How to Create a Cryptocurrency
Whether you’ve done a deep dive into the world of blockchain technology or you’ve just heard about one or more of the successful currencies, there’s no denying that it’s an alluring concept. While there’s no way of telling what level of success to expect in the distant future, it’s hard to argue with the results thus far.
Think of Bitcoin, for example, which is the top cryptocurrency. It has been that way since inception, and that’s expected since it was the original in a series of alternative currencies that are digitally powered.
In 2017, a single coin was worth over $17,000 USD. Now, at the time of writing, the value is just over half that, but that is still a huge figure for a currency that started in 2011 and was worth virtually nothing.
Of course, blockchain technology continues to make strides, and many people and organizations have gotten the idea of creating their own cryptocurrency. After all, if that were to be done successfully, they could have another Bitcoin or Ethereum on their hands.
Have you thought about this too? If you have, then there are quite a few things you need to know before you traverse that road. Therefore, this article is dedicated to getting you ready for this innovation.
Overview of Cryptocurrencies
When you hear the word cryptocurrency, what does it mean to you? Do you see it as an alternative form of money? Do you see it as a concept that allows for currency trading to take place with a difference? Either view isn’t wrong, but it also doesn’t do the premise complete justice.
The first point to note about a cryptocurrency is that there is no central platform that binds it. This means that geographical restrictions and regulations do not apply to it, and there is no single entity that monitors it.
Fund transfers are done on an electronic platform, and all transactions must be verified. This verification and currency movement is done using various encryption techniques. The idea is to promote freedom, decentralization, security, and privacy. This is the power of a medium of exchange that isn’t owned or regulated by a bank, government, or other entity.
Now, the transactions associated with a currency tend to take place on a blockchain. Even this promotes the concept of decentralization, since the established network connections are peer-to-peer (P2P), as opposed to conforming to a client-server setup.
The name blockchain is used because the data is stored in the form of data blocks. The integrity of this data must be maintained, and this is the reason that there is an incredible level of redundancy built into the blockchain’s architecture.
The blocks use a chronological workflow to store data on the various transactions and addresses that execute them. Any new data blocks must go through a verification process, which makes use of the other blocks in the system.
When the need arises for the information in an existing block to be altered, that which is contained in subsequent blocks also needs to be edited to preserve data integrity.
Now that you understand the underlying principles of cryptocurrency, it’s time to look at the active parts that make it flow.
It all begins with the creation of a transaction by a member of the blockchain. This transaction is then broadcasted to the nodes that lie along the P2P network. Next, the nodes do a validation of the transaction. Note that the transaction cannot be carried out unless all nodes on the network successfully validate it.
Once the validation process is complete, then the transaction may create new data blocks. The final step is for the blockchain members who helped in the transaction validation to get a reward in the form of cryptocurrency.
That last step is very important, as this is how additional cryptocurrency gets into the mix. The process of validation by blockchain members is known as mining. When the transactions are being performed, complex mathematical equations must be solved to do the verification. Such equations require a lot of processing power to solve, so custom hardware is typically used.
Once the equation is solved, then the contributor receives a cryptocurrency reward for the contribution to the verification.
Here are the advantages of cryptocurrency that many people have been taking advantage of:
- Decentralized medium of exchange
- Secure transaction method
- Fast transaction performance
- Privacy protection
- Low cost
These are the disadvantages that people deal with where cryptocurrencies are concerned:
- Very volatile
- Transactions are final
- Many places don’t accept it as a form of payment
Coins and Tokens
While cryptocurrencies don’t have physical notes, they do have digital substitutes in the forms of coins and tokens. People don’t hear about tokens as much as they do coins, and they are not the same thing. Be that as it may, there are many persons who use the terms interchangeably. If you’re looking at setting up your own cryptocurrency, then you need to know the difference and understand which of the two is appropriate for your needs.
The main difference between a coin and a token is the blockchain on which the transactions occur. Coins use their own blockchain. Neo is an example of a coin based cryptocurrency, as it uses its own blockchain. A token operates using another blockchain for verification. Ethereum is commonly used as the backend in this sense for starting cryptocurrencies.
Apart from the main distinction, there is also the fact that coins can be used to buy tokens but not vice versa. Additionally, while you can use your coins anywhere you wish, tokens tend to be bound to a single community or industry.
Tokens are also often used to crowdfund projects and startup operations, usually in the form of a security token offering (STO).
You can think of it in the context of any company that has a loyalty points system that you can use to get discounts on their products or services. You can use either your cash or these loyalty points to make your purchases.
In this manner, cash behaves like coins, while the loyalty points behave like tokens. You can use your cash to buy tokens, but not vice versa. Furthermore, you can use your cash to buy things elsewhere, but you can’t do so with the loyalty points.
Why Create a Cryptocurrency?
If you want to create your own cryptocurrency and you’re unsure of the benefits, here are the ones that stand out the most:
- You get to leverage a new customer base without geographical restrictions.
- The risk of fraud is eliminated.
- Transaction speeds are improved.
- The cost of operation is reduced.
- Transactions are processed in an anonymous manner.
- Transactions are completed securely.
Is It for You?
Though the creation of a cryptocurrency is an alluring prospect, you should be sure that you need to before you do it. There’s no point in wasting your time if your operation has no need for it. Cryptocurrency is suited for businesses that meet the following criteria:
- The largest share of revenue is inherited from digital means as opposed to physical ones.
- Your business is likely to benefit from an online payment option in the form of an increased customer base.
- Your business resides on the internet.
Note that while these are all great individual reasons to create a currency, its best for companies that meet all the criteria.
How to Create a Cryptocurrency
Now that you’ve covered all the knowledge bases, it’s time to look at the steps to creating your own currency.
Coin or Token?
You need to choose which of these you want to use as the currency’s driving force. Creating a coin takes more understanding and time, so don’t go for this method if you want something that is quick. You need to either become experienced in decentralized technologies or hire someone who is. Coding skills are required to create, edit, and maintain the coin, which means you may need a development team.
Tokens are the quicker way to go, since you use an existing blockchain and get the benefit of the technology, support, and consensus mechanisms.
Define Your Purpose
You should never create a cryptocurrency just because you can. The most successful cryptocurrencies are those that saw a problem and aimed to solve it. A good example is transaction speed. Maybe you see where certain transactions are taking ages because of the way how bank transfers work. If you wanted to remove the bank from the equation, this would be a good reason to create a currency.
Make sure that your initial coin offering (ICO) or security token offering (STO) proposes value to the customer. Do your research to ensure that you achieve this, or your currency is dead on arrival.
Get Your Development Team
Of course, you can get through this whole process without a development team, but if you want to improve your chances of success, then you may want to investigate getting an experienced development team on your side.
The world of blockchain is a complex one, and the people who can navigate it are assets. Remember that the more work you put in now, the less you need to put in later.
Setup Smart Contract Rules
A smart contract is a set of code that sits on a blockchain and runs whenever the prerequisites are met. These rules need to support your vision and purpose for creating the cryptocurrency. The feasibility of your currency may be greatly affected by your smart contract setup.
Get a Security Audit
Not all coin and token offerings are legitimate. Investors may be shy about yours because of this. To ensure that your legitimacy is validated, hire an external audit company to speak to your credibility.
Be Meticulous in Writing a White Paper
This is the first impression, and it needs to demonstrate that your idea has both merit and value. Your white paper needs to clearly define the problem you are solving and why it matters. It also needs to define your roadmap, team and qualifications, token/coin release specifics and schedule, and how you plan to use the ICO/STO funds.
Promote Your ICO/STO
Use all forms of media that you can to get the word out about your ICO/STO. Just remember to ensure that your promotional method clearly establishes the value that your project brings.
Support Your Community
The best cryptocurrencies have dedicated and strong communities. Ensure that updates are provided on time, questions are answered, and that users don’t feel like the currency is dead. You may need a team for this, but the reward is worth it.