The proliferation of first cryptocurrencies (Bitcoin, Litecoin) ignited the need for exchanging them for conventional (fiat) currencies. First exchange services appeared that enabled easy trading crypto for fiat money and withdrawing crypto through electronic money, bank cards and accounts. This gave a powerful momentum to the evolvement of cryptocurrencies which boosted their rates. As of now, one possibly could not find a person having no idea on what cryptocurrency is, especially in the finance or currency-related industry.
A crypto exchange is a trading platform allowing users to purchase, sell, and exchange cryptocurrencies. Just like forex, a crypto exchange brings together [crypto]currency purchasers and sellers, ensuring transaction reliability. Like any other exchange, a crypto exchange is powered by a trading engine, implying that the credibility and speed of transactions depend on the code efficiency. Such an engine checks orders for asset reserve (i.e. on-balance funds), accounts orders in the database, prepares data for displaying in a web/mobile app or trading terminal.
In fact, pioneer crypto exchanges were centralized and trading pairs there were cryptocurrencies only. However, as the market evolved, such portals became subject to a kind of classification:
In terms of classification, most crypto exchanges may fall within several categories. That said, those ‘types’ only represent characteristics that may guide a user to choosing the most suitable platform.
One could only find significant differences between an exchanger and an exchange. There are two types of crypto trading services:
If in a crypto exchanger’s case prices are controlled by its owner, on a crypto exchange price rates hinge on the demand-supply balance. One could assert that such a model is an exchanger’s advantage as pump-and-dump schemes wouldn’t work there. However, the exchange market is still more democratic as prices are influenced by a mass of people rather than a sole person.
What underpins the price generation on exchangers is that the service owner links the internal rate to the exchange rate. Most frequently, the service owner employs popular exchanges for guidance in terms of price setting. However, most crypto exchangers set rates that are dramatically different from real prices displayed on major exchanges. On the other hand, exchanger users cannot choose the most favourable sale/purchase price as it is the exchanger owner who determines the rates. In contrast to that, exchange traders can place a limit order and make a transaction at the moment when the price reaches the intended level.
When starting a crypto exchanger, one should be advised that users look at the following aspects:
Binance was started in 2017 in Hong Kong and then was relocated to Malta. For 2 years, it managed to expand from an ordinary crypto exchange into an ecosystem that currently incorporates both stand-alone and related projects. Binance Exchange, Binance Chain, Binance DEX, Binance Coin, Trust Wallet, Binance Launchpad are crypto-related trading and blockchain products. Beside them, the company has research, educational, and charity projects.
Trading fees: 0.02–0.1% for makers, 0.04–0.1% for takers (depending on volumes, discounts in BNBs are available). No deposit fee, withdrawal fees depend on the currency. Users are offered Windows and macOS desktop apps, iOS/Android mobile app, and API.
Coinbase was founded in 2012 in California. Its pilot crypto exchange was titled GDAX, while Coinbase Pro was introduced in 2018. Apart from trading, the platform offers online wallet Coinbase Wallet and stablecoin USD Coin for users, and dedicated service Coinbase Commerce for merchants. Also, they provide a high-end service for institutional investors — special exchange Coinbase Prime and special storage Coinbase Custody.
Trading fees: 0–0.50% for makers, 0.04–0.50% for takers (depending on trading volumes). No deposit or withdrawal fees. Users enjoy an iOS/Android app and API.
Bitstamp was started in 2011 in London (UK). Later, branches in Luxembourg and New York were established. The platform allows trading through a conventional trading interface or its Pro version (for experienced traders and hedge funds). Also, it serves institutional investors (e.g. banks, brokers, neobanks, fintech unicorns).
Trading fees: 0–0.50% (depending on trading volumes). No crypto deposit fee. Withdrawal fees depend on the coin. Fiat deposit: free through SEPA, 0.05% fee through Wire, 5% fee through a credit card. Fiat withdrawal: €3 through SEPA, 0.1% fee through Wire. Users enjoy an iOS/Android app and API.
Every cryptocurrency exchange aspires to offer its customers special conditions. When choosing a platform, traders take notice of the following:
This approach is difficult but reliable as it helps get to know the crypto market better by coming through all stages of launching a platform: from concept design to final release. In a basic version, a crypto exchange consists of a trading engine, admin panel, database, user interface, account management centre, wallets, and analytics.
A good example of an exchange our company created from scratch is Polyx (https://polyx.net).
We got the following task: creating not another ordinary crypto exchange but a versatile all-in-one product. The key objective was to launch a handy platform that would be convenient not only for professional traders and investors, but also for amateur users — enabling them to purchase crypto just like any other digital product online. This is why we furnished the basic version with a pack of handy services to expand the reach. Currently, the platform consists of the following components:
We implemented all those elements not in bulk but step by step. Most customers highly appreciate such an approach as they can track progress, plan the budget, and suggest new ideas on the go. It took us 3 months to start a cryptocurrency exchange from scratch.
Tailoring a ready-made product to your brand. A crypto exchange powered by a finished engine may be a fill-in alternative or additional service for your audience. Usually, a customer purchasing a white label product is not a cryptocurrency professional but deals with an adjacent field. Meanwhile, the trends and demand suggest that a finance professional should have a crypto platform at their disposal.
One may think the key thing in starting a cryptocurrency exchange is reaching technological objectives. They would be wrong. According to our estimations, solving financial and legal matters captures over 50% of the time. And this is what needs to be sorted out.
One needs to choose a jurisdiction the most loyal to crypto services. It is quite a big deal as very few governments have recognized cryptocurrencies so far. Countries that welcome cryptocurrencies include the following:
Most countries dictate that activities related to storing and exchanging cryptocurrencies shall be properly licensed. For instance, in Estonia, one would have to obtain two licences: one for crypto wallet operation (storage of cryptocurrency), the other for exchanging crypto for fiat money.
As a financial system member, you will be obliged by anti-money-laundering regulations. The 5th AML Directive that is to come into legal force on 10 January 2020 in Europe, stipulates severe requirements on identifying customers and their transactions.
KYC — Know Your Customer. Every user of your exchange will have to undergo a personal (and possibly, registration) identification. Of course, you can collect user documents and carry out identification procedures using databases (PEP, sanction lists, etc.) on your own. But, why reinvent the wheel when you can apply to finished services that allow easy and cost-efficient implementation of verification processes. Here are some of them:
KYT — Know Your Transaction. This regulation is kind of young. Essentially, it prescribes that all crypto exchanges are obliged to verify cryptocurrencies users transfer to them, and block transactions from suspicious sources. It is no secret that bitcoins are heavily used in crimes, drug dealing, and terrorism financing. We can recall a set of services helping deal with this regulation, the most convenient and cost-efficient of which is:
AML compliance. Pursuant to the legislation, a crypto exchange staff must include a certified AML officer that is responsible for tracking suspicious transactions and filing SARs (Suspicious Activity Reports) to financial monitoring authorities. That officer must have a degree in finance and a certificate issued by one of the accepted global communities:
The most complex problem faced by crypto services. Banks consider cryptocurrency activity extremely risky so with a 99% chance they will deny your application on opening an account in a European bank (even if your company has managed to obtain licences and is compliant with AML regulations).
The only way to open a current account is to set up an account in an Electronic Money Institution (EMI). Basically, when you transfer money to an EMI, your funds are automatically converted into electronic assets. When you withdraw funds from your account, those electronic units are ‘cancelled.’ Looks quite confusing but it is usable. Be advised that EMIs stipulate strict requirements but it is possible to fulfil them.
As of December 2019, the following payment systems allow setting up IBAN accounts to crypto services:
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Developers usually do not specify an exact cost of work if its scope is unknown. One could barely estimate the amount without preliminary negotiation as different customers have different expectations. However, everyone wants to know how much does it cost to start a cryptocurrency exchange. To satisfy this need, companies carry out market research and offer a price range to somewhat provide customers with budgeting guidance. We also tried to follow the demand and found out that prices have dropped a bit this year (in fact, they have been adjusted after the 2017 rush). As of 2019, the development market sees the following proposals (depending on the macroregion).
Ready white label exchange: €5,000–16,000;
Exchange from scratch: €90,000–260,000.
Ready white label exchange: $6,000–19,000;
Exchange from scratch: $110,000–320,000.
Cryptocurrency exchangers require far lower investments.
Ready white label exchanger: €3,000–10,000;
Exchanger from scratch: €50,000–140,000.
Ready white label exchanger: $4,000–13,000;
Exchanger from scratch: $70,000–200,000.
Still have questions? Submit a request and we will provide you with comprehensive details and discuss a strategy on starting and promoting your crypto exchange!