In the modern landscape, it is important for cryptocurrency exchanges to be diligent in attracting…Read more
When undergoing a cryptocurrency exchange venture, an often overlooked item to consider is the importance of having access to your own source code. If you’re looking to leverage a turnkey cryptocurrency exchange solution to launch your platform, you will encounter vendors offering their software with source code included or not.
If it’s not included in their base package, vendors will often upsell access to their source code as a premium add-on—usually for price points in the tens of thousands of US dollars. Therefore, whether or not a provider offers complimentary inclusion of source code is a significant cost management item to consider when comparing cryptocurrency exchange engine development companies.
While it may be tempting to rely exclusively on out-of-the-box solutions to create and deploy your digital asset exchange, it is critical to engage an experienced team of technical professionals to maintain the system. This article discusses the main reasons why it is so important to have access to your crypto exchange engine’s source code when hosting it on your own, more specifically: flexibility and competitive edge, security, regulation, and company valuation.
Flexibility and Competitive Edge
In business, it’s no secret that companies with agility and unique value propositions tend to win in the free marketplace versus those that fail to innovate. As such, having access to your exchange’s source code is an excellent way to ensure greater flexibility and the ability to offer innovative features versus your competitors.
While vendors differ in how much flexibility they offer without having to modify code, there are undoubtedly features which will demand source code editing if you wish to roll out a truly original cryptocurrency exchange. In general, any features related to the platform’s trading mechanisms would require manual source code-level changes to be carried out.
For example, implied orders—a technically challenging and highly in-demand feature offered exclusively by top exchanges—require drastic source code changes to modify the way in which the order matcher engine works. In order to successfully implement implied orders, the system needs to be able to communicate with other order matchers at an incredibly fast speed so as to maintain exchange performance.
In marketing your exchange, if you would like to offer such cutting-edge features without having access to your own source code, your product quality and thus competitive advantage would inherently be restricted. While you could ask your vendor to make such a custom modification for you, it’s possible that they would either be too busy to accept your request or charge you an excessive fee for their services.
If you retain access to your cryptocurrency exchange engine’s source code from the start, on the other hand, you avoid all of these potential challenges and can enjoy complete freedom to build the exact product you had envisioned.
If you’ve been following the headlines related to Bitcoin and other cryptocurrencies over the past decade, you would have likely seen numerous articles about digital asset exchange hacks and security breaches. From Mt. Gox to Binance, it seems like no crypto exchange is immune to potential security compromises—that’s why it’s incredibly important to set your exchange’s security measures up for success.
By engaging a third-party vendor to manage and host all aspects of your exchange’s security systems, you expose your brand to a high degree of risk as the safety of your users’ funds are in the hands of the vendor. Imagine the disastrous consequences that could ensue if, for example, the vendor made a change to their code which introduced a backdoor or security bug for hackers to take advantage of?
Therefore, by retaining control of your cryptocurrency exchange’s source code, you can minimize financial custodian risks by running the platform in a dedicated data center, guarding the facilities with security personnel, and monitoring user activity with artificial intelligence, performing audits every few months.
Given the nascent state of blockchain technology and cryptocurrencies, various jurisdictions around the world have unique regulations surrounding digital assets—and new laws continue to pass on an ongoing basis, increasing the importance of being proactive.
Depending on which jurisdiction in which you operate your cryptocurrency exchange, you may be required to undergo routine source code audits. Moreover, some jurisdictions mandate that crypto exchange operators collect and relay additional data to the government, or in some cases even require complete integration between the platform and regulatory agencies.
In the United States, for example, the government requires every digital asset exchange to be divided into two systems controlled by different legal entities: a trading engine and a clearing house. The trading engine must immediately report every trade to the clearing house which in turn performs all of the accounting. In such a decoupled structure, source code modifications would inevitably be required, therefore having access to your own source code would minimize the time, money, and hassle required to configure the system per the regulatory body’s instructions.
Last but not least, possessing your own source code increases the inherent value of your cryptocurrency exchange business. By retaining control and access to the exchange engine’s source code, it becomes an asset which boosts your company’s valuation and potentially compels greater capital investments.
Since your cryptocurrency exchange is entirely reliant on software, you must control the source code to position your business for long-term success. Having a software escrow agreement with a vendor is not enough because what would happen if your vendor were to go bankrupt? Naturally, if you couldn’t access the exchange’s source code, this would result in customer-facing service disruptions which would be disastrous for the user retention of your platform.
When debating which vendor to hire for the development and maintenance of your cryptocurrency exchange engine, be sure to consider the terms regarding source code provisions. As highlighted above, your exchange’s flexibility and competitive edge, security, regulatory compliance, and inherent valuation rely on the inclusion of the software’s source code.
With a seemingly endless selection of cryptocurrency exchanges in operation today, it can sometimes be…Read more