The term “Cryptocurrency” has revolutionized the world in such a short period of time. A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Cryptocurrencies are digital currencies of decentralized networks based on blockchain technology which is a distributed digital ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are not issued by any central authority, thus eliminating the involvement of third parties.
Create a Cryptocurrency Exchange Business
Cryptocurrency has taken over the business world by storm, its rise to fame is massive. The number of business bodies using cryptocurrency as a mode of transaction has increased significantly. This tremendous rise of cryptocurrencies is because they are more reliable, efficient, safe, and secure compared to traditional fiat currency.
The creation of a cryptocurrency exchange business is challenging since many exchanges are being introduced in recent times and the competition is very high.
What is a Cryptocurrency Exchange Business?
A cryptocurrency exchange or digital currency exchange is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as traditional fiat money or other digital currencies.
This is the common mode of exchanging cryptocurrencies. In order to trade more professionally or to have a bigger stake in cryptocurrency, an exchange that requires the user to verify his/her ID at an open account is used.
Bitcoins, Ethereum, and Litecoins are the most commonly used cryptocurrencies in the digital market exchange.
There are four types of exchanges used in cryptocurrency exchange businesses.
Centralized Exchange
The centralized crypto exchange is one of the most important driving forces for transacting. Centralized cryptocurrency exchanges are online platforms used to buy and sell cryptocurrencies. They are the most common means that investors use to buy and sell cryptocurrency holdings.
In the term of centralized cryptocurrency exchange, the idea of centralization refers to the involvement of a middle man or a third party to help conduct transactions.
Decentralized Exchange
A decentralized exchange is an exchange market that does not rely on a third-party service to hold customer’s funds and information. Instead, trades happen directly between the users through an automated process.
Systems like decentralized exchanges can be established by creating proxy tokens or assets or through a decentralized multi-signature escrow system, among the solutions.
P2P Exchange (peer to peer exchange)
Peer-to-peer exchanges are marketplaces where people can exchange or trade crypto directly with each other. They provide a technical platform on which buyers and sellers can settle trades on their own terms. Unlike traditional exchanges, they don’t process any fiat payments or hold users funds in custody
Hybrid Exchange
The limitations of both centralized and decentralized crypto exchanges led to the creation of the hybrid cryptocurrency exchange. This specialized crypto exchange combines the positive features of centralized and decentralized exchanges.
The hybrid crypto exchanges address all the shortcomings of centralized and decentralized exchanges. Hybrid Exchange adopts the usability and liquidity of centralized platforms and the anonymity and security of decentralized platforms.
Future of Cryptocurrency Exchange Business
Over the years it has been observed that cryptocurrencies have been highly volatile and component, especially Bitcoin. This volatility mainly depends on the decisions taken by the financial institutions on the usage of Bitcoin.
In the near future, it is predicted that the profits once made by miners by creating new blocks will reduce to such an extent that they will be negligible.
Cryptocurrency is only in its initial stages, so it is too soon to assume whether a cryptocurrency will be the future of money or what will be the impact of Bitcoin in the coming years.
Workflow of Cryptocurrency Exchange Business
Cryptocurrency exchanges are websites where the user can purchase, sell or exchange cryptocurrencies such as bitcoin, litecoin, ethereum, etc, for other digital currency, or traditional money like INR or US dollar.
To trade more professionally or to have a bigger stake in cryptocurrency, the exchange requires the user to verify his/her ID at an open account. If the user wants to trade directly or to purchase a small amount, the user can also find other platforms that don’t require any identity verification.
A seller of BTC(bitcoin) or any altcoins deposits BTC with the exchange’s address. The user can use his/her positive BTC balance in the exchange to sell the BTC for INR or USD.
Similarly, a buyer of BTC deposits USD with the exchange and then uses the balance to purchase BTC from the sellers. The cryptocurrency exchange business is done virtually in a cryptocurrency exchange where the user can convert the fiat currency into cryptocurrency using credit cards, debit cards and bank transfers.
When the user receives the cryptocurrency, it can be moved from one exchange to another exchange and from one wallet to another wallet. But in order to initiate that flow, the user needs to purchase the initial coins from the exchange.
Features of a Cryptocurrency Exchange Business
Security
Security is one of the most important features in the cryptocurrency exchange business. It’s very important for the customers to know the investment details of the transaction. Thus, the exchange evaluates all security and safety features for each exchange.
Ease of Use
Cryptocurrency exchanges are composed of intuitive and easy-to-use interfaces which are very useful for users who are new to the cryptocurrency exchange platform.
Customer Support
The customer support feature is in-built in the cryptocurrency exchange platform which is available all the time for the users to help them with any problems they encounter.
Stop-Loss Function
The cryptocurrency market is very volatile in nature. The stop loss function on an exchange would ensure that the losses are minimized by automatically making a sale at the price set at the stop limit.
Benefits of Cryptocurrency Exchange Business
Reduction of Hacking Risk
Users of the crypto exchanges do not need to transfer their assets to a third party. Therefore, the risk of getting hacked is eradicated and the users have assured safety from hacking and theft.
Prevention of Market Manipulation
Due to the nature of allowing peer-to-peer exchange of cryptocurrencies, the cryptocurrency exchanges prevent market manipulation, protecting the users from fake trading and wash trading.
Anonymity
Cryptocurrency exchanges do not require customers to fill out KYC forms, offering privacy and anonymity to users.
Creation of a Cryptocurrency Exchange Business
In order to create an exchange trading system, the developer would require the following app-building aspects:
- Design
Design is the first step in order to create a cryptocurrency exchange platform. The design for the platform should be composed of usability and efficiency. The design creation includes the following stages.
Wireframes:
It is the base of the future design where its key features are implemented.
Prototype:
It is the detailed visualization of the user’s interaction with the application that allows preventing possible UX-related issues.
- Client-Side Development
Client-side development is the web part where the application contains the client-side logics of all the pages of the website and is based on the previously created design. The developers usually make the design work by HTML, CSS markups, and javascript programming language including React.js and Vue.js frameworks.
- API ( Application Programming Interface):
API is the back-end part of the application that is not visible to the end-user. The server part of the application is responsible for performing the application’s internal logic and handling the basic functions.
- Blockchain
Blockchain is the part that is responsible for the actual processing and storing of data regarding the trades between the users in a safe and secure environment.
- Testing
Testing is the most important stage for cryptocurrency exchange businesses because this is the stage where the existing bugs are eliminated within the logic as well as within the UI before launching the application.
- Security
Since the application is storing sensitive data about the users, it has to be properly protected from hacking attacks and data leaks. In order to implement security to the platform, two types of methods are introduced to secure the data.
- Secure Architecture.
- User’s authentication.
Conclusion
Considering the popularity of the crypto exchange all over the world right now, it is understandable that more people are interested in cryptocurrency and more people are investing in the exchange.
Digital currency exchange provides great opportunities for the users who are just getting introduced to the world of cryptocurrency or to the users who are already very well experienced in it. Since cryptocurrency is a growing field and its potentials are yet to be explored.
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