptocurrency exchange business from the ground up can take approximately 10-12 months.

Ultimately, the development costs can vary, depending on whether you’re creating a minimum viable product (MVP) to test the cryptocurrency market or building a turnkey solution. However, using a white-label crypto exchange website and their existing systems and infrastructure to help set up your exchange will significantly reduce the time involved. Some crypto exchanges can be set up in a little as 60 days.

Essential Features of a Cryptocurrency Exchange

Not all cryptocurrency exchanges are created equal. Nonetheless, there are certain features every great crypto exchange will have. These include:

• User registration and verification: Every crypto exchanger offers user registration and verification to onboard new users to their platforms. 
• Multi-layered security: Since crypto exchanges handle virtual assets, they need to be encrypted with industry-leading AML security protocols like Know Your Customer (KYC). 
• Intuitive user interface: An exchange’s user interface (UI) is the visual part of the platform you’ll use to trade, access your wallet, and change your account information. The best crypto exchanges have an intuitive, user-friendly UI.
• Trading engine: A trading engine is a software application that makes a crypto exchange go. Specifically, they drive all open trade order books on the crypto market for proper cryptocurrency trading. 
• Liquidity: The value of a Bitcoin exchange is largely based on how easily users can buy and sell crypto and digital assets in real time close to their market price without many issues. 
• Wallet integration: This is the process of connecting a crypto wallet with an exchange. Diverse wallet integrations give more options for users to buy and sell their cryptocurrencies. 

If you’re ready to create a crypto exchange on your own, these features are non-negotiables since almost all exchanges already have them. 

Benefits of Running a Cryptocurrency Exchange

Starting a cryptocurrency exchange provides a wide range of benefits for investors. Let’s cover some of the greatest benefits below:

Becoming Part of a Growing Industry

Crypto is one of the fastest-growing industries not just in the United States, but across the globe. In fact, the value of all cryptocurrencies in the world is $3 trillion. 

Running a crypto exchange means you have a front-row seat to witness the crypto industry’s growth. As the industry becomes more profitable and sophisticated, it’ll open the door for more business growth. 

Market Exposure

Starting a crypto exchange also gives you insider benefits to a rapidly growing crypto industry. You can also receive direct market exposure for all the developments taking place in the industry. 

If you’re a dedicated crypto trader, this is an enormous advantage you can rely on to improve your personal portfolio. 

Access to Liquidity

As an exchange owner, you can access liquidity pools, which can be useful for trading on your own platform and for liquidity partnerships with other exchanges.

Liquidity pools are vital for decentralized crypto exchanges to process high trading volumes quickly without causing slippage and drastic price fluctuations. 

6 Steps To Launching Your Own Cryptocurrency Exchange

With the rise of white-label exchange software, starting a crypto exchange is a straightforward process. Here are the six steps you’ll need to follow to get started. 

1. Ensure Legal Compliance

First, ensure you’re not violating any laws or treading outside of regulatory guidelines. Proper due diligence to understand the laws and regulations in your jurisdiction is of utmost importance, and obtaining the requisite licensing before launching is key. If you’re operating globally, you’ll need to consider multiple jurisdictions. 

Determining the type of license required depends on the type of products you intend to bring to market and the type of exchange marketplace you’re bringing online. Every jurisdiction is different, so work closely with your legal team and local regulators to determine what’s right for your operation.

Consider which KYC provider you’ll be using and be prepared to demonstrate proof of due diligence before signing a contract with them. Higher levels of KYC will unlock higher verification levels, but not every KYC vendor can accommodate the verification needs of every exchange. Consider which verification levels you’ll need against the types of transactions you intend to offer through your exchange, then choose a KYC provider accordingly. 

2. Establish Banking and Payment Integration

You can’t have a functioning exchange without a way for people to deposit and withdraw fiat currency (dollars, euros, pesos, etc.). Identifying the necessary partners and establishing an on/off ramp with a bank and payment processor is critical. Don’t forget to have clear instructions for clients regarding their deposits and withdrawals of fiat currency.

Popular crypto exchanges offer a variety of wallet integrations to serve all kinds of users across the world. If you want to create a successful crypto exchange, you should invest significant resources to prioritize this step. 

3. Develop and Launch the Trading Platform

Now that you’ve got the groundwork in place, it’s time to launch a platform and mobile app that’s operationally functional, admin-friendly, lightning-fast, and capable of handling a large volume of trades — without crashing. 

Building a sleek and engaging UI/UX front-end experience for your user base is equally important. Remember, there are two software development methods for developing a crypto trading platform. 

Developing a backend platform from scratch will give you more freedom over its design, but it’ll be an expensive and time-consuming project. If you want to build an affordable crypto trading platform, you should avoid DIY app development and use a white-label service instead. 

You’ll need to consider a host of development and UX issues, including fee structure, integration of cold storage and wallet management, and whether you intend to offer a mobile app. AlphaPoint’s white label exchange templates offer a starting point for all these questions. 

4. Implement Security Measures

Keep bad actors at bay with advanced security controls. Two-factor authentication (2FA), cold storage, and regular audits all offer practical protection against security threats.

Take every possible measure against risk by pairing these security features with a reliable third-party custodial integration like Fire Blocks, BitGo, or Anchorage Digital.

5. Build a Customer Support Team

At the start of your operation, users will inevitably have questions or run into issues. Make sure you have an internal support and tech operations team in place to assist them and keep traders happy, along with easily accessible frequently asked questions (FAQs) and how-to resources. A dedicated customer support team can improve the user experience you provide and your online reputation.

6. Execute Marketing and Outreach Strategies 

Get the word out about your exchange with targeted digital ads, rich social media content, and regional conference/event sponsorships. Since crypto exchanges exist on the internet, you’ll need to implement a digital marketing strategy to drive brand awareness, drive website traffic, and convert site visitors into loyal users. 

Consider both paid and organic strategies, including SEO content, PPC campaigns, and press releases to crypto media outlets. Getting eyeballs on your website is the first step in growing your exchange.

Launch a Cryptocurrency Exchange Securely and Effectively With AlphaPoint

Overall, there are numerous benefits to launching a crypto exchange platform. These benefits include participating in a thriving industry and increasing your crypto assets’ value. 

Still, creating a secure crypto exchange is no easy task. With AlphaPoint, you can make it less challenging. Our full-stack exchange software offers pre-built, white-label technology to help you develop your own exchange — quickly and efficiently. 

Request a demo today to get started.