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From selling tokens native to diverse blockchains, facilitating transactions in national currencies, exchanges are the hub of activity in the cryptocurrency space. The most fundamental definition of exchanges relates to the facilitation of online transactions related to buying and selling of cryptocurrencies, but it has a bit more to it.
Exchanges add security features to protect user funds, some crypto exchange offers other asset class like derivatives such as forward, options, and swaps. With the increase in the popularity of cryptocurrency assets since the first peak of Bitcoin in December 2017 more people are using a crypto exchange or exchanges to convert their fiat currency into cryptocurrency or cryptocurrency into fiat.
The most active users of crypto exchanges are traders. These folks live on the returns from cryptocurrency trading on centralized or decentralized exchanges. They use trading data on these exchanges to make the best guess on price movements and rely on the powerful trading engines of exchanges for the execution of transactions that are often profitable.
While there is a lot to exchanges or a crypto exchange, we can start with a pretty simple definition of a crypto exchange or a cryptocurrency exchange, which are platforms that allow exchange users to buy, sell, receive and transfer digital assets or cryptocurrencies in real-time, offering data as well as smart contracts that relay live prices of from the crypto market using price oracles from an external exchange or blockchains.
The cryptocurrency market is growing, and more exchanges are created daily by developers who are either tired of the status quo, or interested in playing a frontline role in the creation of exchanges. There are also companies, emerging from traditional finance into the new promising space of cryptocurrency and blockchain technology. Some successful traders are also using gains from their trades to build a decentralized exchange platform and other forms of crypto exchanges.
In this article, we will focus on cryptocurrency exchange development and crypto exchange development services which are necessary for creating a centralized exchange and decentralized exchange that runs on existing smart contracts written pragmatically by the cryptocurrency exchange solutions developers that built the platform being used for this exchange. We will explore the history of cryptocurrency exchange which includes the act of exchanging and the cryptocurrency exchange platform, providing data transmission, mobile applications, and multiple payment methods for transactions on popular centralized exchanges. Exchange development and the history of trading in cryptocurrency will also be discussed so sit back and read on even though you already feel like this may be too long. You will get so much value for every minute spent reading this article.
The history of cryptocurrency exchange or cryptocurrency exchange development services is not different from the history of cryptocurrency. Even though it might be possible to make some distinction, both processes evolved together so in talking about the evolution of crypto exchange, we will equally talk a lot about the evolution of cryptocurrency and how it all got here from the interesting Whitepaper written by Satoshi Nakamoto to the breakthrough in Dexes like Uniswap.
Cryptocurrencies like Bitcoin are the next stage in the evolution of money and for many entrepreneurs across the globe, it is a new asset class and a once-in-a-generation wealth opportunity. To understand how we got here it is important to understand the history of cryptocurrency. First, it is important to understand that cryptocurrency is the latest attempt to reinvent how we exchange value.
All through history we have relied on some system for exchanging value. The bartering system was the first system for the exchange of value. Although this system proved to be inconsistent in the determination of value. To solve the problem of double coincidence of wants which resulted from battering, gold, and other precious metals were used because they were equally valuable. The exchange of value using precious metals thus faded away with the invention of government-issued notes. The problem with notes as a medium of exchange is that they weren't a good store of value because it is easy for governments to mint as much money as they can, which diminishes the value of the currency.
The consistent thing in the evolution of money is that people prefer convenient and transactional payments. Some economists and historians have pointed to Bitcoin as the most important medium of exchange since gold. Bitcoin was also made possible by the internet and pioneering works of scientists like David Chaum who wrote papers and invented a lot of the groundwork that paved way for the development of Bitcoin in 2008.
He believed that privacy was necessary for the evolution of the internet and a digital economy, but that government and organizations were not ready to provide it which makes it crucial to achieve this with strong cryptography tools. Although Cham's idea was ahead of his days and struggled to gain adoption, they would lay the foundation for the creation of Bitcoin years after in 2008. The company, founded by Chaum, Digicash, declared bankruptcy in 1989 and was abandoned. There was a huge technical difficulty occasioned by internet transactions, as banks and other merchants were deterred by technical difficulties involved in transactions on the internet.
The dot com boom of the late 90s' and early 2000s' led to the launch of the first digital currency, e-gold, which was backed by gold, alongside other digital payments. E-gold was digital and held more than 5 million users at the time. The currency quickly became a hideout for criminals and was subsequently shut down by the United State Government. Technologists in Silicon valley looked for ways to create something similar with a bit more regulation, which led to the launch of PayPal in 1998, a worldwide payment system that supports money transfers over the internet and serves the same function of traditional cash in the settlement of transactions.
There were several scientific and legal proposals published in reputable research journals that defined the setup of a new digital currency. These papers all came before the Bitcoin Whitepaper was published on October 31st, 2008, the day of Halloween.
In the Whitepaper Satoshi didn't just introduce the world to a new digital currency, but a technology that will revolutionize the world forever. Bitcoin allows anonymous and secured transactions and can only be earned through purchase on an exchange or an equally demanding process known as mining. The first exchange of bitcoin which we can describe as the peer-to-peer exchange was in May of 2010 when Florida programmer, Lazio Hainex purchased 2 pizzas worth $25 with 10,000 bitcoins. The transaction established the first use case for Bitcoins as a means of payment for something of value.
Following this transaction, Bitcoin holders knew they could sell their Bitcoin and started trading the asset on exchanges like Mt. Gox and Trade Hill. The price of Bitcoin significantly increased as a result of these transactions from 1/4 of a cent to 8 cents in 10 days. By November 2010, Bitcoin's market cap reached a million dollars, and later in 2011, Bitcoin started selling at par with the US dollar. Bitcoin was still stigmatized, but this stigmatization kept winning the currency some popularity until the charts were broken in 2017.
The period between the crypto December of 2017 till today has been marked by the creation of thousands, if not millions of exchanges or crypto exchanges. Developers and academics alike have worked to build centralized, decentralized, and hybrid cryptocurrency exchange platforms that serve the same purpose of helping people transact in cryptocurrency and possibly exchange goods and services for cryptocurrency. The launch of Ethereum in 2017 exposed the cryptocurrency space to the magic of smart contracts and with it, the setup for decentralized cryptocurrency exchange development was formed.
After Bitcoin and the subsequent boom came several crypto exchanges and blockchains and which were the original trigger for the rise in the number of exchanges and the need for cryptocurrency exchange development services. The first decentralized cryptocurrency exchange launched in 2014 was NXT, although, the platform had several shortcomings that made it a poor representation of decentralization.
The famous colored coins problem means creating assets on an existing blockchain. Tokens could not be traded directly on NXT exchange, and the pairs were tilted towards NXT, the native token of the NXT platform. Transfer of assets was limited to certain wallets and you must have a certain balance in the native token to perform transactions on the NXT exchange. Although centralized exchanges like Bitcoinmarket.com were the true first on the line, users quickly became disinterested in these forms of exchanges because they left the fate of the many holders of the cryptocurrency in the hands of a few owners of the exchange and the wallet used by these exchanges are often targets for hackers leading to loss of funds in hacks like the Mt. Gox hack and Bitfinex, Bithumb, and Binance hacks which rekt the exchange in some cases.
Subsequent development in decentralized exchanges featured protocols that are reliant on specific chains, reliant on specific smart contracts in the case of Ethereum, and the currency agnostic or protocol-based referred to as partially decentralized exchanges. The third generation of decentralized exchanges leverages the Ox protocol to decentralize order books, and many decentralized exchanges use this bridge. The intimate problem, however, is to create a truly decentralized exchange that doesn't serve as a middle man and offers limitless interoperability. These sorts of decentralized exchanges are the fourth generation exchanges that offer true decentralization and cross-platform compatibility.
So the evolution of cryptocurrency exchange started from centralized exchanges which use the order book model to connect bidders with askers, thus settling the corresponding transactions. Centralized exchanges have high liquidity because they are still the most commonly used platform by holders and traders of the cryptocurrency. Most of these exchanges also have established P2P setups for the exchange of cryptocurrency, especially stablecoins to cash. Others offer direct payment of fiat from a centralized account in countries where regulations are cryptocurrency-friendly. Centralize exchanges charge minimal fees to medium compared to other kinds of exchanges, although safety is low on these exchanges because the cryptocurrency used for transactions must be kept in hot wallets where it can be available for transactions 24/7. The exchange is in the custody of the tokens of users, and as we mentioned before, they make fiat available on demand.
The next category of exchanges such as Pancakeswap, Uniswap, and 1inch is decentralized because they do not hold user funds. Instead, the workings of the exchange are determined by smart contracts programmed to work based on functions that for example relay live prices. These smart contracts also balance the available funds in the liquidity pools regularly to prevent attacks or a discrepancy in prices. Decentralized exchanges have low liquidity because the availability of funds depends on the willingness of users to keep their funds in the protocol which is used to facilitate transactions. Fees on decentralized exchanges are low, at about 0.25-0.30% for each transaction. They are safer than centralized exchanges because their users retain custody of the funds, but they do not make fiat available which means that holders need to move funds over to centralized exchanges or look for peers who need the tokens they hold and are willing to accept what the sellers have for transactions.
The other category of exchanges is peer-to-peer cryptocurrency exchanges and instant exchanges. Peer-to-peer exchanges are like traditional ad boards where sellers list their intention to buy or sell cryptocurrencies and the details about how they intend to settle transactions. Peer-to-peer cryptocurrency exchange transactions could be settled using gold, fiat, or other physical goods and services. There are no transaction fees, although the speed of execution is sometimes low, and there may not be enough liquidity. The last category known as instant exchanges is liquidity pools of several exchanges. All that is required of the user is to open a trade order, and it will be quickly executed. These exchanges are easy to use and offer a large number of trading pairs.
So we have seen that exchanges can be centralized, decentralized, peer-to-peer, and instant. Each type of exchange mentioned here has a shortcoming which we also highlighted. We will not move further to understand the workings of a crypto exchange and the crucial points in cryptocurrency exchange development services.
Cryptocurrency exchange development is the art of exchange development. More than writing codes and the technology stack, exchange development involves putting the process of creating the right environment for cryptocurrency exchange. To create a decentralized or centralized cryptocurrency exchange, you must keep the factors needed for a successful crypto exchange platform. Missing any step in the planning as well as the execution of these stems amounts to bad practices that a cryptocurrency development company offering exchange development services must avoid at all costs.
The functionalities you need for your cryptocurrency exchange can be divided into modules. The most crucial of these is identity verification, although this is not necessary for decentralized and P2P exchanges. Verification and authorization may not sound decentralized but if your crypto exchange must build a good reputation in the crypto space, you must pay attention to authorization and verification in your crypto exchange development. Will your crypto exchange users be able to verify their account via email, social media, or on your cryptocurrency exchange platform? These steps are crucial if you must stay transparent and reduce the possibility of fraud on your cryptocurrency exchange platform.
The next important part of the exchange development of a cryptocurrency exchange is the trading engine. It is the prime-mover of the exchange crucial in every interaction between the user and the cryptocurrency exchange. The trading engine ensures that traders have enough balance to execute a trade. It compares and matches orders on the cryptocurrency exchange order book, and ensures that information and accurate and updated live on the exchange charts.
Your exchange user interface is the point of interaction between the trader and your exchange. To attract professional traders who will contribute immensely to the liquidity of your exchange, you must provide live charts, trading indicators, tools such as stop-loss, and real-time order book stats. Having this on your exchange may not be enough as you must make it possible for these traders to customize the analytical tools for your exchange.
The cryptocurrency exchange admin panel is the seat for controlling and tracking user activity such as the number of transactions, affiliate program earnings, verified users, user activities, and returns from trading transactions. The admin panel should also be able to trigger sanctions in centralized cryptocurrency exchange development. Binance and some other exchanges do not allow users from specific countries where the regulations are anti-crypto to access their websites. The platform triggers a warning when it detects IPs from these locations. Automated or manual freezing of accounts in cases of fraudulent activities should also be achievable from the admin panel.
A central cryptocurrency exchange wallet is also crucial in exchange development. Think about how it will be possible to execute millions of transactions in real-time and support fiat to crypto and crypto to fiat transactions wherever this is possible. With a centralized wallet, you can offer a high level of liquidity to your users and make exchanges to a cryptocurrency from various cryptocurrencies possible. Fiat to crypto transactions can also be easily settled from the central exchange hot wallets.
Centralized cryptocurrency exchanges use the order book model to determine the price of the cryptocurrency with the lowest slippage. An order book groups transactions and settles based on the closest match between buying or bidding price, and the asking or selling price. An order is settled as soon as the set conditions for the exchange are met. The order book is a visible live list of bids and asks prices on most exchanges and it sometimes helps professional traders decide on when to open or close trades.
The next part we will look at in the exchange development of cryptocurrency exchanges is the analytical tools that help traders to predict and analyze trends in the cryptocurrency market. You must decide the basic indicators that will be available to users of your platform. These indicators include moving averages, RSI, MACD, and traditional candlestick charts. Most exchanges use relay chart data from existing platforms like Trading View.
Notifications are also necessary to consider in exchange development because they keep users of the exchange updated on what is going on in the exchange. Typical push notifications available on exchanges include listing notification, network downtime and upgrade notification, new pairs notification, feature notification, promotion notifications, and rate notification. It is important in exchange development to always allow users of the cryptocurrency exchange to choose their preferred notifications.
Security is also another crucial step to consider in building a cryptocurrency exchange. Hacks are the biggest challenges cryptocurrency exchange platforms face. Hackers have stolen about $570 billion from centralized exchanges alone in the past decade. Cryptocurrency exchange development is therefore about protection, and that protection comes from taking measures to protect the exchange from denial of service or DoS attacks, HTTP parameter form pollution, distributed denial of service attack (DDoS), server-side request forgery (SSRF), cross-site request forgery (CSRF), two factor HTTPS authentication, biometric authentication, data encryption, and sequel injection.
Compliance has also become crucial in the development of cryptocurrency exchange platforms. Exchange development, especially in the North American, and European market now requires that the cryptocurrency exchange conduct KYC verification using documents that must be provided by the customer. You can implement this using your database, psychoanalytic electronic publishing, etc. Know your transaction measures (KYT), are also crucial in exchange development. The exchange must be able to spot transactions involving stolen funds and freeze the corresponding account to build a collectively safe cryptocurrency exchange and space. Anti-money laundering compliance regulations for exchange development require that the cryptocurrency exchange must have at least an officer responsible for compliance with the various anti-money laundering regulations in the areas where the cryptocurrency exchange operates.
Since executing millions of transactions can only be achieved when the exchange has so much liquidity, it may be important to use other means to source liquidity for the settlement of transactions while in the exchange development phase. Third-party market makers can enter trades on other platforms to provide liquidity for the exchange they work for. It is also possible in exchange development to enter into an agreement with another crypto exchange to make liquidity available on your platform. Liquidity mining is the method used by decentralized exchanges to create liquidity. It involves rewarding the users for locking their funds in the exchange to ensure that liquidity is available for transactions.
Software development for exchanges is usually important for efficient data transmission and it is important that your own cryptocurrency exchange does not rely on a cryptocurrency exchange script that may contain loopholes, anyway, because they are often built by amateurs. To protect the digital assets stored by users on your exchange, you must properly consider the software development aspect of your project, perhaps more than anything else. The first step in software development is the architecture of the project from where we can go the advanced security protocols and considerations to safeguard digital assets stored.
Exchange developers must design the architecture, which gives a visual feel of how everything should work when the crypto exchange platform is completed. It diagrammatically defines the interaction from the front-end of the exchange to the back-end. The architecture consists of the details of the API, database, and security function of the website.
The next part in the technical aspect of a centralized and or decentralized exchange development is the technology stack which includes a range of development tools like libraries, frameworks, database management systems, and APIs for the back-end and the front-end of the platform. Programming languages for crypto exchange platform development include Java, PHP, laravel, and Mean Stack. You can set up databases using MySQL, MongoDB. For servers, Linux server, MySQL DB, Apache, and Php can be great. PHP, laravel, and codeigniter can sever the front end of the website. Kotlin, Swift, and Java are important for Android and IOS mobile application development of the crypto exchange platform software. We will not take a broad look at the types of cryptocurrency exchange development services.
Cryptocurrency exchange development is a complex process that must be done carefully. There are, however, specialized entities that specialized in cryptocurrency exchange development. It is advisable in crypto exchange development to use the services of these entities so long as the person or group that intends to build the cryptocurrency exchange is not experienced in cryptocurrency exchange development. The first point of contact with these entities is usually through phone, after which you can proceed to sign a contract with the entity.
Next in line is platform prototyping. The job done here in the crypto exchange development process is to discuss and consider all factors necessary to bring the ideas to an ideal state. The next in the cryptocurrency exchange development process is the conceptualization of using Figma and various design tools that will help bring the project to life. The designed prototype can be shared with the client to see if it matches what they are looking for. If all that is settled, the next step is the actual programming and setting up of the front end and back end of the website using codes. If this process is successful the entity in charge of the cryptocurrency exchange development or crypto exchange development proceeds to test the product. There are trained specialists in this who understand the possible areas of weaknesses and are able to check and provide detailed feedback about what has been built. If this stage of the crypto exchange or cryptocurrency exchange development is successful, the website is launched and support is provided as agreed.
The two entities mentioned earlier in the previous section of this article are freelance developers and a cryptocurrency exchange development company providing services such as the development of centralized or decentralized exchanges. It is best to work with either, especially when they have a verifiable track record of success and years of experience working in the space. Working with amateurs will amount to poorly developed platforms that can easily engage user funds, which is why it is important to reiterate that no matter how fun it seems to use scripts, they are not the ultimate option available out there.
There are also specialized cryptocurrency exchange development companies or companies that design smart contracts, back-end, or front-end and products exclusively. You can go with these kinds of cryptocurrency exchange development company, but you must keep in mind that you will get nearly the same value if you use a company that has specialists for every aspect of your project. Freelancers and individual developers are great too, but the size and scale of what you are looking for may quickly wear them out and completion or launch of projects built by individual freelancers can take time which also means business is left on the table.
At Rejolut, we help you ideate, prototype, and encode your plans for a decentralized, centralized, or peer-to-peer exchange. We can also help you with instant exchanges and newer kinds of setup that may not have been done ever before. Our skills and combined years of experience developing on diverse technology stacks and blockchains set us apart from our competitors as the preferred cryptocurrency exchange development company for building leading exchange platforms, trading tools development, cryptocurrency exchange software, and sto exchange platform development. Our crypto exchange software is tested by experts for guaranteed security features crucial in urgent security measures. We can help you create and launch a hybrid or any other rare setup you prefer. We also offer complete support, internal systems, encrypted user access.
In this article, we have seen the history of cryptocurrency exchange and the types of exchanges that are available to cryptocurrency users in the cryptocurrency space. In the course of writing this article, we have looked at the interesting stories of Bitcoin since the 1980s' all the way to 2009 and today. We explained the cryptocurrency exchange development process, letting you understand that business growth may prompt further development of exchanges. We talked about the types of entities that can help with cryptocurrency development, discussing the pros and cons of each. We went further to look at the reason why you should choose some companies for the value they can add to the process of bringing your idea to life.
A cryptocurrency exchange development company may seem the best in the art, but if you question such a cryptocurrency exchange development company about what you have learned here and the cryptocurrency exchange development company is unable to respond, then you had better hold on. A good cryptocurrency exchange development company must be familiar with the concepts explained in this article. You can also check for red flags when you are looking to work with a cryptocurrency exchange development company, by talking about some of the steps in the software development process. Even though a cryptocurrency exchange development company may differ in their approach they must at least agree on something mentioned here. Security token exchange development is also an aspect of cryptocurrency exchange software development. Happy launching!
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