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Q: How Do Bitcoin Whales Impact the Price of Bitcoin?

If a whale decides to sell a large amount of bitcoins in one day, that will create a ripple effect in the market, and likely drive prices down as other investors follow suit. A whale could, potentially, shift market trends in whichever direction they’d like.

Q: Who are Some of the Biggest Crypto Whales?

Here are some of the biggest crypto whales we know about: The Winklevoss Twins, Tim Draper, and Michael Saylor.

Sep

2021

What Is a Bitcoin Whale? How They Affect Bitcoin’s Price

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

You’ve probably heard of the “wolf” of Wall Street, but may not necessarily be familiar with Bitcoin whales. While neither of these monikers actually have anything to do with the animal kingdom, they both describe dominant creatures in the financial digital assets and cryptocurrency realm.

So, just what is a Bitcoin whale, or a crypto whale? It’s another one of those crypto terms that are worth knowing. In this article, we’ll run through a few examples of Bitcoin whales, and discuss how these whales can and have created ripple effects through the crypto markets on occasion.

What is a Bitcoin Whale?

Simply put, a Bitcoin whale is an investor that has a massive amount of Bitcoin holdings. If the average Bitcoin investor holds a single bitcoin in their portfolio, for example, a Bitcoin whale may hold 500 or 1,000 bitcoins.

“Whales” in the investing sphere are not solely relegated to the Bitcoin market. Whether it comes to investing in stocks or investing in cryptocurrency, the term “whale” refers to the same thing: An investor with a disproportionate amount of holdings compared to others.

Bitcoin whales buy cryptocurrency like you might buy toilet paper. And they’ll likely continue to, considering how much Bitcoin is left to be mined — a supply that will be exhausted by 2140.

Whales come in different sizes, so some Bitcoin whales are bigger than others. That said, it’s hard to get a clear gauge on the number and size of whales, because a single person or entity can have multiple addresses. As of July 2021, there are only a few whales that hold between 100,000 and 1,000,000 bitcoins, and around 80 that hold between 10,000 and 100,000 bitcoins.

How Do Bitcoin Whales Impact the Price of Bitcoin?

Now that you know what a Bitcoin or crypto whale is, it’s important to understand how these whales can affect the price of Bitcoin. Especially if you’re interested in investing in Bitcoin, or currently have Bitcoin in your portfolio.

Because they hold an outsized position in the market, whales make waves when they make moves. For example, if a whale decides to sell a large amount of bitcoins in one day, that will create a ripple effect in the market, and likely drive prices down as other investors follow suit. A whale could, potentially, shift market trends in whichever direction they’d like. (Yes, this can border on market manipulation.)

For example, let’s say a whale with a balance of 100,000 bitcoins wants to buy more. They could sell 50,000 of them — an amount that could catch the attention of other investors, who would start selling their holdings, which in all likelihood would lead to a drop in Bitcoin prices. The whale could then buy back their 50,000 Bitcoins (and perhaps more) at a lower price — profiting and padding their holdings at a discount.

In other words, they could create a dip, and then buy the dip.

This hypothetical situation highlights the type of leverage a whale could have on a market. They could suppress or pump up prices (which is something seen in other assets, like stocks, too), leaving smaller investors scrambling to keep up.

Because whales have potentially market-moving capabilities, other investors tend to watch them closely. “Whale watching,” as it may be called, keeps tabs on whale activity to get a sense of where the markets are heading. There are a number of social media accounts and websites that any interested whale watchers can follow. Not surprisingly, one need only search “crypto whale watch” or “Bitcoin whale watch” to find them.

Who Are Some of the Biggest Crypto Whales?

There are plenty of fish in the sea, and plenty of whales in the Bitcoin market. But we don’t know who many, if not most of them, are. You may remember that nobody even knows who the creator of Bitcoin is, other than it’s a person (or persons) that goes by the name of Satoshi Nakamoto.

So, just like the deep blue sea is full of mysteries, so is the cryptocurrency market. But there are a few whales that we know about, and that many investors choose to keep an eye on. Here are some of them:

The Winklevoss Twins

If you remember the movie “The Social Network,” you might remember the Winklevoss twins, who were portrayed in the movie by Armie Hammer. The two had a role to play in the early days of Facebook, but these days, the real-life investors are in the Bitcoin game.

Tyler and Cameron Winklevoss have amassed billions of dollars in Bitcoin, with their first acquisitions dating back roughly a decade. Since then, they’ve been involved in several cryptocurrency ventures and exchanges, as investors and founders. In 2015, the two launched Gemini, a crypto exchange that allows users to trade Bitcoin and other cryptocurrencies.

The twins are incredibly bullish on Bitcoin and have even said that they think it will outperform stocks and other assets over the next decade.

Tim Draper

Tim Draper, another Bitcoin whale, is a venture capitalist who’s invested in a variety of companies from Skype to Tesla, and Robinhood to Ancestry.com. When it comes to Bitcoin, Draper made a splash in 2014 when he bought tens of thousands of bitcoins that were seized by the federal government.

Those holdings immediately gained him whale status in the Bitcoin market, and Draper has continued to amass additional bitcoins (along with other altcoins). He has said that he thinks Bitcoin’s value will rise into the hundreds of thousands of dollars.

Michael Saylor

Michael Saylor is the CEO of MicroStrategy, a business intelligence company with a Bitcoin focus. Saylor’s become one of Bitcoin’s biggest proponents in recent years, and has seen his company’s holdings climb into the billions of dollars.

Saylor has made Bitcoin investing a primary function of MicroStrategy, which has even issued additional debt in order to raise funds to buy more cryptocurrency. As such, Saylor and his company have become Bitcoin whales in their own right.

The Takeaway

Much like whales found in nature and in other areas of investing, a Bitcoin whale is an investor with a large amount of holdings — enough that they have the potential to move the market. Not surprisingly, the who and how many of Bitcoin whales is someone unknown, with a few exceptions.

Photo credit: iStock/hemul75

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Sep

2021

Guide to Options Prices: How are Options Priced?

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Options are derivative financial instruments that give the buyer the right (but not the obligation) to buy or sell an underlying security, such as a stock, within a predetermined time period for a predetermined price, known as the strike price.

Investors like options because they allow the investor to bet on the price increase or decrease of a stock, without owning the stock itself. There are two main types of options: call options and put options. An investor who buys a call option buys the right to buy the option’s underlying asset. An investor who purchases a put option is buying the ability to sell the option’s underlying asset.

Recommended: A Guide to Options Trading

How is an Option Price Determined?

The sellers of an option take many different factors into account to determine the price, or premium, of an option. The most widely known method for determining the value of an option is the Black-Scholes model. But other models – such as the binomial and trinomial options pricing models – are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• the market price of the stock that underlies the option

• the current intrinsic value of the option

• the time until the option expires

• volatility

Market Price and Intrinsic Value

The first is easy to understand – it’s the price at which the underlying stock is trading. The second – the intrinsic value of the option – is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Time Value

The time until expiration is more complex. It represents the possibility that an out-of-the-money option could eventually become profitable. This so-called time value reflects the amount of time an option has until it expires. It’s one part of an option’s value that only goes down – and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date gets closer, the underlying stock must make bigger moves for those price changes to make significant changes in stock options pricing.

Volatility

That time value reflects the volatility of the underlying security, as well as the market’s expectation of that security’s future volatility. As a general rule, stocks with a history of high volatility underlie options that with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by beta, which is the volatility of a given stock versus the volatility of the overall market. And options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• the underlying stock’s price

• the option’s strike price

• current interest rates

• the option’s time to expiration

• the underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The Binomial Option Pricing Model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial model reflects on a very simple assumption – that in any pricing scenario the premium will go one of two ways: up or down.

As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs as other models, with the ability to update the equation as new information emerges. In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements, and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Understanding how options pricing works is important, whether you’re interested in trading options or not. However, you can also build a more straightforward portfolio that does not use options at all.

A great way to get started is with SoFi’s options trading platform. The platform has an intuitive design where you can trade options on the mobile app or through the web platform. You’ll also have access to educational resources to continue to help guiding you along the way.

Pay low fees when you start options trading with SoFi.

Photo credit: iStock/ljubaphoto

Sep

2021

What Is a Paper Wallet? How Paper Wallets Work

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

A paper wallet is just what it sounds like – a crypto wallet made from a piece of paper. It contains a private and public key pair for making crypto transactions. Typically, a key generator program creates the key and prints it on paper in the form of two QR codes and two strings of alphanumeric characters.

A paper wallet is among the oldest kinds of noncustodial, cold crypto wallets, but it is an outdated method that has security flaws.

History of Paper Wallets

In the early days of Bitcoin, paper wallets may have been the most secure form of Bitcoin storage. There was no other mechanism to take coins offline and put them into cold crypto storage.

Still, investors realized that having a safe method of holding onto their crypto was a necessity for crypto investing. Over time, as crypto exchanges, institutional-grade custody solutions, hardware wallets, multi-signature wallets, and other secure forms of storing crypto became more commonplace, crypto paper wallets became less popular.

How Does a Paper Wallet Work?

When created correctly, a paper wallet is immune to hacking. There’s no way to access a piece of paper via the Internet. But certain parts of the process could still make users vulnerable.

The problem is that users have to be very careful when creating paper wallets. The process requires using a computer, and there could be traces of evidence left behind that a sophisticated attacker might be able to access.

How to Keep a Paper Wallet Secure

There are several steps that investors can take to protect their paper wallet. For starters, create the wallet entirely offline, but following these steps:

• Download the wallet generator software to a USB drive

• Plug the USB drive into a new device that has never been connected to the internet

• Create the wallet keys and print them out using a wired connection to a printer

What about when you want to take funds off of a paper wallet and spend them? Things can get a little tricky here, and users who don’t know exactly what they’re doing could lose most or all of their funds.

Taking coins out of a cryptocurrency paper wallet requires either sweeping or importing the private keys into a software wallet. Sweeping keys and importing keys don’t result in the same outcome, however.

Importing Keys

Users who import their crypto private keys, essentially creating a copy of them, could lose funds if they fail to first set up something called a “change output.”

A change output, or change address, is the destination where the remaining funds on a paper wallet will go when a user only spends a portion of the wallet’s balance. If this address hasn’t been set up beforehand, the unspent portion of a paper wallet will disappear forever after the first transaction from that wallet.

For example, if a user has 0.1 BTC on a paper wallet and decides to spend just 0.01 BTC, the remaining 0.09 BTC would automatically go to a change address. If no change address has been established before the transaction, the Bitcoins would simply be lost.

Sweeping Keys

“Sweeping” the private keys from a paper wallet into a software or mobile wallet avoids this problem, as the keys are transferred to a new location in their entirety.

How Do You Use Paper Wallets?

Using a paper wallet doesn’t involve a lot of hassle. Users simply have to:

• Create the wallet addresses

• Print out the paper wallet

• Deposit coins to the public key address

Paper wallets typically include addresses in both QR code and alphanumeric format.

When a user wants to spend the funds stored on a paper wallet, they import or sweep the private key. To do this, a user must install a digital wallet on their desktop or mobile device that allows private keys to be imported (Electrum would be one example).

Crypto exchanges generally do not support this function.

Pros and Cons of Paper Wallets

Paper wallets represent a simple and inexpensive way to put small amounts of crypto into cold storage. But the cons outweigh the pros.

A paper wallet is, of course, made of paper, which means that water, fire, or the family pet could damage or destroy it. This could result in total loss of funds.

Pros of paper wallets	Cons of paper wallets
Inexpensive	Not suitable for holding large amounts of coin
Easy to create	User error can result in total loss of funds
Secure cold storage	If someone gets hold of the wallet, they will have the private keys and can steal the coins
	It can be difficult to bring the funds back online
	Vulnerable to water or fire damage

Alternatives to Paper Wallets

In addition to paper wallets, there are several other, more common types of virtual vaults to store different types of crypto.

Web Wallets

Web wallets are hosted online in a web browser. These wallets can be convenient but are among the least secure types of hot wallets. They can be easily hacked and if something goes wrong with the web browser, the wallet could be lost.

Wallets like these have great utility value in that they are easy to use and can enable users to participate in different crypto applications.

Software Wallets

Software wallets are basically desktop applications that come with a simple graphic user interface for sending and receiving transactions. While somewhat more secure than web wallets, software wallets are generally not considered good options for long-term storage of large amounts of crypto.

Funds held in a software wallet on someone’s personal computer can be vulnerable to hacking, a user could lose their password, or the device could be stolen or damaged.

Hardware wallets

Hardware wallets have been growing in popularity ever since a company called Trezor created the first one back in summer 2014. Later that same year, Ledger also created a hardware wallet. Both companies are still leaders in this space today.

Hardware wallets keep a user’s private keys securely stored offline in cold storage, like paper wallets. The big difference is that a user can easily bring a hardware wallet online and use it to make transactions. Hardware wallets are also much more durable than paper wallets.

Most users will find all of the wallet types listed above much easier to use than paper wallets with Bitcoin.

Exchange Wallets

Some crypto exchanges also have integrated wallets, which allow users to store their crypto on the exchange. Exchange wallets are easy to use, but their security depends on the overall security of the exchange. Ideally, an exchange will offer users the option to use cold storage or multi-signature wallets.

The Takeaway

A Bitcoin paper wallet isn’t recommended in the modern age of hardware wallets and other secure forms of cold storage. Paper wallets with Bitcoin are too vulnerable to human error and other factors to make them risky, especially for investors who want to use them over the long term and HODL their crypto investments.

These types of wallets represent a bygone relic of crypto’s earliest days. Unless someone is on a strict budget with only a small amount of coin to store, it’s hard to justify using a paper wallet to store your private keys.

Photo credit: iStock/Vladimir Sukhachev

Sep

2021

What Is Dogecoin?

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

What is Dogecoin?

Dogecoin (DOGE) is a an altcoin launched in December 2013, possibly as a joke. But cryptocurrency investors consider Dogecoin’s blockchain, derived from Litecoin, as reliable, which is one of the many reasons for the cryptocurrency’s rise to prominence.

The “Doge” in Dogecoin comes from the Flash cartoon “Homestar Runner,” in which Homestar calls another character his “D-O-G-E,” deliberately misspelling the word “dog.” In the early 2010s, a blogger posted a picture of her dog smiling excitedly, which struck a chord on Tumblr and Reddit. Then, a Redittor called the image “Doge, “creating a meme.

» Looking for more guides? Check out our crypto glossary.

How Does Dogecoin Work?

That code for Dogecoin is based on Litecoin, and early versions of the coin incentivized block miners through a randomized reward system. But the coin would soon change to a static-reward system for miners in March 2014. Being based on Litecoin, Dogecoin uses scrypt technology. It’s a proof-of-work coin, which is the reason for its low price and virtually unlimited supply.

That scrypt technology set it apart from other kinds of cryptocurrency, including Bitcoin, which uses a different proof-of-work algorithm called SHA-256. While the differences between the two are complicated, the upshot is that Dogecoin’s scrypt allows for an unlimited supply of coins. This makes Dogecoin a so-called “inflationary coin,” whereas Bitcoin and similar cryptocurrencies are considered deflationary, because there’s a fixed limit to the number of coins miners can create.

Who Created Dogecoin?

Jackson Palmer, an Australian project manager, created Dogecoin, which he originally thought of as a way to make fun of the media frenzy around cryptocurrencies. But he did purchase the dogecoin.com domain. At the same time, Portland, Oregon-based software developer Billy Markus looked up from his desk at IBM, and noticed the social-media attention that Dogecoin was gathering. Together, Palmer and Markus began to write the code that would underlie the first actual Dogecoin.

Two weeks after Palmer and Markus launched Dogecoin in 2013, its value rose by a staggering 300%. In those days, Dogecoin marketed itself as a “fun” version of Bitcoin. Its smiling-dog logo fit the playful atmosphere mood of the crypto community at the time, while its underlying code kept it relatively cheap to buy.

That playfulness showed up in the Dogecoin community’s 2014 donation of 27 million Dogecoins (roughly $30,000 at the time) to bankroll the Jamaican bobsled team’s expenses at the Sochi Winter Olympic games.

What Can Dogecoin Be Used for?

Once you have some Dogecoin, you can put it in a BitPay wallet, and via their partnership with Mastercard, you could put it on a prepaid crypto card, which you can spend anywhere Mastercard is accepted. That means you can use your Dogecoin to buy just about anything.

BitPay has also added Dogecoin support for Apple Wallet, which allows you to store their BitPay Card – and the Dogecoins within it – in your iPhone to make Apple Pay purchases.

How Did Dogecoin Become So Popular?

Born from a Reddit meme, Dogecoin had a ready audience of supporters ready to buy into the cryptocurrency, especially on the WallStreetBets subreddit. But it reached a far wider audience through its celebrity endorsements.

How Many Dogecoins Are There?

There were more than 129 billion Dogecoins in circulation on May 21, 2021, according to CoinMetrics. That made it the highest-circulation cryptocurrency in existence. The closest contender is Stellar (XLM), with 105 billion coins in circulation. By comparison, Bitcoin has just over 18.5 million in circulation.

Dogecoin has no limit as to how many coins miners can create. This is a stark contrast to Bitcoin, which is designed to never exceed 21 million coins in circulation, a level it should reach in the year 2140.

Why Is Dogecoin So Cheap?

Dogecoin is so cheap because there are so many of them, and because so many more are coming into existence, without limit, for the foreseeable future. The founders have decided not to cap the amount of Dogecoins in existence. And the law of supply and demand means that, without scarcity, the coins will remain inexpensive.

But that same low price is also why Dogecoin is so liquid, and can trade so quickly. While the price remains low, it has gone up substantially, increasing 12,000% from January to July, 2021. That’s an incredible return for those who managed to HODL their cryptocurrency through the volatility.

Dogecoin Price Prediction: Will It Reach $1?

Of course, it’s impossible to predict the future, but at present, it is very easy and inexpensive to mint new Dogecoins. As a result, one could reason that it is unlikely to reach $1 per coin until it becomes harder and more expensive to mint new Dogecoins.

Is Dogecoin a Good Investment?

While Dogecoin has gone up in recent years, it’s very hard to predict the future of any form of crypto. But if crypto is a big part of your investment strategy, then Dogecoin could make sense as part of a diversified crypto portfolio. It is a popular currency, and has a unique set of investors behind it.

That said, Dogecoin comes with risks. Critics say that Dogecoin, as a cryptocurrency, doesn’t have many advantages built into its code or its applications. They also point out that beyond the popularity of Dogecoin, there’s not much that differentiates it from a new crypto competitor that could emerge tomorrow next year. But boosters point to Dogecoin’s popularity and growth as the kind of first-mover advantage that new competitors may have trouble matching.

How Can I Buy and Sell Dogecoin?

You can invest in Dogecoin through a crypto exchange, like Coinbase, Binance, Kraken, or another platform. After opening an account and funding it, you can use those funds to trade Dogecoin or other cryptocurrencies.

The Takeaway

Dogecoin is an altcoin that has gained a significant following, despite its origins as a joke currency. It is just one of many types of cryptocurrencies that crypto investors might consider adding to their portfolio.

If you want to invest in Dogecoin without opening an account on a crypto exchange, you can open an account on the SoFi Invest® brokerage platform. You can use the app to purchase stocks and exchange-traded funds as well as to build a crypto portfolio.

Photo credit: iStock/Irina Vaneeva

Aug

2021

How to Start a Cryptocurrency: Can Anyone Create a New Coin?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Despite ongoing crypto volatility, there’s nothing to stop people from launching new crypto projects. In fact, anyone could start a cryptocurrency, but not everyone has the knowledge or resources necessary to take on the task.

Even after someone manages to create a new type of crypto, one that offers new features or aims to solve existing problems, there is still work to do in terms of promotion, listing on exchanges, never mind ongoing maintenance and upgrades.

Table of Contents

Understanding Coins vs Tokens
Ways to Create a Cryptocurrency
How to Make a Cryptocurrency in 7 Steps

Understanding Coins vs Tokens

Before getting started, however, it’s important to know the difference between a token and a coin. Both fall under the blanket term of “cryptocurrency,” but while a coin like Bitcoin or Litecoin exists on its own blockchain, a token like Basic Attention Token, functions within an established blockchain technology infrastructure like Ethereum. Tokens also do not have uses or value outside of a specific community or organization.

Cryptocurrencies function like fiat currencies, without the centralized bank. Users typically hope to use their coins to store, build, or transfer wealth.

Meanwhile, tokens usually represent some kind of contract or have specific utility value for a blockchain application. Basic Attention Token for example, rewards content creators through the Brave browser. Tokens can also serve as a contract for or digital version of something, such as event tickets or loyalty points.

Non-fungible tokens (NFTs) represent a unique piece of digital property, like artwork. And DeFi tokens serve many different purposes in that space.

Ways to Create a Cryptocurrency

There are three primary ways to create a cryptocurrency, none of which is fast or easy. Here’s how each of them works:

Create a New Blockchain

Creating a new blockchain from scratch takes substantial coding skills and is, by far, the most difficult way to create a cryptocurrency. There are online courses that help walk you through the process, but they assume a certain level of knowledge. Even with the necessary skills, you might not walk away from these tutorials with everything you need to create a new blockchain.

Fork an Existing Blockchain

Forking an existing blockchain might be a lot quicker and less complicated than creating one from scratch. This would involve taking the open source code found on GitHub, altering it, then launching a new chain with a different name and a new type of crypto. The developers of Litecoin, for example, created it by forking from Bitcoin.

Developers have since forked several coins from Litecoin, including Garlicoin and Litecoin Cash. This process still requires the creator to understand how to modify the existing code.

Use an Existing Platform

The third and easiest option for those unfamiliar with coding is making a new cryptocurrency or token on an existing platform like Ethereum. Many new projects create tokens on the Ethereum network using the ERC-20 standard, for example.

If you’re not familiar with writing code, you might consider a creation service that does the technical work and then hands you a finished product.

Up to $100 in bitcoin² – just for you.

With 30 coins available, our app offers a secure way to trade crypto 24/7.

How to Make a Cryptocurrency: 7 Steps

After considering everything above, you can start taking the steps to build the cryptocurrency. Some of these steps will be less relevant when paying a third-party to create the new coin. Even then, anyone undertaking the task should be familiar with these aspects of how to create a cryptocurrency.

1. Decide on a Consensus Mechanism

A consensus mechanism is the protocol that determines whether or not the network will consider a particular transaction. All the nodes have to confirm a transaction for it to go through. This is also known as “achieving consensus.” You will need a mechanism to determine how the nodes will go about doing this.

The first consensus mechanism was Bitcoin’s proof-of-work. Proof-of-Stake is another popular consensus mechanism. There are many others as well.

2. Choose a Blockchain

This goes back to the three methods mentioned earlier. A coin or token needs a place to live, and deciding in which blockchain environment the coin will exist is a crucial step. The choice will depend on your level of technical skill, your comfort level, and your project goals.

3. Create the Nodes

Nodes are the backbone of any distributed ledger technology (DLT), including blockchains. As a cryptocurrency creator, you must determine how your nodes will function. Do they want the blockchain to be permissioned or permission less? What would the hardware details look like? How will hosting work?

4. Build the Blockchain Architecture

Before launching the coin, developers should be 100% certain about all the functionality of the blockchain and the design of its nodes. Once the mainnet has launched, there’s no going back, and many things cannot be changed. That’s why it’s common practice to test things out on a testnet beforehand. This could include simple things like the cryptocurrency’s address format as well as more complex things like integrating the inter-blockchain communication (IBC) protocol to allow the blockchain to communicate with other blockchains.

5. Integrate APIs

Not all platforms provide application programming interfaces (APIs). Making sure that a newly created cryptocurrency has APIs could help make it stand out and increase adoption. There are also some third-party blockchain API providers who can help with this step.

6. Design the Interface

There’s little point in creating a cryptocurrency if people find it too difficult to use. The web servers and file transfer protocol (FTP) servers should be up-to-date and the programming on both the front and backends should be done with future developer updates in mind.

7. Make the Cryptocurrency Legal

Failing to consider this last step led to trouble for many who initiated or promoted ICOs back in 2017 and 2018. At that time, cryptocurrency was in a kind of legal grey area, and they may not have realized that creating or promoting new coins could result in fines or criminal charges depending on the circumstances.

Before launching a new coin, it a good idea to research the laws and regulations surrounding securities offerings and related topics. Given the complexity of the issues and their regular updates, you might consider hiring a lawyer with expertise in the area to help guide you through this step.

The Takeaway

This is only the beginning of what someone needs to know about how to create a cryptocurrency. In addition to the technical aspects, creators of a new coin or token will have to figure out how their cryptocurrency can provide value to others, how to persuade them to buy in, and how the network will be maintained. Doing so often involves many costs like hiring a development team, a marketing team, and other people who will help keep things going and perform needed upgrades.

Creating a cryptocurrency can take a lot of time and money, and there’s a high risk that it will not succeed. There are more than 5,000 different types of cryptocurrencies listed on public exchanges according to data from Coinmarketcap, and thousands more that have failed over the years.

Simply participating in cryptocurrency trading might be a better route for those who don’t have the time, money, or interest in creating their own. A great way to do that is by opening an investment account on the SoFi Invest brokerage platform, which makes it easy to trade crypto, stocks, and exchange-traded funds.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/23; terms apply.)

Photo credit: iStock/MF3d

Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

What Is a Bitcoin Whale? How They Affect Bitcoin’s Price

What is a Bitcoin Whale?

How Do Bitcoin Whales Impact the Price of Bitcoin?

Who Are Some of the Biggest Crypto Whales?

The Winklevoss Twins

Tim Draper

Michael Saylor

The Takeaway

Guide to Options Prices: How are Options Priced?

How is an Option Price Determined?

Market Price and Intrinsic Value

Time Value

Volatility

What Are the Different Option Pricing Models?

The Black-Scholes Merton (BSM) Model

The Binomial Option Pricing Model

The Trinomial Option Pricing Model

The Takeaway

What Is a Paper Wallet? How Paper Wallets Work

History of Paper Wallets

How Does a Paper Wallet Work?

How to Keep a Paper Wallet Secure

Importing Keys

Sweeping Keys

How Do You Use Paper Wallets?

Pros and Cons of Paper Wallets

Alternatives to Paper Wallets

Web Wallets

Software Wallets

Hardware wallets

Exchange Wallets

The Takeaway

What Is Dogecoin?

What is Dogecoin?

How Does Dogecoin Work?

Who Created Dogecoin?

What Can Dogecoin Be Used for?

How Did Dogecoin Become So Popular?

How Many Dogecoins Are There?

Why Is Dogecoin So Cheap?

Dogecoin Price Prediction: Will It Reach $1?

Is Dogecoin a Good Investment?

How Can I Buy and Sell Dogecoin?

The Takeaway

How to Start a Cryptocurrency: Can Anyone Create a New Coin?

Understanding Coins vs Tokens

Ways to Create a Cryptocurrency

Create a New Blockchain

Fork an Existing Blockchain

Use an Existing Platform

Up to $100 in bitcoin2 – just for you.

With 30 coins available, our app offers a secure way to trade crypto 24/7.

How to Make a Cryptocurrency: 7 Steps

1. Decide on a Consensus Mechanism

2. Choose a Blockchain

3. Create the Nodes

4. Build the Blockchain Architecture

5. Integrate APIs

6. Design the Interface

7. Make the Cryptocurrency Legal

The Takeaway

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