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.
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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.
Recommended: What is Cryptocurrency? A Guide to Understanding Crypto
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.
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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.
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.
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