Over the past several years, Skalex has established a reputation as a provider of custom, white-label exchange software for cryptocurrency. During that time, we realized our clients come with varying levels of understanding about what to look for in Bitcoin exchange software and how to choose the best one for their needs. For some simple projects, a standard, off-the rack codebase will handle everything the project needs. In other cases, the project would benefit from working with an experienced development company to create a custom solution.
In this article we’ll examine the important characteristics in Bitcoin exchange software, and cryptocurrency exchanges in general.
- 1. What to Look for in Bitcoin Exchange Software
- 1.1 Architecture
- 1.2 Separation of Concerns
- 1.3 Ways to Generate Liquidity
- 1.4 KYC, AML, and Other Precautions
- 1.5 Intuitive User Interface & Trading Information
- 1.6 Supported Currencies
- 1.7 User Features
- 1.8 Admin Features
- 1.9 Free Demo & Full Documentation
- 2. Your Options: Bitcoin Exchange Software Currently on the Market
- 3. Conclusion
What to Look for in a Bitcoin Exchange Software
Without experience in cryptocurrency exchange software, it’s hard to know what to look for in a potential solution. Some options may seem great until you actually implement them and realize a key feature is missing or the security is less than optimal. In order to avoid the headache of a bad exchange software, we’ve created a checklist of things to look for in any solutions you’re considering.
This is the most important element of any Bitcoin exchange software, because it determines speed, security, and overall usability. For any solution you’re considering, be sure to read the documentation to understand how the software is structured and where requests get routed.
There are various potential ways that a Bitcoin exchange software might be structured, but all exchanges will need a wallet module, trading engine, admin panel, and user interface.
Separation of Concerns
Ideally, an exchange solution should have a separation of concerns. This means it should be module-based. Each module should be separate from the others, only sending requests without having access to the internal workings of the other modules. For maximum security in cryptocurrency exchange, these modules should even be physically separate, hosted on different servers in the real world, each with its own IP address.
In Skalex’s solution, for example, the modules are spread across three separate servers. The user interface and server modules are on one server. The admin and trading engine modules are on another server. Finally, the wallet module is on its own server for maximum security. The three servers do share information, and we can reboot the exchange from the other servers if one server goes down. However, launching an attack against an exchange structured this way would be resource intensive and difficult.
When considering an exchange solution for your project, think about separation of concerns from both software and hardware perspectives. The software should be modular, but the hardware should also be separate if you want high security.
Ways to Generate Liquidity
Another top consideration for any new Bitcoin or cryptocurrency exchange is liquidity. Without it, investors will not have their orders filled in a timely manner. An empty orderbook is likely to scare away customers entirely.
Most exchange software include some method for generating liquidity, but you’ll want to understand how it works and what liability it puts you under. Generally, there are two liquidity generation options. The first is linking your exchange to an account at another, larger exchange. You can then route your orders through that other exchange. The second option is creating bots within your Bitcoin exchange software that buy and sell currency that the exchange owner puts up with one another. This circulates the currency and creates an order history.
KYC, AML, and Other Precautions
Regulatory compliance is another important point for keeping your new exchange legal. The regulations for cryptocurrency exchanges vary depending on where you’re located and where your customers will be. As such, it’s difficult to generalize about regulatory compliance. However, most countries require know your customer (KYC) and anti-money laundering (AML) for all banking and currency exchange institutions. Any good Bitcoin exchange software will have integrations for KYC and AML, and you should verify how that works on any software you’re considering using.
Intuitive User Interface & Trading Information
Good design and access to relevant information is key to providing a good user experience that makes customers want to continue using your exchange. Most quality exchange software include a pre-built user interface and the ability to customize the interface to your needs and branding. They should also provide support for external APIs that provide real-time trading information. One of the most popular external APIs is tradingview.com. Many exchanges use it for crypto and fiat trading data.
If you want customers to be able to trade more than just Bitcoin, you’ll need to make sure that your cryptocurrency exchange software supports other currencies. This largely means that the wallet module in the exchange software needs to be some type of universal wallet that’s capable of directing and holding other types of currencies like Ether or Litecoin.
Any Bitcoin exchange software should include in its documentation a section on which currencies it supports. If you’re buying your software from a reputable blockchain developer, they should be able to build integrations for most other coins upon request.
There are a couple key functionalities that users should be able to perform as part of any exchange.
- If you want to support fiat currency, there should be an option for users to deposit local currency online.
- Buying and selling supported cryptocurrencies in popular trading pairs
- Fiat withdrawal should be simple and fast for users who have sold
- Transfering cryptocurrency to a private wallet for use or cold storage
- Depositing cryptocurrency from an outside wallet for trading
- See trade history
As an administrator, you’ll need permissions and features that let you manage the exchange effectively. Setting up gateways to banks and managing deposits and withdrawals should be built-into the exchange software and be intuitive.
You should also have the ability to message or email all users when unexpected challenges arise. Customer service is a key part of exchange software, so there should be ways to speak privately with users and add administrative staff to the exchange backend as your exchange grows. Moreover, you should be able to control what permissions and pages these new staff can see.
A final consideration is business tracking. The admin panel should include information about volume and profits from trades on your exchange.
Free Demo & Full Documentation
Being able to demo the software and read the documentation is really the only way you can decide which Bitcoin exchange software is the best for you. So, you should only consider running an exchange that you’re comfortable using via a demo and testnet first. Don’t rush into a big decision like this. Take your time to find out which exchange software fits your needs the best.
Your Options: Bitcoin Exchange Software Currently on the Market
The options available out there for exchange software generally fall into four categories:
- Open source – There are a few free, open source projects that make their exchange software available to the public for anyone to use. These can be a great option if you have the technical expertise to implement them and modify them to your needs. However, they can also be a headache because they’re often not intuitive to set up out of the box, and they sometimes lack good documentation.
- Cheap scripts – Some companies sell exchange scripts for cheap. The quality and documentation on these are similar to open source, and you’ll likely run into the same issues assembling and customizing these cheap options.
- Pre-packaged white label Bitcoin exchange software – These are a little more expensive, but they’re vastly easier to set up and use. They often come with ongoing support from the development company that created them. Additionally, if you need customizations, the development company can help you implement them.
- Fully custom Bitcoin exchange – This is the most expensive option because everything is tailored to your needs and goals for the exchange. However, it can be the most effective, especially if you’re working with a novel concept, trading strategy, or business model.
Starting a Bitcoin exchange can be technically challenging and confusing, but it doesn’t have to be. If you don’t have the technical expertise to develop your own solution or use open source code, we recommend options #3 or #4 from above. We’ve got another post on the essentials of starting a Bitcoin exchange that you can check out for more information. You can also read more about our exchange software solution to learn how white label exchanges work and how to get started.