How To Create a Cryptocurrency: Everything You Need to Get Started
Nearly 10,000 cryptocurrencies and tokens comprise a $2.1 trillion market. Bitcoin - the currency that started this particular fire - inspired and served as the foundation for many subsequent projects.
While impressive, that doesn’t tell you much about how to create a cryptocurrency for yourself. Luckily, we’re here to explain what it takes to build a blockchain architecture, build on the existing projects, or use platforms like Ethereum to create your tokens. Read on!
Coding a Blockchain
The blockchain is the underlying technology that powers Bitcoin and other cryptocurrencies.
It’s a digital ledger of all Bitcoin transactions that have ever taken place, and it’s constantly growing, as completed transaction sets made and verified by its users - i.e., blocks - are added.
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
However, creating a cryptocurrency is much more complicated than coding a working blockchain. It requires a substantial level of preparation and things to consider before you dive into writing code. Here are just a few:
- Use case - Most cryptocurrencies are developed to solve a problem. Bitcoin, for example, was created as a way for people to send money online without having to go through a centralized institution such as a bank. Ethereum was built as a platform for decentralized finances, apps, and more. Rarible’s token RARI is used as a token that represents your vote in how the NFT marketplace is run.
- Consensus mechanism - This is the process by which all network members agree on the validity of a new block. Without this, cryptocurrencies would be susceptible to double spending and other attacks. Bitcoin uses Proof-of-Work, Cardano uses Proof-of-Stake, and Rarible uses Delegated Proof-of-Stake.
- Establish nodes - Cryptocurrencies are decentralized networks reliant on nodes run by users. This ensures that the network remains secure and tamper-proof, as every transaction requires node consensus.
- API development - like with any other software, to make a cryptocurrency, you need APIs if you want it to be used by other applications. These APIs will need to be well-documented and easy to use, so that developers can build on them.
Create a Cryptocurrency Using an Existing Blockchain: Soft and Hard Forks
By making a crypto coin from scratch, you would be building the whole system from the ground up. However, you can use publicly available cryptocurrency source code, such as Bitcoin’s, instead.
Creating a fork in an existing blockchain is a way to start your own cryptocurrency with the same history and characteristics as its original coin.
However, the rules and protocols it runs on would be new. Forks can be classified as either soft or hard, depending on how they’re implemented.
A soft fork is when the change made to the protocol is backward compatible. This means that nodes running the old software will be able to connect to nodes running the new software.
All transactions that have taken place on the old blockchain will still be valid on the new blockchain. For example, upgrades on a cryptocurrency’s network are implemented this way.
However, this is not how you create a cryptocurrency; for that, you would need to make a hard fork - a change incompatible with the existing infrastructure.
Hard forks occur when the community behind a cryptocurrency project doesn’t agree on how to develop further. The most prominent examples of this were Bitcoin and Bitcoin Cash, as well as Ethereum and Ethereum Classic.
The Dogecoin Phenomenon
Dogecoin is an example of how to make a cryptocurrency using existing code. The first “dog coin” protocol was created in two hours and based on Litecoin and Luckycoin.
While it doesn’t have the same features as Bitcoin, Ethereum, or Cardano, it gained a lot of traction because it was created as a meme parodying cryptocurrencies.
Now, Dogecoin’s community is one of the most active and generous in the cryptocurrency sphere. They have raised millions of dollars for various charities, including helping people in need after natural disasters. The coin has also been used to tip people on social media for their creative content.
Coins and Tokens
Before exploring how to create your own cryptocurrency further, we need to explain the difference between a coin and a token.
A coin is a unit of currency that exists on its own blockchain. Bitcoin, Litecoin, and Ether are all examples of coins. A token, on the other hand, is a unit of value that exists on top of another blockchain.
Most commonly, tokens represent rights and access to services within a particular ecosystem.
For example, one could create a token representing ownership in a company or voting rights within a community. These tokens would be made by issuing a smart contract on a pre-existing blockchain.
The most popular blockchains for creating tokens are Ethereum, Polygon, Solana, and Cardano.
Creating ERC-20 Tokens on Ethereum
The Ethereum blockchain is perfect for creating cryptocurrency tokens because of its ERC-20 standard - a set of guidelines defining how token structure on the Ethereum network works.
By following the ERC-20 standard, your token will be compatible with any application built on top of Ethereum’s blockchain, such as Coinbase and MyEtherWallet.
There are a few steps you need to take to create your own ERC-20 token:
- Choose how many tokens you want to issue
- Decide on a name and symbol for your token
- Create a smart contract for your token
- Add basic information to the token contract
- Deploy your token contract on the Ethereum network
You will need programming knowledge to create your own cryptocurrency on Ethereum, and you’ll need to learn the basics of Solidity, Ethereum’s primary language. Alternatively, you can hire a programmer familiar with creating Ethereum smart contracts.
Hiring Blockchain Developers
Anyone wanting to create a cryptocurrency from scratch will need to put in a lot of work hours and employ a team of blockchain experts. Creating a new coin or token requires an in-depth understanding of blockchain technology, cryptography, and code writing.
Many people decide to outsource the development: Hiring a blockchain development company gets you access to a team of experienced programmers who will take care of everything for you.
Blockchain as a Service
Companies such as Microsoft and Amazon have blockchain-as-a-service (BaaS) solutions available for customers who want to create and manage blockchain-based products (the Ethereum blockchain is available through Microsoft Azure, while Amazon Managed Blockchain is a service of its own).
These services aren’t focused on cryptocurrencies specifically, but rather on blockchain as a technology.
Register Your Crypto
Before making your cryptocurrency successful, you first need to make it legal. The project must be compliant with government regulations and laws.
For example, if you want to raise funds for your crypto project by setting up an initial coin offering (ICO), you need to register said project with the Securities and Exchange Commission (SEC).
The SEC has released a guide on registering your cryptocurrency as a security for this purpose.
Another way to make a crypto coin or token legal is by creating a foundation or non-profit organization, which can then accept money from private individuals or companies.
Making your foundation in Switzerland is a popular option for cryptocurrency creators, as the country is known for its lax laws regarding cryptocurrencies and blockchain technology.
Who created Bitcoin?
Satoshi Nakamoto created Bitcoin in 2009. The name is a pseudonym for a person or group who designed and implemented the Bitcoin protocol.
Is it legal to create a cryptocurrency?
Yes, it is legal to create a cryptocurrency, so long as your country allows it (for example, some countries, like China, have completely or partially banned cryptocurrencies) and you follow the government regulations and laws pertaining to it. You can do this by registering your cryptocurrency as a security, or creating a foundation or non-profit organization.
How much does it cost to start a cryptocurrency?
You need to pay for the development, as well as the costs of running a blockchain network, which can run quite high, depending on the consensus mechanism. Additional costs include fees for registering your currency as a security, or opening a foundation you would be running it under.
How do you create a cryptocurrency step-by-step?
Here is the roadmap for crypto creation:
- Decide whether to develop a blockchain or choose an existing platform (e.g., Ethereum).
- Create a whitepaper for the project.
- Decide on the consensus mechanism (if you’re building your own blockchain).
- Design the nodes for holding the information on your blockchain.
- Integrate APIs (application programming interfaces).
- Design applications to integrate with your blockchain, such as cryptocurrency wallets.
That’s how to create a cryptocurrency. These steps require a significant amount of knowledge and effort, unless you are planning to use platforms like Ethereum to issue tokens.
Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.
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