Creating A Cryptocurrency
Cryptocurrencies are all the rage right now, and you can’t go anywhere without at least hearing about a cryptocurrency or a blockchain, as people across the globe explore the technology to see what benefits it can offer them. Whether you have a great new business idea for a cryptocurrency or are just a techy who wants to develop your own cryptocurrency, creating your own cryptocurrency can be both fun and challenging to do. However, when it’s done, you can finally say that you have your own cryptocurrency and can become a part of the global cryptocurrency ecosystem. But how are cryptocurrencies created, and what needs to be considered when creating a cryptocurrency? Well, in this article we will take a look at everything that you need to know to get started creating your own cryptocurrency.
What is a Cryptocurrency?
Before we proceed to take a look at how to create your own cryptocurrency, let’s first take a quick refresher course on what exactly a cryptocurrency is.
A cryptocurrency is a digital representation of value that is transacted on top of a blockchain network. Being built on a blockchain network separates digital currencies from traditional fiat currencies as value transfers in cryptocurrencies do not need to be facilitated by a third-party institution, such as a bank. Furthermore, transactions in the majority of cryptocurrencies in the market are completely transparent, meaning that anyone can view a transaction that took place on the blockchain. They will just have difficulty figuring out who the sender and receiver in the transaction are since all identities on a blockchain are protected using advanced encryption.
Difference Between a Token and a Coin
Cryptocurrencies can be split into two categories, coins, and tokens. Coins are cryptocurrencies that require their own blockchain, while tokens are cryptocurrencies that operate on an already-existing blockchain, such as Ethereum. Tokens are also limited to a specific project, while coins can be used anywhere. Lastly, you can buy tokens using coins but you cannot use tokens to buy coins.
If you want to put coins and tokens into a real-life context, think about tokens as part of a reward system such as Frequent Flyer Miles while coins are actual money: you can use both to buy an airline ticket, except with Frequent Flyer Miles your choice of airlines will be restricted to the airline that offered you the miles.
Benefits of Having Your Own Cryptocurrency
In most cases, it’s a no-brainer that you need your own cryptocurrency. If your project or start-up has its own blockchain, you will need a native cryptocurrency for your chain that will be used to incentivize nodes to contribute their computing power to your network. Secondly, with your own cryptocurrency comes a whole set of powerful marketing tools and consumer benefits that will help you differentiate your project from other similar projects in the market.
Some of the most significant advantages of creating your own cryptocurrency also include the mitigation of fraud risk since a cryptocurrency is impossible to replicate and past transactions cannot be reversed. You can also cut down operating costs when you have your own cryptocurrency since a cryptocurrency is free from exchange interest rates and transaction charges.
By having your own cryptocurrency, you also ensure an immediate pool of potential customers since you can do business with people that might not have access to traditional exchange resources - removing any trade restrictions in the market.
There are several other advantages to having your own cryptocurrency such as the ability to offer immediate and anonymous transactions, security of funds, etc.
Now that we have taken a look at the advantages of creating your own cryptocurrency, let’s take a look at one of the most important tasks that you will need to complete before you can create your own cryptocurrency: creating a blockchain.
How to Create a Blockchain
There are a number of steps that you will need to follow as well as a number of decisions to make before you can create your own blockchain and, subsequently, your own cryptocurrency.
Know You Use Case
The first step before you can create your own cryptocurrency is to figure out what the use case for your coin will be. How will you create a business using cryptocurrency and blockchain technology? Once you have answered this question, you can proceed to the next steps and begin creating your own blockchain and cryptocurrency.
Choose a Consensus Mechanism
The second step in creating a cryptocurrency is to decide what consensus mechanism you will build your network around. A consensus mechanism plays a vital role in a cryptocurrency as it defines how transactions are processed and verified before they get written to the blockchain. It also defines how nodes in the network work together to reach a consensus on transactions.
Popular consensus mechanisms used in the blockchain space are Proof of Work and Proof of Stake. However, more projects are opting for Proof of Stake because of its higher level of sustainability and lowered environmental impact.
Pick a Blockchain Platform
The blockchain platform you choose will depend on the network consensus you have selected for your project. There are a variety of blockchain platforms to choose from. Some of the most popular are Ethereum, Waves, EOS, Hyperledger Fabric, IBM blockchain, and MultiChain. By using blockchain platforms, you can leverage an existing network to create your own blockchain with customized parameters if you prefer to use network parameters that are different from the ones already set by the blockchain platform.
Design the Nodes
This step is more for the technically inclined and can be skipped in most scenarios when using blockchain platforms such as EOS and Ethereum where all you have to do is write the code for your cryptocurrency and deploy it. However, if you use platforms such as HyperLedger Fabric or IBM blockchain, then you may need to design and configure the nodes on your network.
A blockchain consists of a network of nodes. These nodes process transactions on the blockchain and are responsible for maintaining the decentralization of the network, so it is important to design the nodes that will make up the network for optimal performance.
There are some decisions that you will have to make when deciding what nodes to employ. First, you need to decide what the permission of the nodes will be, they can either be private, public, or hybrid. Next, you will need to decide if the nodes will be hosted on the cloud, on-premise, or on both. Depending on what you decide to go with, you will need to get the necessary hardware, such as processors, memory, disk size, etc. Lastly, you will need to pick a base operating system. This can either be Ubuntu, Windows, Red Hat, Debian, CentOS, or Fedora.
Take Care of APIs
The final step is to make sure to check whether the blockchain platform of your choice provides the pre-built APIs, since not all of them do. Even if your platform doesn’t come with those, do not worry: there are a lot of reliable blockchain API providers out there.
Is Creating a Cryptocurrency Worth It?
While there are several benefits to owning your own cryptocurrency, the amount of work and resources required to do so can become substantial. Creating your own blockchain and cryptocurrency will require a lot of human and capital resources in every stage of development. A lot of experience and knowledge is also required to create a blockchain and cryptocurrency in a cost and resource-efficient way.
Having employed the help of professional developers you will significantly cut down your expenses in the long run by eliminating the room for errors, and, therefore, time and cost of the rework and updates; future-proof your solutions by working with the experts who stay on top of all the latest industry developments and innovations, and free up your time for growing your business.
Creating A Cryptocurrency: Conclusion
Creating your own blockchain and cryptocurrency comes with a lot of benefits, but can be a relatively resource-intensive process, especially if this is the first time you are creating your own cryptocurrency.
When creating a cryptocurrency, there are two approaches that you can take. Both approaches involve using an existing blockchain platform that takes care of most of the dirty work for you. You can either use a blockchain platform where all you need to do is code the cryptocurrency, as is the case with Ethereum and EOS, or you can use a platform that allows you to tune the parameters of the network, such as Hyperledger Fabric or IBM blockchain.