How to Start a Crypto Exchange: A Step-by-Step Guide for Entrepreneurs

In recent years, cryptocurrencies have emerged as a significant impact in the global market, surpassing expectations with their rise to prominence as reliable digital currencies. Currently, there are over 15,035 cryptocurrencies tracked across 1170 exchanges worldwide. This has created numerous opportunities for entrepreneurs who are keen to venture into the crypto exchange business. Many aspiring business owners, however, face challenges in starting and sustaining a crypto exchange amidst fierce competition and establishing a strong brand identity. 

They don’t have a proper plan on how to start a crypto exchange and survive in this competitive market. At Appticz, we provide a comprehensive, step-by-step guide on how to start and run the cryptocurrency exchange successfully.

What is a Cryptocurrency Exchange and How Does it Work?

The crypto exchange platform is the only platform for a user who is looking to buy or sell cryptocurrencies. Also, it acts as an exchange platform for virtual currency to fiat currency. Cryptocurrencies are available for various purposes on this crypto exchange, which consists of a lot of blockchain-based support.

If a user signs up on the crypto exchange platform after thoroughly completing their details, KYC process, connecting crypto wallet, and other document verifications. Eventually, you’re ready to buy or sell your crypto, such as Bitcoin (BTC), Ethereum (ETH), USDT, Tether, Solana (SOL), and other digital currencies. In that too, a new user without a crypto wallet or before purchasing any cryptocurrencies initially gets into fiat currency to buy cryptocurrencies, or vice versa. 

Some famous crypto exchange platforms are providing their crypto services to their users, e.g., Binance, Coinbase, Kucoin, Kraken, Gemini, ByBit, Bitstamp, and a lot more. Every crypto exchange has its distinctive features, like the different crypto coins it supports and the crypto assets it transfers from one wallet to another.

Why to Start Your Own Crypto Exchange Business?

The crypto exchange business is a multi-billion dollar business because it doesn't have any control and is not owned by any central authority. It is decentralized, and it also creates ground-breaking records for world crypto traders and investors. The crypto market cap is currently around $2.11 trillion because cryptocurrency is a volatile digital financial instrument. So who can’t predict the exact value of the market? The reason is decentralization.

According to a recent report from Coingecko, the global crypto exchange market share is segregated into three players, such as 

1. The world’s largest centralized crypto exchange, Binance, holds its market share at 44.0% in June 2024

2. ByBit is the second-largest crypto exchange player, with a 12.7% market share.

3. The third largest market share holder globally is Gate Crypto Exchange, which holds 7.7%.

Although the overall global cryptocurrency market value is expected to reach US$56.7 billion by this year, 2024 is revealed by Statista. Now you may have an idea of how profitable the crypto industry is. This may arise as a question of “How do I start a cryptocurrency exchange?”. Here we answer it in detail. Before that you need to know the different types of crypto exchanges.

Different Types of Cryptocurrency Exchanges

Many worldwide crypto users are using crypto exchanges, which are divided into four types. They are, 

Centralized Crypto Exchange

The centralized exchange is a fully owned company that owns and controls the platform that facilitates the buying, selling, and trading of cryptocurrencies for its users. This type of crypto exchange is also known as a custodian exchange. To use this exchange, you can purchase or exchange cryptos for other digital assets or fiats. 

Usually, these types of crypto exchanges act like middlemen and charge trading fees ranging from 0.1% to 8%. These categories under crypto exchange names are Binance, Coinbase, OKX, Bitstamp, Kucoin, Bybit, crypto.com, gate.io, etc. People are attracted to this exchange because of its user-friendliness, feature richness, instant customer support, and ability to do millions of transactions per second.

Decentralized Exchange or DEX

Decentralized exchange means no one can control or own access to operate this platform. It’s entirely done independently. The main attraction of this exchange is that if you send crypto to someone, it can’t store any details of your transaction hash value in any third-party organization or server; it’s purely controlling blockchain operations with the help of smart contracts. 

When a comparatively decentralized exchange is underrated in the market and also does not have a higher trading volume and liquidity, some famous Dex platforms, such as Uniswap, Jupiter, 1inch, Orca, Sushiswap, and Pancake Swap, have a set audience because of no third-party involvement and lower transactions by up to 0.25%.

Hybrid Crypto Exchange

The hybrid crypto exchange has both centralized and decentralized features mixed up to create one full-fledged crypto exchange platform. User-attracting benefits are held in this platform: users can choose their desired wallet to store crypto assets in a custodial wallet or a non-custodial wallet; slightly higher liquidity is provided when compared to DEX platforms; it offers higher liquidity compared with DEX platforms; and the combination of both DEX and CEX platform security features with backed-up smart contracts.

Peer-to-Peer Crypto Exchange

P2P crypto exchanges are most likely to have similar features. This way, you can make a crypto payment that provides hardware and software infrastructure to transact between two users without intermediaries. This platform connects sellers and buyers using an Escrow service, whose purpose is to ensure that every transaction is done at an aggregated price and payment method. Some famous P2P crypto exchanges, like Binance, OKX, Bybit, Kucoin, and Gate.

How to Make a Cryptocurrency Exchange Platform?

There are two possible ways to create your crypto exchange platform. Let’s see which one is suitable for your business needs and encashment methods.

Custom Crypto Exchange Development

A complete custom crypto exchange platform development is emerging on your platform at the ground level. That process includes a matching engine, wallet management, API integration, UI, UX, dashboard creation, and integration of both the front-end and back-end. 

There are some advantages to starting your crypto exchange development from scratch. You get some merits for your business, such as an endless level of customization capabilities, creating your own distinct UI and UX, and no third-party dependence. Parallelly, you face some disruptions, like a longer process that takes time to enter the market and higher development costs.

White-label Crypto Exchange Development Solution

This white-label crypto exchange development comes from a reputed crypto exchange development company, and you’ll receive a previously developed crypto exchange script. That combines all the exact features and functionalities of the currently available crypto exchanges on the market. 

In this method, you’ll get a trading engine, the simplest UI and UX, limited crypto wallet support, liquidity, instant market entry, minimal cost, and a dashboard for user and platform operations. After that, you may encounter some problems, such as lower cryptocurrency support, dependencies on third-party services, and limited functionalities and customizations.

How to Start a Crypto Exchange: Step by Step Process

Every entrepreneur is looking forward to and eagerly awaiting the process of developing a crypto exchange platform. We list out the detailed guides for these processes.

Choose Your Country For Managing Operations

If your living country is a legal and positive signal for doing crypto exchange business, you can consider it the best way to start your business venture. Because of this, it is a much easier and more convenient way to understand legal jurisdiction. Initially, you can emerge your business globally, which includes a lot of obstacles in different government rules and regulations for your business adoption. 

Also, it includes higher risks because you need to comply with the local bodies' rules and regulations in your targeted region. Ensure you provide multiple countries' fiat currencies, flawless work with different banks within your targeted region, and multi-language support for your platform. In all that, complications are possible in fewer countries, but it also takes a lot of time and expenses to build your business presence.

Research Your Targeted Audience

In the second stage, you’ll find and opt for your targeted audience for your crypto exchange platform. The most important thing is that choosing the right audience is the primary step for the business because it requires a lot of analysis, persistence, and hard work to find your market. 

A lot of them didn’t have any idea how to find the targeted audience. Here are the promising ways: You can research forums and social media groups, have discussions with tech-savvy users and blockchain experts, conduct surveys and polls, and analyze your audience age group, income level, crypto adoption location, and competitor comparison. These are enough data points to find a crypto-targeted audience that suits your targeted location.

Comply With Legal Regulations And Get A Crypto Trading License

Every country has its own legal rules and regulations concerning crypto exchange business operations. Before you indulge in your crypto exchange business process, ensure that you have a superior legal team or hire third-party legal counsel to proceed. By positively planning your business process according to legal regulations that meet and comply with your business plans, you may take your crypto business to the next level. 

If any process is complicated or prohibits your process in your targeted region by legal regulators, you do not do your business independently. Many countries offer crypto trading licenses for business entrepreneurs. Once you get a crypto license for your business, you may run it legally without any objections.

Global crypto regulators may vary depending on the legal jurisdiction of various countries.

1. Anti-Money Laundering (AML) and Know Your Customer (KYC): These regulations are also in a lot more countries and are followed up for many financial modes of businesses to deter illegal activities and customer verification. 

2. Data Protection: Necessary companies should follow data protection laws such as GDPR (EU) and CCPA (US) to safeguard users’ privacy data.

3. Licensing and Registration: In the US, get the necessary license and register with legal bodies such as the Financial Crimes Enforcement Network. 

Countries Favorable For Crypto Regulations

United States

In the US, legal regulations differ from those in every province and territory. Some provinces define their crypto business regulations in their regions.

1. Federal Regulations

FinCEN (Financial Crimes Enforcement Network)

Register your crypto firm as a money service business and implement anti-money laundering (AML) and Know Your Customer (KYC) policies.

SEC (Securities and Exchange Commission)

Consent to securities laws and regulations. Register your crypto firm with the national securities exchange or alternative trading system (ATS).

CTFC (Commodity Futures Trading Commission)

Comply with commodities regulations and register your business as a contract market (DCM) or swap execution facility (SEF).

2. State Regulations

BitLicense (New York)

Get a license from the New York State Department of Financial Services (NYSDFS). Accomplish your capital requirements and execute AML and KYC policies

Money Transmitter Licenses

Get your business license from individual states to work for a money transmitter.

Singapore

The Singapore government created its crypto regulations for entrepreneurs who are looking to start their business with a crypto exchange. This government focuses on protecting investor security and balancing innovative protection for both platform owners and users. Get your crypto exchange business license from the Monetary Authority of Singapore. Although you meet your business capital requirements and fulfill the AML/CFT policies.

Europe

The European continent has a diverse range of countries with dedicated rules and regulations in the crypto business. On this continent, some countries provide a crypto-friendly jurisdiction for entrepreneurs and a comprehensive jurisdiction framework. When you start your business on this continent, you get a crypto license from the 

1. In Germany you get a license from BaFin (the Federal Financial Supervisory Authority).

2. For the United Kingdom, you register with the FCA (Financial Conduct Authority).

3. France you get a license from AMF (Autorité des Marchés Financiers).

4. Italy, you got a license from CONSOB (Commissione Nazionale per le Società e la Borsa).

5. Spain you get a license from CNMV (Comisión Nacional del Mercado de Valores).

Although all of these countries should strictly follow AML/CFT policies, some other document verification may be needed because your business is chosen on a different country basis.

List of Countries that Support Crypto Exchange Businesses 

European Countries

Malta, Switzerland, Gibraltar, Estonia, Lithuania, Portugal, Ireland, and the United Kingdom (with restrictions).

Asian Countries

Singapore, Japan (with restrictions), South Korea (with restrictions), Thailand, the Philippines, Hong Kong (with restrictions), and Taiwan.

African Countries

South Africa, Ghana, Kenya, Nigeria, Mauritius, Uganda, Tunisia, and Botswana. 

United States (with restrictions)

Canada, Brazil, Mexico, Chile, and Argentina.

Oceania

Australia and New Zealand.

Countries with Restrictive Regulations

China has strictly banned crypto trading and mining, and following that, India has also faced some cryptocurrency problems with regulations. However, it is not outright banned in India.

Here we give a list of crypto businesses not permitted in countries like China, Russia, Egypt, India, Pakistan, Bangladesh, Vietnam, Morocco, Algeria, and Bolivia.

In some other countries with heavy restrictions on starting crypto exchanges, such as Japan, South Korea, Thailand, Indonesia, and Turkey.

All of these countries' permits and no permits for doing crypto business may change because every country is going forward with crypto-based technologies. If you have a perfect idea to do a crypto business then consult with concerned government legal authorities and be prepared accordingly.

Starting The Crypto Exchange Development Process

After that, you get a license, market research, a business plan, and a revenue model, and then you define your project scope, features, and functionalities to create a white paper about your project. That white paper contains a blockchain framework, programming language, problem-solving statement, market analysis, exchange architecture, features, tokenomics, business models, legal regulations, and road map. Once your white paper is ready then you reach your crypto exchange development company, which will provide an idea of crypto exchange development and lead your business on a successful path.

Design Your Platform Architecture

Before starting a crypto exchange platform, you’ll choose your platform for centralized, decentralized, or hybrid exchange. And then choose your development approach in whether to build from scratch or opt for white-label solutions.

Choosing the Right Tech Stack

For developing front-end purposes, people use leading programming frameworks like React, Angular, or Vue.js. For back-end development, they use languages like Node.js and Python, or databases like PostgreSQL or MongoDB. However, they use third-party APIs and SDKs to integrate with their blockchains (e.g., Bitcoin and Ethereum).

Designing Crypto Trading Platform UI & UX

Choosing a suitable and responsive UI and UX design for your platform for the website and mobile apps like Android or iOS. That UI and UX development process includes a user dashboard, trading interface, and admin panel for managing users, transactions, and settings.

User Authentication

User authentication is nothing that a new user or existing user can be entitled to register their presence by registration, login, or two-factor authentication.

Trading Engine

Trading Engine is also known as matching software. This trading engine's internal work is order matching, order management, trade execution, price calculation, transaction recording, risk management, and performance optimization.

Integrate Crypto Wallet

Incorporate your crypto wallet support to make your user experience more flawless when buying, selling, and trading crypto assets. Some exchanges use their own or third-party crypto wallets for their platforms.

Liquidity Provider

Enabling liquidity services on your platform to enhance its usability and trading experience for its users, like multiple variants of trading pairs by integrating Crypto exchange APIs.

Integrate The Front-End And Back-End

All of these technical things should be developed; they're getting ready to merge and get a final product.

Platform Security Implementation

Check your crypto exchange platform encryption level in SSL/TLS for data encryption, 2FA authentication, and DDoS protection.

Incorporate Payment Gateways

Moreover, the latest crypto exchange platforms support fiat currency payment purposes for user convenience in deposits and withdrawals. Also, your payment gateway supports multiple varieties of cryptocurrencies for crypto payments.

Testing

All of this progress has been completed, and your crypto exchange platform goes into the testing phase. That phase includes all types of security audits, such as functional and performance testing. During this testing, if any security vulnerabilities or technical issues occur, the developers can resolve those problems by providing patch updates. Once all the tests are completed successfully, your platform is ready to launch on air for your audience's usage. 

Deployment and Launch

In the launching stage of your crypto platform that uses cloud hosting, like AWS, Google Cloud, or on-premises servers, once you set up your database and other infrastructure components, your platform is ready for a soft launch for some initial beta users. During this period, collect user feedback and fix and enhance your platform's security. After the beta program, your platform is launched for a public audience.

Read: Common Crypto Exchange Development Mistakes to Avoid

Conclusion

In the technologically innovative world, a lot of blockchain related projects and services are growing gradually. Technological acceptance leads to the creation of a crypto exchange platform with a robust level of security and possibly a healthier encashment method. Every successive business platform development needs a perfect solution provider. 

For that, Appticz is the superior crypto exchange development company in all industrial aspects. We deliver industry-grade crypto exchanges from scratch or crypto exchange scripts. The main reasons for choosing our crypto exchange development solution are cost-effectiveness, talented techies, and after-sale support for up to 1 year. Embrace an agile crypto exchange development process to get quicker business benefits from Appticz.