What does it cost to build a crypto exchange? Not as much as you might think
A few weeks ago, I read a tweet from Changpeng Zhao, CEO of crypto exchange Binance, that the trading volume overcame the one from the last Bitcoin bubble of December 2017. The total crypto market cap already exceeded all-time highs from the same period. Take into consideration that exchanges charge trading fees from 0,1% to 4%. That sounds like a pretty good deal in the above context, don't you think so?
Now it seems is a good time to start your own crypto exchange. It's one of the best and fastest ways to make money in the crypto industry, if you want to build-up something and not just HODLing your coins. And be aware of this, even CZ started from almost zero in 2017 and now he owns the biggest and most successful crypto exchange on the planet.
- Development crypto exchange from scratch:
- Security of the crypto exchange
- Purchase a white label crypto exchange
- Customize a white label crypto exchange
- Comparison of the solutions
- Final summary
3 ways to develop the crypto exchange
Think of 3 basic ways, how to develop the crypto exchange. Let’s describe those to give you some basics in this topic, including the comparison of the crypto exchange development cost.
1. Develop your crypto exchange from scratch
Developing your crypto exchange is a challenge because it includes a lot of hard work and effort put into it. For instance, you need a close-knit team of experienced developers, thoughtful analysts who can calculate risk, and without exaggeration a significant financial investment.
Developers, who can program a cryptocurrency exchange must be well paid and even a wide team could work on the exchange for about a year. If you consider the debugging process as a necessary part of the whole complex work, this task will be very time and money consuming for your company without a doubt. Cost to start a cryptocurrency exchange developed under your own steam will be much higher than some other possibilities we will describe later in this article.
But all the spent resources could turn into very prosperous commerce if your business plan is worthy enough and the development work is done properly. The final result must be perfect and flawless because the exchange is handling the cryptocurrencies of the clients.
When developing your crypto exchange, all these important parts should be implemented.
a. Matching engine
The matching engine is the core of the crypto exchange. It’s an electronic system that collects all the open orders and bids and executes trade by matching up to them together.
Open orders get collected in the order book, where both buy and sell orders sorted by price and timestamp. So, the trade can be executed if supply meets demand, otherwise, it can be canceled.
How does the matching engine work? Its algorithms keep information about all open orders and while the two reverse orders equal, they both get fulfilled and the trade is executed. Algorithms of the matching engine can execute different kinds of orders, such as a market order, a limit order, or a stop-limit order.
It can use various algorithms to match the buy and sell orders. The most common algorithm is First-In-First-Out (FIFO) that prioritizes the orders based on time. For example, if there are two equal orders, the engine will choose the order that was first to enter the system.
The matching engine is a very complex piece of software because it collects and synchronizes data from various trading pairs at one moment. Developing a robust matching engine that allows processing orders in a few microseconds is a very time-consuming process worthy of experts in the field.
The performance of the matching engine determines the overall efficiency and reliability of the exchange, its features, and the order matching system.
There need to be mentioned, that when developing a crypto exchange from scratch, the process of maintaining software upgraded never ends. Self-developers need to keep the team of software engineers at attention because it doesn’t work that way that once the exchange is built, it can be forgotten and it’s not developing anymore.
b. Trading platform
The trading platform is the software that allows traders to place orders and manage their trading accounts.
The trading platform includes several components, which are necessary and interconnected, including at least server-side with the platform's trading engine, client-side in the form of trading terminals, and various auxiliary services and APIs that make the platform available for subsidiary integrations.
The trading platform is a crucial element of the crypto exchange because the level of development responds to its usability. It needs to be fast, that it can attract the users, otherwise they won't feel good on your cryptocurrency exchange. It needs to contain those specific components that must be developed, such as wallet balance calculations, crypto-asset transactions, purchase transaction management, and access to the book of orders.
c. Liquidity aggregation module
Liquidity is a measure, how quickly and easily one asset can be converted into a second asset without having any significant effect on the stability of the spot price.
Let’s give you an example. The client wants to purchase 10 BTC for the market price because he needs it for some other purposes. Let’s say the current price on the market in the order book is 19 000 USD. If the liquidity on the market is low, the first 2 BTC are purchased for the price of 19 000 USD, but the order price of the other 8 BTC is 19 500 USD. The average price of the newly purchased 10 BTC was 19 400 USD.
The same trade could be realized with the average price of 19 010 USD if the level of liquidity on the market was high and the 6 BTC are purchased for the price of 19004 USD and the rest 4 BTC at the price of 19019 USD. So, the difference for the buyer is, in our case, 3 900 USD. Do you think the customer will make the same trade on the low-liquidity exchange next time when he has a chance to use some different one with higher liquidity?
As we see in the example, liquidity needs to be taken into account when building a crypto exchange. The liquidity aggregation module is designed for adding external providers and internal market-making algorithms. It’s simply a tool, which helps you to achieve the best possible liquidity from an unlimited number of providers that are collected and connected to your crypto exchange.
The maximum level of security is required for the development of cryptocurrency and fiat wallets. Crypto wallets store cryptocurrencies and allow deposits and withdrawals when needed. They can be done for several types of cryptocurrencies, that will be available for deposit in the cryptocurrency exchange.
Fiat gateways are necessary for depositing and withdrawing fiat money, such as USD, EUR, CAD, and other various types of currencies. The smooth communication between crypto exchange and banks and other fiat gateways is mandatory.
The team of developers needs to research and learn new types of cryptocurrencies and new kinds of wallets all the time because customers enjoy trading new coins a lot.
e. Trader's Room
Trader's Room is a joint place, where the user can monitor one’s cash flow. This includes every connected payment system, financial reports, and data analytics. Think of it as a client’s multifunctional tool to manage all the assets in one place as well as the registration and verification instruments.
The trader's room, once built, serves as it is. The improvements, when needed in the future, could be handled easily by the experienced self-developers.
f. Admin Panel
Admin Panel serves the founder (or CEO) of the crypto exchange to monitor the whole payment system including all the wallets and also transactions that happened on the exchange.
Admin Panel, because it serves the highest-ranking member of the company in charge, also includes the KYC / AML modules and reporting & analytic tools necessary for compliance with the legal aspects of the crypto exchange.
It can also provide further customization of the site and enable users to use new features that might be added continuously in the future.
User interface (UI) and User experience (UX) might not seem to be a big thing when focusing on high-security aspects and usability of a crypto exchange. But intuitive UI and user-friendly UX is a crucial point of all the web services nowadays, not just crypto and stock exchanges or broker services.
The design of the website should be modern, attractive, fresh, and trustworthy at the same time. Today's times are extremely fast thanks to the internet and modern technologies, so optimal display speed is a must.
Responsive design for all kinds of devices such as smartphones or tablets is also one of the key factors of successful websites. The decision of which device to use must be left to the users.
Security of the crypto exchange
Crypto exchange needs to be end-to-end encrypted. The importance of storing assets on both hot wallets and also cold wallets is the key to risk spreading. All of the security aspects have maximum priority because the place (an exchange) with a huge amount of crypto assets is a pot of gold for hackers all over the world. Avoiding all of the critical points that can occur to the security breach is a time and money consuming process.
Hacker attacks happened from the time crypto started existing. One of the first and from that time also the most memorable hack was made on Mt. Gox bitcoin exchange, which at those times handled over 70% of all bitcoin transactions.
The list of exchanges that have been hacked in the past includes “big names” such as Poloniex, Bitstamp, Bitfinex, Bithumb, and even Binance, one of the biggest crypto exchanges today! So even those brands are now aware that security breach is one of the most critical points in the exchange business.
Crypto exchange development costs will include a professional team, at least a year of their time, millions of dollars, and further support. And even then, you can’t be 100% sure, that there aren’t any security gaps.
Development can be justified if you have access to significant financial resources, you know exactly where to get a team of experts who will not let you down, and time constraint does not affect you at all.
Crypto exchange from the scratch conclusion
Developing your crypto exchange from scratch is a great idea when there is a desire to have all the processes under control and to have the result exactly how it was considered. But it also means to put a lot of effort, time, and to pay a high cost to start. There are many risks involved in the whole development process, including the security risk in case of any bugs or flaws. A strong development team is necessary for not just building the exchange, but as well as the maintenance of the key parts such as the matching engine or the trading platform. The competition in the crypto exchange business is such that a year of development can bring you a significant delay in catching up with the adoption that the rivals gained during that time.
2. Purchase a white label crypto exchange
White label cryptocurrency exchange cost is much lower than in exchange built from scratch. It's also a good way to save time and money if the most important thing for you is to deliver a well functioning product on time.
White label crypto exchange is such a solution, where the software provider will not just hand over a final solution, where it includes such complex components like a matching engine, trading platform or the liquidity module, but is then taking care of the emendations.
You need to ask yourself, what cost of cryptocurrency exchange responds to your requirements. And why spend a lot of money and resources on the development, if you can buy the off-the-shelf solution.
The time might be important to you more than the uniqueness of the final product. Entering the market in a few weeks might bring you a significant advantage when compared to the postponement by one year or more due to the self-development and debugging.
After purchasing the white label exchange, the client can immediately enter the market with the end-product. The client simply pays here for the saved time when compared to the exchange developed by himself. And also, for the minimization of risks, that are involved in self-development.
When choosing a software developer, where you want to purchase your white label crypto exchange, focus on the past experiences and solutions provided for the clients before you. There is of course a risk involved when you will choose someone with a poor experience – you simply do not want to be the one, on which the products will be tested, but the one, who gets a functional product verified in practice.
The white label solution is a good option for those who want to get up and running quickly without spending extra money.
3. Customize a white label crypto exchange
Customization is kind of a compromise between the first two mentioned options. The client chooses an off-the-shelf solution that is then adapted to the customer’s requirements.
The client doesn’t need to be satisfied with white label crypto exchange at the first impression and wants to customize and adapt it to his own needs. Customizing might mean adding new features, modifying them, and testing them.
Simply put, a customer takes the engine and wraps it as he wishes. This option is more expensive than a white label exchange, because of some additional work of the software company, but cheaper than self-developing the crypto exchange.
The reason for customizing something, what has been already developed and offered off-the-shelf is obvious. Try to imagine yourself when purchasing something quite simpler than a crypto exchange - the website. Do you think that you will be satisfied with the template solutions, which can be found elsewhere? Or there will be some things asking for improvements and your own ideas how to make it better with respect to your needs? The answer will vary, but let's be honest, your website (or crypto exchange) will be something that will represent you and you would like to have it perfect.
Most software developers, that are offering white label crypto exchanges, have already a perfect solution for such an intricate product like a liquidity module or a matching engine, proved by time and by previous users.
But every single exchange should be a bit unique, because every customer has a different idea of how it should look and work. This is where the customized solution is desirable.
Bespoke solution is that suits customers and at the same moment saves time, money, and energy in comparison with developing the cryptocurrency exchange from scratch.
A custom white label solution is the best choice if you are pressed for time, but are willing to spend a little more money to have the final solution customized to your business.
Comparison of the solutions
What cost of cryptocurrency exchange delivery does each solution imply? What are the other advantages and disadvantages of them? That’s exactly what we focused on in this comparison table.
|Self-developed crypto exchange||White label crypto exchange||Customized WL crypto exchange|
|Difficulty||Difficult to develop||Easy –> Buy&Use||Easy|
|Price demands||Expensive||Cost-effective||Not so expensive|
|Time-consuming||Over 1 year||A few weeks||A few months|
|Customizability||Exactly as expected||Off-the-shelf solution||Improved|
The customer has 3 options to start his own crypto exchange business. The first one is developing his crypto exchange from scratch, which is a time-consuming process. Cryptocurrency exchange development cost is also higher than in other options, but the final result is exactly as requested. The task itself is choosing and maintaining a team of experienced specialists in this field – otherwise, there is a risk of losing invested funds as well as the reputation due to any slight mistake. It should be mentioned that it’s also important to maintain the engine and update it whenever the market conditions change, which costs money on software improvements continuously.
The second option is buying a white label crypto exchange, which will take much less money and allow customers to enter the market as soon as possible. Within this solution, the white label software provider is responsible for the maintenance in the future, which saves time and energy, because there is no need to keep the team of experienced professionals under the roof.
Adapting white label exchange to customers’ needs is something between the above-mentioned options. The customer doesn't need to reinvent the wheel, but he will get the solution that meets all his demands.
You need to ask yourself if you can afford to maintain the team of developers even after the completion of the exchange, or if it’s better to use the solution, that has been already built and tested by others. Take into account the time delay in launching the exchange, which also means a delay in profits.
Soft-FX offers clients ready-made white label crypto exchange, which can be then modified and added some functionalities into it. White label exchange is composed of our products: Matching engine, Liquidity Aggregation module, Trading Platform, Trader's Room, Wallets, and Admin panel, while the customer will then only pay for the website and advertisement.
Just go and pick the solution, that suits you the best, and start your crypto exchange business today! Your future self will thank you for today's decision because as you can see from the real-world examples, this industry is growing regardless of the situation in other business sectors.