Cryptocurrencies are most commonly used for their functions as mediums of exchange and stores of value. Anyone can visit a crypto exchange, a crypto ATM, or use a trading app to buy and begin using cryptocurrencies. However, as popular as they are, not many people consider launching their own digital assets.
Developers create cryptocurrencies for many different reasons. Cryptos may be designed to solve specific problems as part of a public project, created for internal purposes within an organization or a community, or launched out of simple curiosity.
How to Create a Cryptocurrency
There are three major ways to create and launch a new cryptocurrency. They include:
- Developing an asset on an existing network
- Forking an existing chain
- Creating a new blockchain
Developing An Asset On An Existing Network
This is the least technical method to create a cryptocurrency. Instead of trying to fork a blockchain and design a new one from scratch, anyone building a cryptocurrency can use an existing network like Ethereum. There are also other chains compatible with the Ethereum Virtual Machine (EVM) that developers can use to create new assets. Users creating new cryptocurrencies may also consider building on Layer-2 blockchains like Arbitrum or Polygon.
After the design and creation process, deciding the best way to launch is crucial. One of the most popular is a presale, where a select group of investors can buy cryptos at low prices before members of the general public. This is generally a fundraising method that allows projects to sell a predetermined number of assets to secure early funding. Developers can also use an initial coin offering (ICO), which involves buying assets at a fixed price before an official launch. Other options include airdrops where qualified holders receive tokens for free, a security token offering (STO) for tokens that qualify as securities, and an initial exchange offering where users can buy new cryptocurrencies with a crypto exchange acting as an intermediary.
Forking an Existing Chain
Although forking still requires technical knowledge, developers do not have to build a blockchain from scratch. Since most networks are decentralized, with publicly accessible source codes, developers can modify an existing blockchain to create another, with a different but usually similar coin. Popular examples include Litecoin (LTC) and Bitcoin Cash (BCH), both of which forked from Bitcoin Core. Also, Dogecoin (DOGE) was copied from Luckycoin, a defunct crypto that forked from Litecoin (LTC).
Creating a New Blockchain
Designing a new blockchain is a complex process requiring a deep understanding of programming, cryptography, and blockchain technology. Developers creating from scratch must set up nodes to participate in the network, create the Genesis block with important information about the network, and implement consensus rules that all nodes must follow. These rules may include details about creating new blocks and processing or validating transactions. Developers must also build the blockchain’s internal data structure and properly test and debug the blockchain before launch.
Factors to Consider Before Creating and Launching a Cryptocurrency
Creators must decisively consider several factors before designing and floating cryptocurrencies. While some of these factors may be easy to determine, others require much time and effort. The following are some of the most important factors to consider:
Purpose of the Cryptocurrency
The first thing to establish is the cryptocurrency’s purpose. This single decision helps determine the crypto’s path and guides developers as they design it. The determined purpose of the cryptocurrency also helps to decide whether or not a coin or token is the best option.
A crypto coin is an asset with a specific use in a network, mostly on an independent blockchain. Coins also function as a network’s native currency and satisfy primary functions as mediums of exchange or stores of value. Examples include Bitcoin (BTC), Litecoin (LTC), XRP, and Cardano (ADA).
On the other hand, a token is created to operate on an existing blockchain in compliance with the network’s token standards. A token may represent several assets, including ownership rights of a physical real-world asset, voting rights, or access to a service. Although tokens can function as mediums of exchange and stores of value, use cases may include granting holders access to a service, or crowdfunding via initial coin offerings (ICOs). The most popular token standard on Ethereum is the ERC-20 standard, which is used for tokens like Tether’s USDT and Shiba Inu (SHIBA).
Legality
The laws that govern cryptocurrencies are sometimes tricky or unclear in many countries. Before creating a cryptocurrency, it is important to first confirm that regulators are friendly towards the digital assets. To avoid legal repercussions, developers in countries like China, where crypto activity has been outlawed, are advised to seek professional legal advice.
Preferred Consensus Mechanism
The two major consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS). PoW networks like Bitcoin are popular for their security and decentralization. However, these networks are expensive to maintain and require costly equipment for the mining process. In addition, PoW chains are energy-intensive.
On the other hand, PoS networks are much cheaper and energy-efficient. These networks only require validators to stake cryptocurrencies, instead of spending heavily on mining equipment and electricity.
Tokenomics
Tokenomics is a combination of “token” and economics.” It describes everything about a cryptocurrency, from specifics on supply, to utility. Tokenomics is very important because when properly designed, it helps a cryptocurrency stand the test of time and attract investors. Good tokenomics points to a properly designed platform, which creates trust in potential investors and helps to boost demand. Variables included in a cryptocurrency’s tokenomics may include mining and staking specifics, token burns, yields, supply, allocation, and vesting periods.