An Introduction on How to make a Cryptocurrency exchange
Perhaps Cryptocurrency is the hottest thing right now. People are setting up mining farms, filling warehouses with GPUs, ultimately ending up investing millions into mining. Amidst all this madness,
What is the ROI of mining cryptocurrencies, is a question which still remains unanswered. It’s certainly far from great, our analysis suggests. The magnanimous Hash rate of nearly 4 Exahash implies just that. For readers who do not understand the hash rate, Hashrate is the unit of miner’s computational power. As mining is just about solving mathematical problems (the faster your computer solves, the more money you stand a chance to make).
Another convincing observation about the bad economics of mining would be the monopoly of big mining farms. The 5 largest mining farms alone account for the 3/4th of total mining capacity in the world. Because of all these reasons, the mining business calls for huge initial maintenance costs, with not-so-fancy returns either. Enters Cryptocurrency exchanges!
Just like mining had great prospects, say 3 years ago, Crypto exchanges are the new bus to making a profit out of this cryptocurrency revolution. This is a guide for anyone who wants to know their way around cryptocurrency exchange, looking to make one for them, or looking for someone to make a cryptocurrency for them.
An Intro to Cryptocurrency Exchange
Cryptocurrency exchanges are online platforms or businesses that allow customers to exchange one cryptocurrency for another. The exchange can be visualized as your regular currency exchange at the airport or like a stock exchange. Cryptocurrency exchanges can be broadly classified into two categories based on the extent of control over the customer’s funds: centralized and decentralized. Some of the great cryptocurrency exchanges are
Centralized Cryptocurrency Exchange
Centralized cryptocurrency exchanges are the ones run by a company or a third-party service. Centralized exchanges can also be classified on the basis of the scale at which the exchange takes place. These can be further divided into Synchronous and Asynchronous.
Synchronous exchanges are small-scale exchange wherein a customer’s request is granted by a single transaction. However, they have a limit to their scaling abilities and are prone to failures when it comes to large volume transactions.
Asynchronous exchanges are the ones that independently process requests through various layers. The interface takes user requests and adds it to a queue. Each queue runs as a service. The request is executed and the status communicated to the interface. All of this is achieved by the service. This kind of exchange can scale to much larger transaction volumes, unlike synchronous exchanges. Each feature of the exchange runs as an independent service.
But the centralized exchanges defy the whole notion of cryptocurrency, as a decentralized virtual currency. This begs a question, isn’t it just naïve to use centralized exchanges when the sole purpose of cryptocurrencies is to strike down the centralized bodies? We think it is, Do you? But Blockchain has a solution for this too. We can just decentralize the exchanges to trade the decentralized currencies. As the function they’re meant for, these exchanges will be called.
The increased number of hacking and theft instances with these centralized exchanges have created popularity of the decentralized exchanges.
The centralized cryptocurrency exchanges store private keys for users on central servers, which is what makes them susceptible to hacking. The tendency of these centralized exchanges being vulnerable to thefts, manipulation, hacking incidents or government takedowns calls for the decentralized (Literally!) exchanges where the investors don’t have to pass their money/coins into the custody of intermediaries. Thus, a Decentralised cryptocurrency exchange is meant to solve the problems related to hacking and fraud which hold the investors back from investing in crypto.
One of the most important features expected from a decentralized cryptocurrency exchange is Token-To-Token Trading. If executed properly, this is a game-changing feature to have in a Decentralized exchange. One way to realize this would be to look at the case in which a person would sell SHOES to buy PYJAMAS, and then buy SHIRTS in exchange for PYJAMAS. It could be much better if he could just get those SHIRTS in exchange for those SHOES, wouldn’t it?
Now replace SHOES with US Dollars that you want to use, SHIRTS with BTC that you want to buy with the US Dollars and PYJAMAS with some XYZ token used as the third currency in most of the exchanges. Get the picture yet?
So, having Token-To-Token trading will eradicate the unnecessary delays, complexity and transaction charges.
Some of the examples for Decentralized Cryptocurrency exchanges are:
1. Waves Dex
2. OpenLedger Dex
3. CryptoBridge Dex
4. Stellar Dex
Cryptocurrency Exchange – The Architecture
To understand the architecture of a Cryptocurrency exchange, have a look at the diagram.
The matching engine must be fast and flexible with minimum latency possible, and able to handle maximum orders per second. If you have a look at how the cryptocurrency exchange works, users can send their bitcoins to the exchange but the bitcoins from the exchange can only be transferred when the minimum threshold of parties agree upon it. These are independent parties who collaboratively control the Bitcoin address associated with the exchange. “Threshold signatures” can be used to achieve this functionality.
Another important component of the cryptocurrency exchange is the Escrow Service. And people across the world are having a really hard time getting the right escrow services for their bitcoin transactions. You should make sure that the escrow services of your exchange are up to the mark if you decide to make a cryptocurrency exchange. The escrow services need to be reliable and free from delays. It is meant to protect the sellers from fraudulent buyers. Some of the marketplaces currently have a built-in escrow service (i.e. LocalBits, CryptoThrift, and BitPremier).
Liquidity is another important aspect to think of when you make a cryptocurrency exchange. Liquidity is basically the ability of a market to allow assets being bought and sold at stable prices. Getting the right liquidity provider is a great idea when you make a cryptocurrency exchange, these liquidity providers can prove to be great assets as they have partnerships with major exchanges which results in a significant increase in the pool of collective bitcoin orders, which is exactly what’s needed to make a cryptocurrency exchange with great liquidity.
The country-specific regulations and other security issues just add to the gruesome task of making a cryptocurrency exchange. That’s where we come in!
How can Sodio help you to make a cryptocurrency exchange?
Sodio technologies cater to mobile applications with Blockchain technology to disrupt your industry and give you a safe alternative. Sodio has a pool of extremely talented and experienced developers who can deliver just the cryptocurrency exchange. Our success with making Rypto & ibexcm is proof of our ability to make the perfect cryptocurrency exchange for you.
Contact us if you want us to make a cryptocurrency exchange for you, or anything related to it.
Feel free to share your thoughts about cryptocurrency exchanges, Bitcoin or even Blockchain in general.