How to ensure the profitability of a Cryptocurrency Exchange?

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    By Amee Mehta
    Jun 1st, 2020
    A cryptocurrency exchange, in simplest terms, is a business that allows users to exchange digital currencies for other assets. This is also known as DCE, or Digital Currency Exchange, and allows people to trade cryptocurrencies with conventional assets like fiat money or even other digital currencies. As of today, there are numerous cryptocurrency exchanges available for use. As we all know, the blockchain ecosystem has never been in the legal-good-books, and many cryptocurrency exchanges had to bear its brunt. However, one of these exchanges was Binance, which kept soaring higher even in the most challenging times. Binance is a crypto-to-crypto exchange that came to existence in mid-2017, and ever since has captured a significant share of the cryptocurrency trading market share. Binance is one of the world’s largest crypto exchanges, in terms of daily trading volumes. Its CFO, Wei Zho, said in 2019 that their business remains profitable, despite the market downturn. He made his remarks in an interview with CNBC on Feb. 14. Even without his remarks, the performance of Binance as a crypto exchange was always top-notch; it was always ranked under the top 5 exchanges in terms of the trading volume. This unadulterated success of Binance has puzzled and even motivated Blockchain enthusiasts far and wide. People are actively inquiring about the revenue model of Binance, and are looking for the biggest cryptocurrency exchanges to look into. The revenue model of Binance has become a thing to ponder over, and creating a cryptocurrency exchange like Binance is seen as the next big challenge! In this rather elaborate post, we’ll be taking this challenge head-on. Our focus is to guide you in building a profitable cryptocurrency exchange like Binance.  Let’s first begin with the basics. What is the revenue model of Binance? What are the financials behind Binance’s development that make it one of the biggest cryptocurrency exchanges?  Let’s see. The revenue model of Binance If you look around the market, you’ll realize that the revenue model of Binance is probably the most customer-friendly. Its fee structure is quite low and extremely competitive int he market, with a 0.1% trading fee, and you can reduce this further if you hold their BNB coins.  BNB, short for Binance Coins, is an exchange-based token that is created and issued by Binance. When you use it for your trading fees, you’ll be able to benefit from significant discounts. For a detailed price structure, please check here. Another incentive that Binance provides its users for holding the BNB tokens is that they are burnt regularly by the Binance company. This eventually increases the value of the tokens you hold. In terms of the core revenue model of Binance, there are primarily three kinds of fees Binance asks for:
    • Fee for deposit: In the revenue model of Binance, the fee for deposit is zero. Traders can deposit their assets without investing any money. Binance will have its team select for innovative coins and other assets in the exchange. As per the latest news, it made the listing fees transparent and donated 100% to charity.
    • Fee for trading: As mentioned earlier, the trading fee in the revenue model of Binance is 0.1% if you’re not a BNB token holder; 50% discounted otherwise.  
    • Fee for withdrawal:  Withdrawal fees are regularly adjusted according to the condition of the Blockchain ecosystem and the cryptocurrency in question.
    That was, albeit briefly, the revenue model of Binance. But it should be kept in mind that Binance didn’t become as huge as it is today overnight. It did start off from somewhere. So, if you’re wondering about creating a cryptocurrency exchange like Binance, you need to understand their journey, before anything else. Because after all, Binance is quite a new player in the DCE market, but it was valued at around $2 billion back in 2019 itself. That is very impressive! Also Read: Creating a Stablecoin

    What is it about Binance that attracted so many people?

    From the very beginning, Binance had a clear and transparent idea, and a skilled team. This combination helped generate confidence among people, regarding the legitimacy of Binance as a cryptocurrency exchange.  Then, Binance also boasts a huge number of Initial Coin Listings, and reasonably low trading fees, especially when compared to other players in the market. A user is only charged 0.01% off every trade made and small fees are charged for currency withdrawals as well. In less than 6 months after its inception, Binance had become an extremely profitable cryptocurrency exchange business - it had almost 3 million global users and more than 100 cryptocurrencies available for trade. The value of BNB has been steadily rising due to the number of trades made on the platform.
    But don’t be mistaken - this is not all that makes Binance such a prominent player; one that everyone looks up to.  They have always been thinking out-of-the-box, and as a result, besides doing currency exchange, Binance has also created some unique offerings like a “LaunchPad” token sale program or “Gifto” for virtual gifting.  They also diligently help young startups grow by providing the required guidance and support, which includes, but is not limited to listing or even cryptocurrency funding. So, evidently, the things that worked for Binance (well, broadly), can be summarized as:
    • Reasonable fees
    • BNB tokens
    • Additional services and features
    • Support and guidance
    • A trustworthy and creative team
    That is what worked for Binance, and that should work for you, too.  However, if you’re just starting off with creating a cryptocurrency exchange, there are some things you should know beforehand - so that not only is your exchange profitable but also user-friendly and something that people return to. Also Read: Cost of Cryptocurrency Exchange Development

    Things to keep in mind while creating a cryptocurrency exchange like Binance

    Now that the revenue model of Binance is clear, let’s look at the development aspect of creating a cryptocurrency exchange like Binance. Just like every other form of application development, creating cryptocurrency exchanges is also divided into aspects that should be kept in mind and handled individually.  The best cryptocurrency exchange for trading would require the following aspects to be taken care of:
    • Design:
    Design is one of the first things your user will see. To make sure you create exchanges as profitable as Binance, you need to capture your visitor’s attention with the design. You need to develop a design that finds the perfect spot between the left and the right side of the brain -- merging beauty with usability. You can use the following three-step approach to ensure the best design output for your exchange:
      • Wireframing -- at this stage, prepare a rough layout of the future design with all the key features. 
      • Prototyping -- once the rough layout is set, you can detail the features, and add user interaction and user experience elements.
      • Implementing -- with the prototype ready, you are now ready to implement the design on the front-end!
    • Front-end:
    This is where we develop the previously created design. It contains the codes for all the pages of the webpages. For this, you can use languages and libraries like HTML, CSS, SASS, JavaScript, including Angular, React, or Vue. 
    • Back-end:
    The back-end is what doesn’t appear to your end-user. This is where all the processing and such take place. It is the server-side of the application and handles functions like:
      • Server-side admin panel responsibilities
      • Cryptocurrency bets and deals
      • APIs that can be used for other purposes
      • Managing transactions
      • User authentication and authorization
    • Blockchain:
    Now comes the tech that is responsible for the actual processing for your cryptocurrency exchange. It processes and stores data concerned with trades between users in a secure environment.
    • Testing:
    Once you have your front-end, back-end, and blockchain ready, then comes testing. It is quite important as it allows find and remove most of the bugs within the logic, as well as within the UI before actually launching the application.
    • Security:
    The cryptocurrency exchange application stores sensitive information. Therefore, it needs to be property secure from any possible leaks or hacks. For that, you can look into the following aspects:
      • Secure backend architecture – The backend of your application can be made especially secure in terms of saving and sharing confidential information. Here is how:
        • Store the key components of any exchange on different servers. Interact only through dedicated channels.
        • Locate keys on dedicated secured servers and access them using specific channels. 
      • Robust user authentication – As a safety measure, you can implement a two-step authentication, by generating an OTP. This way, the possibility of unauthorized access will reduce. 
    • Safe exchange of data: Perform this exchange using the SHA-256 or the latest algorithm that is difficult to hack. This works by generating has every time the initial message is edited. This way, it is easier to check if the sent hash matches the received one, and to find out if the data was edited. Since a hash is not an encryption, the original message cannot be decoded.
    If you diligently take care of the above-mentioned points, you’ll be one step closer to creating a profitable cryptocurrency exchange. This is what the best cryptocurrency exchanges like Binance follow, and you can, too. With that said, let’s look at another important aspect of the entire development process -- important features to have while creating a cryptocurrency exchange like Binance.  Also Read: How do Cryptocurrency Exchanges make money?

    Must-have features for the best cryptocurrency exchange for trading

    The number of DCE platforms is only increasing. The cryptocurrency exchange list is endless, yet there are few cryptocurrency exchanges that are the best cryptocurrency exchanges for trading.  The primary reason for this is that everyone takes care of the basics. Let’s help you with the basic must-have features you definitely want in your DCE platform if you are creating cryptocurrency exchanges like Binance: 
    • Logging in / Signing up:
    This is one of the most important things on your platform. Not only will this allow people to join/log-in, but it will also ensure security from unauthorized logins or hacks and manipulations. Keeping this in mind, this should be extremely well designed as well as accurately developed. The functionality should be tested multiple times keeping all the fringe cases in mind. Besides the general login/password combination, you can also look at 2FA to provide additional security for users.
    • User Verification:
    One of the most boast-worthy things about the cryptocurrency exchanges for trading is that every user is thoroughly verified. You can have different parameters set of verifications, and can even set the number of times a user can try to log in. Reiterating the previous point, this will stop unauthorized trades. It is important to ensure the transparency of trades and to minimize the possibility of a scam.
    • Deposit or withdrawal:
    Using this feature, you will allow traders, on your cryptocurrency exchange for trade, to deposit money into the internal wallets that are featured by the cryptocurrency exchange software, and also to withdraw money to the wallets outside the ecosystem according to the limits set.
    • Creating transparent transactions:
    Every user present on your cryptocurrency exchange for trading should be able to purchase or sell digital currency in the ecosystem. These trades should happen seamlessly without any errors. Your system should have all the checkpoints to ensure the success of the transaction.
    • Analytics:
    Provide your users to take an in-depth look into their trades and other activities using analytics. This can include visual aids like graphs, charts, and more, for better visibility. 
    • Admin Panel:
    The users of your cryptocurrency exchange for trading should have an admin panel to be able to monitor and perform any action they wish to, depending on their access level.  The number of features that can go into creating a cryptocurrency exchange like Binance is endless, but if you have the above sorted, you’re on your way to reaching the best cryptocurrency exchange list! Phew, we are so close, now comes the real deal -- revenue model for your cryptocurrency exchange for trading, and how to ensure profitability.

    How to ensure the profitability of your cryptocurrency exchange?

    Here are some of the most used methods you can opt for, to generate revenue from your cryptocurrency exchange for trading: Exchange Fees The main value the cryptocurrency exchange can offer, like any other market, comes from a long line of buyers and sellers. In short, the best cryptocurrency exchanges work on bringing crypto buyers and sellers together. To do this, your platform needs to have a lot of users, and should have:
    • A beginner-friendly exchange platform.
    • Millions of dollars spent on marketing.
    • Referral programs.
    • Running promotions to attract new users.
    • Easy to use mobile apps.
    • Good customer support.
    • Trustworthy reputation.
    Goes without saying, it takes time and money to make sure all of these features are in place. So, when the users pay exchange fees, this is essentially what they are paying for. What do the customers pay for? Every time a sell or purchase is made from your cryptocurrency exchange for trading, the person involved will pay your platform a fee. This can be 0.1% or greater.  While that might not look like a big number, remember that over $15.5 billion is traded on exchanges every day. 0.1% of that $15.5 billion amounts to $15.5 million in exchange fees paid every day. However, there are other fees as well -- like, Withdrawal Fees. Every time you make a withdrawal, you need to pay the exchange a fee. The figure here varies depending on the exchange, but it can easily reach a couple of dollars per withdrawal.  These are broadly the ways you can implement fees or pricing structure in your cryptocurrency exchange for trading. However, keep in mind, that your platform should enable cryptocurrency enthusiasts - both buyers and sellers - to come together and build meaningful relations.  For that, you might need to shift your focus from charging fees to building a beautiful exchange platform. That can be done by following the steps we’ve mentioned so far. Carefully go through them, implement step-by-step, and see yourself creating a cryptocurrency exchange like Binance, that will be profitable as well as user-friendly! For inspiration… If you seek inspiration and want to explore more cryptocurrency exchanges for trading to know about more features and elements to add, here’s a cryptocurrency exchange list:
    • Coinbase
    • Binance
    • FTX
    • Bitfinex
    • Kraken
    This cryptocurrency exchange list is by no means exhaustive. If you’re truly curious about cryptocurrency exchanges for trading, do research beyond this list for better results!

    In conclusion…

    Considering the increasing popularity of cryptocurrency exchanges all over the globe, it is understandable why more and more people are coming forward to creating cryptocurrency exchanges like Binance.  Digital currency like cryptocurrency provides amazing opportunities. This is true for both who are just getting familiar as well as those who have a good experience in it. However, there are still a few limitations to this market. The need of the hour is creating a high-quality cryptocurrency exchange platform that keeps the user at its core - both design-wise and functionality-wise. This task is a bit more tricky than it sounds, and you might need expert help/guidance through the way. If you do, don’t hesitate to reach out to us -- we’re here for you!