Understanding Various Architectures of Cryptocurrency Exchange Development

Understanding Architectures of Cryptocurrency Exchange Development

Posted On  October 16, 2020 in  

by OptimusFox

cryptocurrency exchange development

If you come to know that cryptocurrency exchange development is one of the riskiest things one can do, it is likely to be untrue. Every business that you may desire to launch has some degree of unpredictability. In addition to it, if you have spared enough time to understand how the business works, plan out the details of your operations and purchase bitcoin exchange scripts in sync with your objectives, there are fairly good chances of making it successful.

First of all, you need to decide which type to choose from two broad categories of exchange platforms – centralized and decentralized.

Centralized

Talking about centralized exchanges, these work as an intermediary between buyers and sellers of crypto assets. Their revenues come from the trading fees from transactions made on the exchange. Centralized exchanges are easier to develop and comparatively simpler to work on for your customers. Thanks to crypto/crypto and fiat/crypto pairings, high liquidity, and rapid transactions, investors have several reasons to visit the exchange. Rapid Account recovery is possible in case of a lost private key. The exchanges take care of the assets of the customers.

However, there are inherent disadvantages of centralized exchanges. Security problems arise in centralized exchanges as traders have to enter their private key to move cryptocurrency from wallets to exchanges. Accounts are also not unnamed in real terms as the traders are legally required to provide their data to exchanges under KYC (know your customer) process. The incorporation of the right security features can help overcome all of these security challenges.

Decentralized

When it comes to decentralized exchanges, we can make deals with the help of smart contracts. When you opt for a cryptocurrency exchange development solution with decentralized architecture, all trades occur peer-to-peer without any third-party involvement. The responsibility of managing assets and private keys lies with the users. However, as blockchain takes its own time to create blocks, transactions are a bit slower. These platforms possess a greater entry barrier as well, leading to lower volumes as well as liquidity.

We can also categorize cryptocurrency exchange platforms as:

Trading platforms

These platforms act like a bridge developing a connection between buyers and sellers. Their earnings come from fees raised for all transactions.

Direct trading platforms

Direct trading platforms ensure person-to-person trading without fixed market prices. Sellers can set their rates easily, thanks to the underlying mechanism present in these platforms.

Brokerage platforms

You may buy a crypto exchange script that offers a deal to traders to buy their cryptocurrency at a price that the broker determines. You also need to decide the type of software architecture for your exchange platform.

For cryptocurrency exchange software development, it’s necessary to select the architecture based on its managed transaction volumes scaling. There are three main types:

  1.   Synchronous

The best choice for small and local exchanges, synchronous exchanges have a simple architecture. These operate easily as requests can be completed in a single transaction. Nevertheless, this architecture has many limitations when it comes to scalability.

  1.   Asynchronous

It is perfect for medium exchanges, they deal with requests in distinct modules. Interfaces register user requests and form a queue, which is then processed through various layers. The status of the user request is then forwarded to the interface.

  1.   Distributed

We use these for large exchanges, distributed exchanges are similar to the asynchronous type, but at a much larger scale. The architecture distributes user requests into pieces termed shards, which act independently. When it comes to scalability, this model provides ease in that scenario.

Summing up

It is important to have cryptocurrency exchange development that perfectly aligns with your business goals. The kind of exchange platform and architecture you choose has an impact on your business later. Dealing in digital currencies are becoming increasingly popular globally due to enhanced security and involvement of a lesser number of parties when making transactions.

OptimusFox is a trusted crypto exchange development company if you want to get your crypto exchange developed. We provide a crypto exchange according to your business needs. Request a free quote of our crypto exchange services or connect with our blockchain experts to share your business needs.