Cryptocurrency seems to be the talk of the town these days. Since the time when Bitcoin was launched in 2009, today there are more than 24,000 cryptocurrencies available for trading. It looks as if every day there is a new coin being launched. This may make it look like creating a cryptocurrency is an easy task but the time, effort and resources put into launching a project are often not visible to us.
Therefore, if you are thinking about making a quick profit by making a cryptocurrency, take a step back and first understand what cryptocurrencies are and the steps involved in successfully making and launching a cryptocurrency. Now, you may be wondering whether creating a cryptocurrency is worth it or not. Is it even legal to make a cryptocurrency? Is making your own cryptocurrency profitable or not?
We will answer all these questions in this article and also explain the steps broadly involved in making a cryptocurrency.
What is Cryptocurrency?
Cryptocurrency refers to a digital coin or currency developed as an alternative to traditional fiat currencies. Unlike fiat money which is backed by the central government or bank of a country, cryptocurrencies are not regulated by any central authority.
They are secured by a technology called cryptography and enable peer-to-peer transactions without the intervention of any third party. Immutability is a significant feature of cryptocurrencies. Once a crypto transaction is recorded on the blockchain, it cannot be reversed and modifying it is pretty much impossible. Cryptocurrency transactions are, therefore, permanent and secure.
Why Make a Cryptocurrency?
Now, the question is, what is the objective of creating a cryptocurrency? Why put in the time and effort of making a digital currency? Well, there are several reasons why one might prefer creating their own cryptocurrency.
Raising Funds
Raising funds for new projects is the foremost reason businesses may be interested in developing a cryptocurrency. This is also the reason why many cryptocurrency exchanges often introduce crypto coins such as BNB, TRX or OKB which are native to their platform. Getting funds via Initial Coin Offerings(ICOs) is often lucrative enough to go through the effort of developing a cryptocurrency.
Customizability
When you make a cryptocurrency from scratch, you have complete freedom to decide its purpose, features and level of complexity. This gives you more flexibility to modify the coin as per your specific requirements so that it perfectly suits your needs.
Brand Recognition
A popular cryptocurrency associated with your business can be a great way to raise awareness about your brand. For example, Dogecoin being associated with Twitter worked as publicity for both the memecoin as well as the social media platform.
Diversifying Payment Options
Having your own cryptocurrency helps you provide your customers with more options to make payments. Using cryptocurrency for payments not only eliminates geographical barriers between you and your customers but also saves you from the hassles generally associated with international payments.
Methods of Creating Cryptocurrency
Just like everything else, there is no one method of making a cryptocurrency. You can create your own blockchain and coin if you have the means to do so or even outsource the whole work to a blockchain developer. For a middle ground, you can simply modify the code of an existing blockchain to suit your needs.
Creating a New Blockchain
If you have coding expertise and the time to do so, you can create a completely new blockchain to host your crypto coin. This method requires immense knowledge and effort but also gives you the most freedom in terms of the features and the type of consensus mechanism you would like to adopt for your cryptocurrency.
However, it is important to be aware of the legal aspects of making a cryptocurrency and the regulations surrounding ICOs before you go around creating a cryptocurrency and offering it to other traders.
Modifying the Code of an Existing Blockchain
This is a much more simple option than creating a whole blockchain from scratch. The codes of most blockchains are open source and can be easily found on GitHub. You can look through the blockchain codes and choose one that you find suitable.
Then, you can customize the code as per your liking to make a unique token. As always, coding knowledge and experience are needed to modify a blockchain’s code and you also need to know about the legal aspects of the same.
Creating a Cryptocurrency on an Existing Blockchain
Instead of modifying a blockchain’s code, you can also just create a token that operates on that blockchain but is not native to the platform. Ethereum is the best example of this. It hosts innumerable cryptocurrencies made by different developers such as UNI, CRV and BAL.
Having your token on an established blockchain brings a sort of legitimacy to your project but does not guarantee its success.
Outsourcing to Cryptocurrency Development Services
If you do not want to go through the hassle of any of the above methods, you can simply outsource the task to a company that offers crypto development services. They would create the token as well as the whitepaper and take care of the ICO as well on your behalf. This saves your time and effort though such a service may cost an arm and leg depending on the complexity of your project.
How to Make a Cryptocurrency
Making a cryptocurrency is not an easy task. There are many things to be considered before you even start designing the token. Here, we have tried to give you an overview of the steps involved in making cryptocurrencies.
Defining Objectives
Before anything else, you need to define the aim of your project. Exactly why are you creating a cryptocurrency? What is the cryptocurrency supposed to be for? For example, Bitcoin was designed to be an alternative payment method. Dogecoin is a memecoin that was started as a joke or parody. UNI, meanwhile, is a governance token used to power the UniSwap ecosystem.
Therefore, you need to have clarity about the aim of your cryptocurrency to give it a coherent design and better communicate your ideas to the public.
Once you have decided on the objective of your cryptocurrency, you can give it a name and a logo. This will help in raising recognition of your project. On the technical front, you need to create a white paper for your project. This is a critical step because it is the white paper of your cryptocurrency that will communicate the idea and objective of your project to the investors.
A white paper often includes a description of a problem, the solution and information about the particular crypto’s ecosystem and tokenomics. It is generally advised that the white paper should be clear, and concise and should not contain excessive technical jargon.
Next, you need to have a website and a social media page for your cryptocurrency. This will help you in marketing your coin and provide information and updates about the same.
Creating a Consensus Mechanism
Cryptocurrency transactions need to be approved by the nodes before they are added to the blockchain. Consensus mechanisms are the methods used to validate transactions after which they are added to the blockchain. These are generally of two types- proof-of-work(PoW) and proof-of-stake(PoS).
PoW is the conventional and the most widely used method of validating transactions. Here, miners engage in a competition to solve a puzzle. The node which solves the puzzle first gets to validate the transaction and is then rewarded with cryptocurrency for the same. However, this system is very energy-intensive and, therefore, unsustainable.
PoS was created to address the drawbacks of the PoW mechanism. Here, there are validators(instead of miners) who stake their coins to validate transactions on a network. This system requires much less energy as compared to PoW and is also more secure.
Selecting a Blockchain
Now that you have decided about the consensus mechanism, you need to choose a blockchain where your cryptocurrency would be hosted. This largely depends on the consensus mechanism that you have adopted. The Bitcoin blockchain is an example of a PoW protocol while chains like Ethereum and Cardano use PoS.
Largely though, blockchains are of four types:
Public Blockchains
These are blockchains that are completely open to the public. Any person having adequate processing power can join the network and view and verify the records. Public blockchains have the highest level of transparency but they may face scalability issues.
Private Blockchains
Also known as permissioned blockchains, private blockchains are smaller in scope compared to public blockchains. Since only selected individuals are allowed to join the network and validate transactions, these blockchains are able to ensure a high level of privacy.
Hybrid Blockchains
These blockchains offer the best of both worlds to users. Hybrid blockchains combine the features of both public and private blockchains such that only a portion of the network is made public while some parts remain private and access is granted via smart contracts.
Consortium Blockchains
In the case of a consortium or federated blockchain, many individuals owning a private blockchain come together to form a larger network. Here, while information is visible to everyone on the network, individuals can work on their own nodes only.
Creating Nodes
Nodes are an important part of the cryptocurrency architecture. They are necessary for validating and recording crypto transactions on the blockchain. Therefore, after you figure out the specifics of your blockchain, you need to download the necessary software and start configuring a node.
Nodes can be of many types such as full nodes, light nodes or supernodes. You need to decide what type of node is required for your cryptocurrency and then configure it accordingly. While this process requires advanced computing skills, you should note that if you are using an existing blockchain, it will already have a node structure in place to validate transactions.
Deciding the Internal Architecture
The next step is to decide about your coin’s internal architecture and tokenomics. You need to think about the maximum number of coins that would be minted and make a decision about its circulating supply. You need to strike a balance between “too much” and “too little” supply.
Further, you also need to determine the transaction format and network protocol for your cryptocurrency.
Integrating APIs
API refers to the application programming interface. This is what provides a channel of communication to the nodes and also makes the software understandable for the end users. Integrating APIs is a critical step as it is the API that ensures collaboration within the blockchain for settling transactions. It is also important from a security and privacy point of view.
Do make sure that the blockchain that you have selected has functionality for the API you’re going to use.
Designing Interface
Your cryptocurrency needs to have an interface that attracts new users. Since cryptocurrency itself is a complicated thing for a layperson, it is all the more important that your crypto coin has a simple and easy-to-use interface that would entice users to atleast check it out.
Generating a Wallet Address
Every cryptocurrency needs a wallet address to facilitate transactions. You can use an online service to generate a wallet address for your cryptocurrency or via the software installed on your computer.
Legalizing Your Cryptocurrency
While theoretically cryptocurrencies are supposed to be free of government intervention, the reality is that regulators around the world are trying to bring cryptocurrencies under a regulatory regime. Therefore, make sure that you understand the legal aspects related to cryptocurrencies and ICOs in your country or region.
Remember that cryptocurrencies are outright banned in many places and the laws surrounding ICOs can be complicated. Do your research before you end up minting cryptocurrencies in a crypto-unfriendly nation.
Market and Grow Your Cryptocurrency
After the technical steps, you need to raise awareness about your cryptocurrency. You need to engage with the larger crypto community to market your coin and may have to undertake promotional tactics such as airdrops to create buzz around your project.
Cryptocurrency Frequently Asked Questions(FAQs)
How Long Does It Take to Create a Cryptocurrency?
It depends on the method you use to create your cryptocurrency. It can easily take months if you’re building a blockchain from scratch but your crypto coin may be ready in 5 to 20 minutes if you use automated tools like Cointool to create one.
However, it is your technical expertise which determines how much time it would take to modify the existing crypto code.
How Much Does It Cost to Create a Cryptocurrency?
The final cost of creating a cryptocurrency depends on several factors. It is a complex procedure especially if you’re building a new blockchain to host your coin. You also have to factor in the cost of human resources and the cost of complying with all the relevant legal and financial regulations.
Creating a cryptocurrency, especially one that is filled with features, can therefore easily cost you hundreds of thousands of dollars.
Can I Create My Own Cryptocurrency?
Yes, anyone can create a cryptocurrency but it requires time, expertise and resources. You need to have some computer coding experience to make a crypto coin though you can also outsource the work to a blockchain developer. Launching a token on an existing blockchain is generally easier than creating a whole blockchain and cryptocurrency from scratch.