Exchange & Trading

Building exchange and trading infrastructure is one of the most demanding applications in Bitcoin development. It combines real-time systems, financial security, regulatory compliance, and Bitcoin protocol knowledge.

Core Components

Order Book Engine

An exchange's order book matches buy and sell orders:

Component	Purpose
Matching engine	Pairs buy/sell orders by price-time priority
Order types	Market, limit, stop-loss, fill-or-kill
Price feeds	Aggregate prices from multiple sources
Trade execution	Settle matched orders, update balances

Architecture Overview

Deposit & Withdrawal

Deposit Flow

1. Generate a unique deposit address per user (HD wallet derivation)
2. Monitor the blockchain for incoming transactions
3. Wait for sufficient confirmations (typically 3-6)
4. Credit the user's internal balance

Withdrawal Flow

1. User requests withdrawal to external address
2. Validate address format and amount
3. Apply withdrawal limits and 2FA verification
4. Construct and sign transaction from hot wallet
5. Broadcast and monitor confirmation

Hot/Cold Wallet Architecture

Wallet	Purpose	Security
Hot wallet	Automated deposits/withdrawals	Online, holds minimal funds
Warm wallet	Buffer between hot and cold	Semi-automated, intermediate amounts
Cold storage	Long-term storage	Offline, multisig, holds majority of funds

Rule of thumb: Hot wallet should hold only enough for 1-2 days of withdrawals.

API Design

Exchange APIs typically provide:

REST API:
  GET  /api/v1/ticker          # Current price
  GET  /api/v1/orderbook       # Open orders
  POST /api/v1/order           # Place order
  GET  /api/v1/trades          # Trade history
  GET  /api/v1/balance         # User balance
  POST /api/v1/withdraw        # Request withdrawal

WebSocket:
  ws://exchange/stream/trades   # Real-time trades
  ws://exchange/stream/orderbook # Order book updates

Security Considerations

• Multi-signature cold storage — Require multiple approvals for cold storage access
• Rate limiting — Protect APIs from abuse
• Withdrawal delays — Allow time to detect unauthorized access
• Address whitelisting — Users pre-approve withdrawal addresses
• Regular audits — Proof of reserves, security audits
• Insurance — Cover potential losses from hacks

Recommended Reading

• River Financial Engineering Blog — Exchange infrastructure insights
• Kraken Security Practices — Industry security standards
• Bitcoin Custody Best Practices — Multi-key security