What is a Cryptocurrency?
Before you get started on creating your cryptocurrency, it’s important that you understand what a cryptocurrency is. Quite simply, a cryptocurrency is a digital or virtual form of currency. It is protected by cryptography, which makes it almost impossible to counterfeit or replicate.
Perhaps one of the biggest reasons people appreciate cryptocurrencies is that they are not issued by one authority. Theoretically, they are not as susceptible to government manipulation.
With a cryptocurrency, you can buy and exchange goods exactly like you can with dollars, euros, pesos, or any other currency. Cryptocurrencies, however, won’t change from country to country. Sure, one country may favor a certain cryptocurrency over another, but a cryptocurrency can travel much easier than those dollar bills in your pocket.
The appeal of cryptocurrencies isn’t surprising. By using decentralized blockchain technology, cryptocurrencies are more secure. They can be used across multiple computers and networks with ease. It’s also thanks to the decentralized structure that cryptocurrencies can exist without a single authority or government control.
Difference Between Coin and Token
Oftentimes, the terms coin and token are used interchangeably in reference to cryptocurrencies. There is a difference between the two and the concepts behind each kind of cryptocurrency are different so if you want to create your own cryptocurrency, it’s time you learn to tell the two types apart.
What is a Coin?
The most famous coin cryptocurrency is Bitcoin. It also happens to be the world’s most popular cryptocurrency, but that won’t necessarily help you understand what a coin is in terms of cryptocurrencies.
A coin is a cryptocurrency that is built with an independent blockchain network. Each cryptocurrency that uses a coin will have a unique network that it functions on.
Let’s look at Bitcoin. It runs on its own blockchain network and neither Litecoin or Ethereum (two other popular cryptocurrencies) can function on it. They each have their own independent blockchain networks that have different sizes, rules, performance, and set-up.
How Are Coins Used?
Just like physical coins, these digital coins are used to transfer money from Point A to Point B. Cryptocurrency coins store their value depending on the current market’s supply and demand. This creates a more volatile system and value.
What is a Token?
Tokens are sometimes also referred to as crypto tokens. They hold a value and are native to certain blockchain protocols. This means that these tokens can be used across multiple cryptocurrencies. Rather than creating your own unique currency with a coin, tokens are built using pre-existing platforms in the decentralized finance system.
What does this look like? Take a look at Ethereum: the native token is called ether.
While ether was created for the Ethereum cryptocurrency, many other cryptocurrencies build on top of it. A few of the cryptocurrencies that use ether are DAI, LINK, COMP, and CryptoKitties. Each token functions a little differently, but they are all built on top of the same base: ether.
How Are Tokens Used?
Unlike coins, tokens can be used to signify many different things. Of course, they can represent money transfers and payments just like coins, but they can also be adapted to perform other functions that are unique to the cryptocurrency and platform.
Tokens are programmable, authority free, permission less, and transparent. This means that they can be run on software and designed to follow a specific protocol. They can also run without a central authority and anyone is able to use the system without having prior credentials. As tokens are transparent, all parties involved can see and verify the transactions.
As mentioned above, tokens can be used for monetary value. However, they can also be used to represent intangible things and assets just as easily. There are tokens that represent real estate and tokens that represent power supply. Whatever product or service you want to offer, tokens can be made to represent it.
Advantages of Cryptocurrency
There are many advantages to using and creating cryptocurrencies. Here are just a few of the top benefits to know about.
Eliminate Fraud Risk
Fraud is a major problem in the world today. Whether someone is creating counterfeit bills or stealing an identity, you want to avoid being a victim. Fraud can destabilize your business and undermine your operations.
Cryptocurrencies are one of the most secure platforms in the world. Your risk of fraud is eliminated by using such a secure, transparent method. It is free of government involvement and manipulation and is used by many corporations around the world. Thanks to the blockchain technology that is used, cryptocurrency keeps all transactions secure.
Although many will condemn cryptocurrency for allowing anonymous transactions, it is actually an advantage. Transactions are easy to trace, but can still be done anonymously.
With transaction anonymity, common problems like identity theft and scams disappear. When using complete and total anonymity, there is no way for hackers to connect the transactions to a physical person, although they are still able to trace and see where the transactions took place. It is also this anonymity that creates security for payments and transactions.
Lower Operational Costs
Every day, transactions at the banks add up. Want to move money between accounts? Want to send money to someone else? You’ll pay a small fee. And sure, it might just be a small fee, but they can very well add up over time and you may be surprised to discover you’re actually spending quite a bit.
While cryptocurrencies still have fees attached, they are still less significant when compared to the traditional banking system.
We often hear talk about “cutting out the middle man”, but how often does that occur in daily life?
When performing regular business transactions, there is often a middle man. The fact is, the middle man usually brings lots of paperwork and complications. Miscommunication is possible and there can be some confusion in transactions.
Cryptocurrency not only removes the need for a middle man, but it makes transactions easy and immediate. They are easy to trace and both parties involved would see all the steps. In reality, cryptocurrency allows for person-to-person transactions to be just that, instead of person-to-middle-man-to-person.
Access to New Customer Base
With cryptocurrency, your business can promise customers protection against fraud and provide anonymity.
When you offer a cryptocurrency option, you extend your hand to a whole new world of customers. Some people won’t perform transactions any other way. You’ll open up a more efficient payment system and gain customers in the process.
Security for Funds
Cryptocurrency does not allow reversals. This protects against fraud and requires both parties to reach an agreement regarding a refund. Even if the payment was a mistake, you will have to follow a secure protocol in order to ensure hackers can’t tamper with the transaction.
Changing between international currencies can cost a lot and be a hassle. Fortunately, cryptocurrency completely eliminates the need for multiple accounts and different currencies. Accepted internationally, cryptocurrency allows businesses to hold a single account and perform all business transactions from within it.
The acceptance of cryptocurrency is especially helpful for businesses that have international locations. You can easily transfer assets between facilities and not have to worry about paying high fees or losing money in the process.
Let’s touch back on anonymity. While it may seem dangerous and like an easy way to be frauded, cryptocurrency has high security and actively prevents such problems. The ability for transactions to be completed anonymously and permit anonymous owners actually prevents much fraud and identity theft.
Without the ability to trace a transaction back to a physical person or business, hackers are unable to access your funds. Thanks to anonymity, you can complete transactions that are traceable and secure.
Disadvantages of Cryptocurrency
Bitcoin and other cryptocurrencies are indeed accepted across a number of platforms now, but the issue is that you can’t necessarily exchange cryptocurrency in many places. If you’re looking to exchange your cryptocurrency for goods or services, your options are limited—and this makes cryptocurrency inherently volatile at this point. The value isn’t something that will remain steady over time.
Cryptocurrency is very volatile, which means that there’s a high potential for losses. The volatility for the past five years on cryptocurrency has been 90%, which is much different when compared to the price of gold, which would only change at around 13.4%.
If you make a good investment with bitcoin, you have the potential to make a lot of money. But if the market isn’t in your favor, you might lose a lot. Timing will be key here.
Transactions Can’t Be Reversed
You have a lot of control over your cryptocurrency, but one big risk is that your transactions are not reversible. While this is also an advantage, it is somewhat of a two-edged sword.
Since all of your payments are permanent, if you do want a refund, this can only be given by the person receiving the funds. This means that you need to be sure of who you’re sending your money to, because if you’re not sending it to someone trustworthy, you won’t be able to reverse the transaction.
This also means that if your cryptocurrency gets stolen by hackers or if there’s an incorrect transaction, you can’t undo it. You can’t recover the password to your wallet either, so if you lose the password or if someone else has it for some reason, this isn’t something that you can change.
Storage Must Be Carefully Managed
One of the biggest issues with cryptocurrency is that wallets can be a real target of hacking and theft. However, the truth is that this is a problem with any online platform.
Cyberattacks are a real problem and there have been cyberattacks on exchanges before, leading to fears that cryptocurrency might not be completely safe. People have indeed lost a lot of money due to hacking, and with the frequency of hacking increasing on the platform, you may worry if you’re doing larger transactions.
Many people use a hardware wallet to store the private keys to their cryptocurrency. With hardware wallets, you need to note down and store your recovery phrases securely in case you forget your pin and need to restore your hardware wallet.
If you forget your pin and also lose your recovery phrases, you may never recover your cryptocurrency. This means that the responsibility on the individual to store their own cryptocurrency securely is extremely significant.
How To Create Your Own Cryptocurrency
Develop Your Concept Document
Start your cryptocurrency journey by beginning with the concept development. Essentially, it’s important to begin by defining your idea right off the bat. Develop a plan by thinking about what problem you’d like to solve and what audience you’re looking to target. It’s all about coming up with something that will be both useful and that your user base will be interested in.
From here, you’ll spend some time picking out your development team. This is an important step, because your team will help you clarify your concept and get your cryptocurrency off the ground.
Think about speaking to an experienced software development company. They’ll know how to navigate bitcoin and cryptocurrency already, which means that it will be easier for them to help you get your idea going.
Create your rules for smart contracts at this point. These smart contracts are digital contracts that will operate on the blockchain with established rules—which means that they can’t be changed over time.
All of this is part of your concept development stage, where you’ll set up what you want done and consider the rules for your cryptocurrency.
Before you get started with the actual development of the currency, it’s important to establish what you’re doing and how you’ll do it. Since the rules you develop cannot be changed later, it’s important to get all of this set up early.
Choose a Consensus Mechanism
As you create your cryptocurrency, you need to also choose a consensus mechanism. A consensus mechanism is the protocol that ensures that a transaction is legitimate and can add on to the block.
So, you’ll have a blockchain platform, which will depend on the consensus mechanism that you’ve already chosen. From here, you’ll need to decide how your blockchain will work and design your nodes to work with it.
This means answering questions of whether permissions are public or private, where the hosting is, and what the hardware details will be.
As you move on to questions about how you’ll launch your cryptocurrency, all of this goes back to that consensus mechanism. This is what determines your parameters, which you won’t be able to change later once you have them established.
Choose the Blockchain Platform You Want To Build On
Since cryptocurrencies run on blockchains, it’s important to pick which blockchain yours will run on. Fortunately, you don’t have to create the platform yourself. You can instead choose from several of the current blockchain platforms.
Here are three networks of many that you can choose from. Each network has its own pros and cons.
- Ethereum: By far the most popular, this was the first platform to offer tokens. All the tokens are now built using the ERC-20 standard and are secure, well written, and very organized. The tokens can only be written using Solidarity, but the development process is easy.
- NEO: Aimed towards the smart economy, this blockchain platform uses the NEP-5 standard. You aren’t restricted to a single programming language like with Ethereum and can instead use almost any of the more popular high-level languages.
- EOS: This blockchain uses the EOSIO.Token standard and is written using C++ and any WebAssembly compliant language. It’s great for scalability, many transactions at once, and cost efficiency.
Design the Nodes
Every aspect of your cryptocurrency should be well and thoroughly thought out. This includes the nodes. Your cryptocurrency’s nodes should correspond and function well with the workings and the rest of the design.
When you design your cryptocurrency’s nodes, here are a few things you should definitely keep in mind. Will there be public or private permissions? How will the hosting be set-up? With the cloud, on-site, or both? What are the necessary hardware details for running your currency?
Decide on the Blockchain’s Architecture
Decision on the architecture of your cryptocurrency is incredibly important. The blockchain can’t be changed once you’ve launched it, so every single part of the architecture has to be figured out beforehand. This includes simple decisions such as which address format to use and follow.
From the name of the token to the symbol and even the supply, you get to make all the decisions. To set a token creation limit, you’ll just add it right into the coding. For the name, symbol, and decimal unit, you’ll also write in code. It’s quite self explanatory and is even a bit fun!
Decide on Your Smart Contract Rules
Smart contracts will greatly influence your cryptocurrency, so you have to write the rules for them. They function just like traditional contracts, except for the fact that they are digital and automatic. Smart contracts will also operate on a blockchain platform and once the rules are developed, they cannot be changed.
Using the main idea behind ICO/STO, you can create your very own smart contract rules. Take your time developing these rules as they aren’t changeable after launch and will control how your cryptocurrency functions.
A big fault in some platforms is that they don’t have pre-built APIs. This should not be true for yours though, so get to work integrating your own API. Of course, if you’re unsure how to go about this or don’t want to spend the extra time, you can always incorporate a pre-existing API.
There are a few third party API providers you can choose from. Some of the top providers, though, are Bitcore, ChromaWay, Colu, Tierion, and BlockCypher.
User Interface Design
The user interface of your cryptocurrency holds everything. If your users don’t feel comfortable or can’t navigate while using your cryptocurrency, they’ll never want to come back. No matter how impressive the rest of your programming skills are, they’re pointless without a quality user interface.
To ensure your user interface works well and is high quality, take care when programming both your front-end and back-end. The web, FTP servers, and external databases should all be up to date and created with future updates in mind.
Third Party Audit
Don’t neglect the step of hiring a third party audit company to ensure your cryptocurrency is legitimate. In fact, it’s required that all ICO/STO security audits are carried out by a third party system to ensure credibility.
ICO Promotion & Community
When it comes to promoting your cryptocurrency, the media is a great place to start. Use social media, the press, email marketing, and any other promotion service to get the word out about your platform.
As you promote your ICO, it’s important to keep developing the surrounding community. All successful cryptocurrencies have a strong and well-developed community to keep them afloat and if you want your cryptocurrency to be adopted, you’ll have to do the same.
Make Your Cryptocurrency Legal
It’s possible that you didn’t even think of this step, but it’s absolutely necessary that you make sure your cryptocurrency is legal. It needs to abide by international regulations or you’ll be faced with some sudden and rather unhappy surprises. There’s nothing worse than launching your work only for your efforts to be ruined by a law you weren’t aware of.
As controversial as cryptocurrency may be, there is a consensus that it’s definitely here to stay. Having the foresight to plan ahead is essential to your business and if you want to be relevant and get onboard with cryptocurrency, there’s no better time than now.
When it comes to creating your cryptocurrency, always make sure that you partner up with a reputable, honest and experienced agency that will help you to make your cryptocurrency ideals a reality.