How to Create a Cryptocurrency: Step-by-Step Guide
Did you know that there are over 20,000 cryptocurrencies listed on CoinMarketCap (as of August 2022)? The speed with which new coins arrive makes it seem easy to create your own cryptocurrency.
But before you rush to create your own digital currency, you need to understand exactly what cryptocurrency is and the technology behind it.
You may have many questions about cryptocurrency creation, such as: Is it legal to create cryptocurrency? Do I create a cryptocurrency or a crypto token? Where do I list my cryptocurrency? Do I need millions of dollars to start a cryptocurrency? We have the answers.
In this article, we take a closer look at digital currencies and provide you with a detailed guide on how to create a cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is an electronic instrument that allows for the peer-to-peer transfer of value without the consent of a third party. Indeed, the decentralized nature of cryptocurrencies as one of its defining characteristics is what has attracted many of these people to its world.
Digital currencies use blockchain technology to provide a faster and cheaper way to make payments (especially international payments) than traditional systems such as banks. The transparency of being able to record transactions in a public ledger (blockchain) adds to the allure of cryptocurrencies.
Cryptocurrency isn’t complete without a blockchain, a decentralized peer-to-peer (P2P) network made up of blocks of data. These blocks follow a communication protocol between nodes, validate new blocks, and store information about transactions in the order they occur.
Creating Crypto Coins Vs Crypto Tokens
Before creating your own cryptocurrency, you should first know the difference between a cryptocurrency and a cryptocurrency. While the two terms are often used interchangeably in the cryptocurrency world, they differ somewhat. Cryptocurrencies are digital currencies designed to run on a specific blockchain, while cryptographic tokens are digital assets created using decentralized applications (DApps) and platforms built on top of an existing blockchain.
Coins are designed from the ground up to function as currency and are integrated into their own blockchain. They are a form of transaction and work similar to fiat currency. Coins store value and are a medium of exchange between two parties.
At the same time, cryptographic tokens are digital assets encoded into smart contracts and used in existing DApps and blockchain platforms. For example, ERC-20 tokens are built on the Ethereum blockchain. There are many types of tokens, such as gaming tokens, utility tokens such as stablecoins, and digital asset and management tokens such as non-fungible tokens (NFTs).
Creating a token is usually easier than a coin because tokens are built on top of existing blockchains. This means you can leverage existing blockchain technology to create a token. Some tokens can even be generated without encryption! For example, the CoinTool app lets you generate an ERC-20 token in just a few clicks.
Methods of creating cryptocurrencies
Here are three ways to create cryptocurrency, from hardest to least:
- Develop your own blockchain and cryptocurrency from scratch
- Make changes to existing blockchain code
- Create a cryptocurrency that works with an existing blockchain
These picks usually require technical knowledge, money, and a team. For some cryptocurrency developers, more technologically advanced solutions offer better customization.
Option 1: Build your own blockchain and cryptocurrency from scratch
By generating codes you can build your own blockchain and create an original coin. This choice gives you the most creative flexibility and control over your coin, but requires significant technical expertise in blockchain development. You also have to invest money and time to develop the entire blockchain technology.
Option 2: Make Changes to Existing Blockchain Code
You can develop your own cryptocurrency by modifying existing blockchain source code, known as a fork. For example, Litecoin and Bitcoin Cash have been separated from Bitcoin.
This path undoubtedly requires a certain technical expertise. Fortunately, major blockchains like Ethereum and EOS have open source code readily available on GitHub.
After downloading and modifying the source code, you still need to work with a blockchain auditor and find an experienced lawyer. From there you can start creating your own cryptocurrency.
Option 3: Create a cryptocurrency that runs on an existing blockchain
If you just want to create a cryptographic token, you don’t need to create a new blockchain platform or change your existing blockchain infrastructure. Platforms like Ethereum are designed for people to build their own ecosystem. This option is suitable for people who are new to programming. The popular meme token, Shiba Inu Token (SHIB), is an ERC-20 token created on the Ethereum blockchain.
How to create cryptocurrency
Define your goals
What will you get with your cryptocurrency? Do you want it to function as a currency exchange or as a store of value?
Right from the start, you should define the purpose of your digital currency with a clear usage scenario in mind. Identify a problem and look for ways your cryptocurrency can solve it from a fresh perspective.
For example, the creators of the mobile cryptocurrency CELO realized that smartphone users could play a key role in the mass adoption of cryptocurrencies. So they created a token that allows any mobile device to send payments using addresses in their contact list.
Another good example is Bitcoin, which was developed in a decentralized way to replace fiat currencies after the 2008 global recession. Ethereum, on the other hand, was built as a platform that encourages programmers to build decentralized applications (DApps).
Once you decide what you want to achieve with your digital currency, the next step is to give it a name and design the logo. The logo is the front of your coin and helps distinguish it from other brands.
Next is a key part of your cryptocurrency project: creating a white paper. The first stop for most investors in the crypto space is the currency white paper. It often includes an explanation of your coin’s problem, solution, crypto ecosystem, and tokenomics.
You will also need a website and social media accounts for your cryptocurrency. Once the whitepaper is ready, you can publish it on the website, along with the “About” page and other relevant information about your coin.
Finally, to attract people to invest in your project during an initial coin offering (ICO) or initial index offering (IDO), make sure all documentation about your project is simple, clear, and free of excessive technical jargon .
Design a consensus mechanism
The next step is to choose a method for agreeing to validate cryptocurrency transactions. A consensus mechanism provides a system for nodes in a computer network to agree on the validity of transactions to secure the network.
Initially, PoW was a common method. It is a computationally intensive protocol that supports the Bitcoin blockchain and many other cryptocurrencies. Miners take part in a dizzying race to solve a mathematical puzzle in the PoW system to verify transactions. A reward in the form of cryptocurrencies is awarded to a miner who successfully adds a block to the blockchain.
However, the PoW consensus mechanism has drawn serious criticism due to its energy consumption and associated environmental burden. As a result, mechanisms have been developed that are not too taxing on computer resources. PoS, where a validator validates transactions by staking coins rather than competitive mining, is seen as a credible alternative to PoW.
You can also choose other consensus mechanisms available in the blockchain space. Delegated proof of stake (DPoS) is a popular version of PoS used by Tron and EOSIO. Proof of Authority (PoA) and Proof of Burn (PoB) consensus mechanisms are also available.
Regardless of the method you use to create cryptocurrency, you must have a blockchain. Depending on which consensus mechanism you believe is best for your cryptocurrency, you should choose an existing blockchain platform that supports it. For example, if you want to use a PoS algorithm, you can choose Cardano or Near blockchain.
Once you’ve chosen your platform, the next step is to download the necessary software and set up your node. Nodes are devices running blockchain software. The node’s computer participates in the validation and forwarding of transactions and in recording transaction history in the blockchain.
There are many types of nodes available for validating cryptographic transactions. When creating your own cryptocurrency, it’s important that you know what kind of nodes you want for your blockchain.
Remember that creating a node from scratch requires advanced technical skills. Most blockchains have an existing node structure which is used to validate transactions.
Set up the blockchain architecture
In this phase, you design the inner workings of your cryptocurrency infrastructure. How does your cryptocurrency network work? This takes into account, among other things, the format of the transaction, the network protocol and the consensus algorithm.
If you decide to build your cryptocurrency on top of an existing blockchain, you will benefit from the current architecture. Most major blockchains have an immutable, proven and decentralized cryptographic architecture.
At this point you also need to understand the tokenomics of your coin. How many coins will you generate? What is the circulating supply? Careful consideration of tokenomics factors is essential to the success of a cryptocurrency.
Always find a balance. When there are too many coins in circulation, the value of the coin can be low. On the other hand, fewer coins can be expensive for investors to purchase.
After designing the internal architecture of your cryptocurrency, the next thing to do is add Application Programming Interfaces (APIs). An API provides a communication channel between network nodes and also helps make the software understandable to end users).
API integration plays an important role in ensuring the security and privacy of your cryptocurrency. APIs also enable collaboration within the blockchain, especially when executing transactions.
When choosing an API, make sure the desired blockchain has functionality for it. For example, if you are using a PoW blockchain, you need to integrate the Bitcoin API.
Design the user interface
For the adoption of cryptography to be successful, the user interfaces used must be simple and beautiful to look at. A well-designed crypto user interface attracts new users and enhances the customer experience.
Your cryptocurrency has an intuitive interface. Keep in mind that cryptocurrencies are already a complicated topic. Therefore, users are looking for a user-friendly and easy to navigate interface for their crypto transactions.
Dribbble and Fireart are good sources of inspiration for your cryptocurrency UI.
Create a wallet address
After installing the node, the next step is to create a wallet address to facilitate transactions. A wallet address is a unique string of letters and numbers associated with a specific cryptocurrency. You can create a wallet address using an online service or a program installed on your local computer.
Make your cryptocurrency legal
Although cryptocurrency started without government intervention, the industry has attracted a lot of attention from regulators. The legality and regulations of cryptocurrencies vary by jurisdiction.
Do not mint your own cryptocurrency unless you are in a crypto-friendly country. And before creating your ICO, check if ICOs are allowed in your country. You can get legal advice for correct information. Also, be sure to consider the legal aspects of your project at the bottom of the mint white paper.
Grow your cryptocurrency
To ensure the success of your cryptocurrency creation, you need to commercialize it. You can create buzz around the coin by announcing airdrops on your official social media accounts. You can also attract influencers to market cryptocurrency to their followers.
You need to create an active and vibrant crypto community on social media channels like Telegram, Reddit and Twitter. You can promote your coin’s ICO by drafting a strong white paper or hire a marketing firm to do the job. You can also run an airdrop campaign similar to Arbitrum’s Odyssey airdrop to market your project.
Once your cryptocurrency is active, you should check the system regularly to build credibility and trust with users of your cryptocurrency.