What is Cryptocurrency?
Cryptocurrency functions similarly to traditional currency but on a digital platform and is accepted globally, as opposed to physical currencies, which are only valid in a single country. They are not bound by a single centralised platform.
Ways of creating a Cryptocurrency
There are three basic methods for creating a cryptocurrency. Here’s how they each work:
- Make a New Blockchain.
Creating a new blockchain from scratch necessitates extensive technical knowledge and is by far the most challenging approach to establishing a coin. There are online classes that will lead you through the procedure, but they will presume you have some prior knowledge. Even so, you might not leave with all you need to start a new blockchain.
- Attempt to Fork an Existing Blockchain
Forking an existing blockchain may be much faster and easier than developing one from start. This would entail modifying the open-source code found on GitHub and issuing a new coin under a different name. For example, the inventors of Litecoin built it by forking from Bitcoin. Since then, developers have forked various Litecoin coins, including Garlicoin and Litecoin Cash. This procedure still necessitates that the developer knows how to modify the existing code.
- Make Use of an Existing Platform
The third and simplest alternative for individuals who are not experienced with coding is to create a new cryptocurrency or token on an existing platform such as Ethereum. Many new projects, for example, create tokens on the Ethereum network using the ERC-20 standard.
Seven Steps of Creating a Cryptocurrency
Step 1: Select a Consensus Mechanism
A consensus mechanism is a protocol that determines whether or not a given transaction will be considered by the network. To complete a transaction, all nodes must confirm it. This is sometimes referred to as “reaching consensus.” You’ll need a technique to figure out how the nodes will do this.
Bitcoin’s proof-of-work was the first consensus method. Another prominent consensus approach is proof-of-stake. There are plenty of others.
Step 2: Select a Blockchain
This relates back to the three ways discussed above. A coin or token needs a home, and determining which blockchain environment the coin will reside in is an important step. The decision will be influenced by your level of technical expertise, level of comfort, and project objectives.
Step 3: Make the Nodes
All distributed ledger technology (DLT), including blockchains, is supported by nodes. As the designer of a cryptocurrency, you must decide how your nodes will work?
Step 4: Construct the Blockchain Architecture
Before launching the coin, engineers should be completely confident in the blockchain’s functionality and the design of its nodes. There is no turning back once the main net is deployed, and many things cannot be modified. That’s why it’s usual practice to run things via telnet first. Simple items like the cryptocurrency’s address format could be included, as could more difficult things like incorporating the inter-blockchain communication (IBC) protocol to allow the blockchain to communicate with other blockchains.
Step 5: Incorporate APIs
Application programming interfaces are not available on all systems (APIs). Making sure a freshly minted cryptocurrency has APIs could help it stand out and get popularity. There are various third-party blockchain API providers who can assist with this phase as well.
Step 6: Create the Interface
It’s pointless to create a cryptocurrency if consumers find it difficult to utilise. Web servers and file transfer protocol (FTP) servers should be updated and programming on both the front and backends should take future developer updates into account.
Step 7: Legalize the Cryptocurrency
Many of those who began or supported ICOs in 2017 and 2018 faced difficulties as a result of failing to address this final stage. At the time, cryptocurrencies existed in legal limbo, and they may not have recognised that creating or promoting new coins may result in penalties or criminal prosecutions, depending on the circumstances. Before launching a new coin, it’s a good idea to familiarise yourself with the rules and regulations governing securities offerings and other connected matters. Given the complexities of the issues and their frequent revisions, you may want to consult with a lawyer who specialises in this area to help you through this process.