Building a decentralized cryptocurrency exchange platform

While centralized platforms are full of restrictions, decentralized ones are providing much liberty in trading cryptocurrencies without any intervention from a third party or middle man. There lingers a high hope of sustainable growth surrounding the crypto market and it is expected to take a giant leap by 2025. Blockchain technology is the backbone of the crypto market and crypto exchange development companies are constantly blooming. Since there is no central authority in control of the operations, the exchange platform can be created without any obstacles. The decentralized crypto exchange development companies help in exchanging valuable assets via peer-to-peer networks without third-party involvement. The top cryptocurrency exchange platforms at present are Binance, Uniswap, Venus, FTX, etc.

How does the functioning happen?

There are certain protocols that need to be followed for this exchange to happen and the functioning is mostly dependent on the powering software. The transactions firstly get verified by cryptography to get rid of unnecessary interventions. Someone interested in buying or selling through this platform can easily deposit the money on exchange and can even utilize it in the future for the trade. The absence of Government authorities makes a direct relationship between the merchant and seller and one doesn’t even need to bear the charges of a middleman. 

One quick look at the advantages:

• Eliminates points of failure. Much more successful in preserving data secure from hackers.
• Resistant to outside intervention.
• Low trade fees.
• Trustless and transparent.
• Secured privacy 

Steps:

• Get legal counsel before registration. After having the decision made, licensing is one important step. For proper operation to happen, one needs permission from the regulatory bodies which are different according to different countries. Some regulatory bodies responsible for such action are CFTC, FCA, SEBI etc.
• Focus on designing platforms. Wireframes and prototypes are key components in this structure in order to obtain the detailed visualization of the interaction between user and platform.
• Designing contract logic for trading is important. For example the workings of Ethereum use smart contracts for settling terms between customers using blockchain. Once the smart contract gets established, there is a need for validation. For example, Bitcoin permits only 3 participants in multi-signature transactions which is too less so the need of the hour is a kind of signature verification which can be done by a lot of participants. 
• Promotion, counsel, registration, technology etc cost a lot so sufficient funding is important as well.
• The transaction rates are different everywhere and to survive in the overwhelming competition, an appropriate payment processor is very much needed.
• API for authentication and authorization.
• Integrating blockchain technology into crypto exchange platform for securing transparency and eliminating risks of cyber criminals. Security is something that can’t be compromised on a decentralized platform. Crypto currency exchange platform should be developed based on Cryptocurrency Security Standard (CCSS) and Payment Card Industry Data Security Standard (PCI DSS).  A notable incident of security breach happened in 2014 with Gox exchange. Therefore few points must be remembered while designing security which are,
  • -Firewall breach
  • -Suspicious activities
  • -Breach in restricted access
  • -One DDoS attack

• Gathering funds is the next big step which can be implemented through crowdfunding or crowd sales.
• The entire functioning rests upon good customer service. The task is to assign dedicated employees who will ensure a smooth relationship between customer and the company.

How does the exchange function?

1. In the authentication process a one time key to login will be generated by the decentralized exchange and after some time, it will be curtailed. No signing up is needed. KYC is needed after one goes beyond a certain limit.
2. Atomic swapping method is used by DEX to start trading to resist the losing of trade value. The concept of plug-play works here in case of exchange. One needs to connect the cold wallet first and then function the exchange. Depositing funds in the admin wallet is not necessary.
3. The Distributed Hash table is used by DEX platforms instead of conventional order books. The information remains encrypted within the order and resists alteration. Some examples can be;
   • Dydx enables peer to peer borrowing. It makes it easier for you to have a passive income even if assets are held on exchange.
   • Nash exchange helps in speeding up the process of conventional exchanges using a decentralized process. It helps in maximizing transactions by matching buy and sell orders.
   • Tomo DEX works without any withdrawal or deposit fees and spreads over 150 nodes to improve speed of trading.
   • Vitex operates through smart contracts and minimizes risks of tampering records.
   • Loopring exchange uses the order book based protocol named SK-Rollups and uses the technology called ZK-SNARKS for validation purposes.

Binance DEX uses a similar interface to that of Binance.com. It helps in easing the exchange process in unknown infrastructure.

Conclusion:

When Big Brother is watching us in the bitcoin market, a decentralized anonymous cryptocurrency exchange can help us avoid this. Starting and constructing a decentralized exchange from the ground up, especially if you have no prior expertise with decentralized apps, might seem like an unending ordeal. As the finest Blockchain Development Company in USA and India, the Monkhub team has huge expertise in cryptocurrency exchange development. Would you want to learn more about how to construct a decentralized exchange, as well as the pricing and timeline for development? Contact us, and we’ll set up a demo and an offer for you.