How to Create a Cryptocurrency: A Complete Process

Ok. You clicked on this article so obviously you are interested in learning how to create a cryptocurrency. That’s great! If so, you’ve come to the right place. Unlike with fiat currencies which require approval processes, practically anyone can create a cryptocurrency. All you need is a little bit of information and your time. That’s why there are already thousands of crypto coins in existence. If it were more difficult than it is to create a crypto coin, there wouldn’t be so many of them already in existence. After all, Bitcoin has only been around since 2009! If fiat currencies were this easy to create, we would all be rich already!

How to Create a Cryptocurrency: Key Initial Steps 

Creating a cryptocurrency involves a variety of decisions at the beginning. For example, you want to determine what the purpose of your cryptocurrency is going to be and who the target audience is. Are you creating a cryptocurrency to be used in a game? Will you be using an existing blockchain or developing a new blockchain for your cryptocurrency? Are you targeting existing crypto enthusiasts, newcomers to the crypto space, or both? Is there a specific segment you are targeting, such as gamers, or shoppers if you are creating a crypto to be used on an ecommerce platform? Are you planning to hire a clown to make balloon animals at your birthday party? All of these decisions (besides the last one which has nothing to do with creating a cryptocurrency) will impact the crypto creation process.In recent years cryptocurrencies have grown in influence and they now play a very important role in today’s digital economy. Do you remember where you were when you first heard about cryptocurrencies? Today it’s nearly impossible to avoid hearing about them even in the mainstream media. 

The Current State of FinTech and the Role of Crypto

Today cryptocurrencies have become such an integral part of the fintech and investing landscapes that they are often mentioned alongside stocks and bonds. They have emerged as a major innovation in financial technology. Cryptocurrency is enhancing global payment systems and cryptos are empowering decentralized finance and allowing those who are unbanked or don’t have access to traditional banking systems to gain access to financial services. In order to fully understand how to create a cryptocurrency and the role of cryptos in the fintech sector, we must first understand what cryptocurrency is.

What is a Cryptocurrency?

A cryptocurrency is a digital asset secured by cryptography. Cryptocurrencies allow people to make payments directly to each other on an online system. Transactions are verified and records are maintained by a decentralized system rather than by a centralized authority like a traditional bank. Decentralization is one of the key aspects of cryptocurrencies and what makes them so innovative. Transactions are verified on a blockchain through a process of consensus, making a centralized authority unnecessary. 

The Mechanics Behind Cryptocurrency

Cryptocurrencies operate on the blockchain. A blockchain is a distributed ledger spread across a network of computers (nodes). Each transaction is grouped into a block. Each block is linked to the previous block, combining to create a chain of blocks, hence the name “blockchain”. The data entered in Bitcoin’s blockchain is irreversible because the blockchain is decentralized. In Bitcoin’s case no individual person has control, but all users collectively have control. It’s like when you ride a roller coaster and no individual riding the roller coaster has control over the ride. Wait. Just kidding. It’s not like that because on a roller coaster the group of riders don’t collectively have control either.Different blockchains use different systems of validating transactions. Bitcoin transactions are validated using the following steps:

Consensus mechanisms are what keep decentralized networks secure. Nodes must agree on the current state before updating the blockchain. This process prevents errors and secures the network. It’s like when everyone in your friend group agrees on some things. Nevermind, my friends never agree on anything!One of the most common consensus mechanisms that Bitcoin, Litecoin, and Dogecoin use is called Proof-of-Work. In Proof-of-Work, miners compete to solve puzzles first. Any miner who solves the puzzle first can announce it to the network. The other nodes in the network can accept its validity or contest it. This is where consensus is involved.The other most common consensus mechanism is called Proof-of-Stake. In this process, validators lock a specified amount of native assets (tokens/coins) of the blockchain in order to secure the blockchain. In decentralized finance, staking is the process of locking up assets to earn rewards. Proof-of-Stake works by validators locking up their native assets and validators are picked based on how many native assets they stake. 

Unlike with Proof-of-Work, becoming a validator is easier in Proof-of-Stake because it doesn’t require specialized hardware. If validators act dishonestly they can lose their locked assets. This helps to keep the network secure. It’s like when you were a kid and you lied about something and your parents took away your toy and candy privileges. In 2022 Ethereum switched from Proof-of-Work to Proof-of-Stake because it is more energy efficient and decentralized. There are also other consensus mechanisms like Delegated Proof-of-Stake and Proof of Elapsed Time. 

Distinguishing Between Coins and Tokens

The main difference between coins and tokens is that coins are cryptocurrencies that are based on their own blockchains. Tokens, meanwhile, operate on top of existing blockchains. Some examples of coins are Bitcoin, Ethereum, Ripple, and Cardano. They each have their own blockchain. Examples of tokens are Tron and Ox. They exist on other blockchains that are not their own native blockchain.

Methods for Creating a Cryptocurrency

As mentioned earlier, there are a variety of different considerations and decisions that you need to make when creating a cryptocurrency. After you have made some of the initial decisions regarding target audience etc. you can begin to make the more technical decisions regarding things like whether you will build your own blockchain or use an existing blockchain. It’s sort of like deciding what movie to watch…but a bit more complicated. Here are some of the options that you have regarding blockchains.

Building a New Blockchain with a Native Coin

One option that you have is to build an entirely new blockchain and launch a native cryptocurrency on that chain. This option requires coding and technical knowledge since you will be building a blockchain from scratch. So it is the most technical option but it also has the benefit of providing you with full control. If you developed the blockchain, you have control over things like what consensus mechanism it uses etc. With an existing blockchain, most decisions will have already been made by the people that developed that blockchain. In other words, do you want to follow other people’s decisions or make your own? The choice is up to you!

Forking or Modifying an Existing Blockchain

You can also create a cryptocurrency by establishing a network split known as a fork in the code of an existing blockchain and building the cryptocurrency on the newly established blockchain. This process involves editing existing code to create something new. This is a good option if you wish to have some control but have less coding experience and perhaps less time and venture funding than you would need to build a new blockchain from scratch. 

Some benefits of forking include faster development, lower costs, and the fact that you will be leveraging proven technology that has already been used. One of the downsides is that forked chains start with fewer nodes than the original, creating security liabilities. Also, you are more limited in terms of innovation than with creating your own blockchain because you will still have the basic architecture and constraints of the original chain.

Launching a Token on an Existing Blockchain

If you create a token on an already existing popular blockchain like Ethereum or Binance Smart Chain, there are some obvious benefits. One is that this option requires the least amount of coding knowledge possible since you don’t have to design or fork a new blockchain. Also, on the Ethereum blockchain, you have the added benefit of creating a token using the ERC-20 token standard.

ERC-20 is a technical framework on the Ethereum blockchain. Using the ERC-20 framework can help your cryptocurrency gain trust from users. In a crowded field of thousands of cryptocurrencies, this is very valuable. Think of it this way. It’s like when you want to buy something online, you can either buy it through Amazon which has a set of systems in place to make sure you get your purchase on time, or you can buy it through a random website that nobody’s ever heard of. 

Step-by-Step Process to Launch a Cryptocurrency

Now we have reached the main event that I’m sure you as a reader have been waiting for! Here is the step-by-step process to launch a cryptocurrency, taking you from just a concept for your cryptocurrency to making it live and tradeable.

Step 1: Establish Your Purpose and Business Concept

Like I said earlier, a clear purpose and establishing a target audience for your cryptocurrency is the important first step. This is because many of your decisions in the later steps will be determined by your purpose and business concept that you outlined here as well as who your target audience is for your cryptocurrency. People want to own a cryptocurrency that has use cases and a real purpose for existing, so you need to outline what that is. Why should people want to buy some of your cryptocurrency? What do they get for their money?

Step 2: Select an Appropriate Consensus Algorithm

Earlier, we mentioned some of the most common consensus algorithms available. In this step, you need to determine which consensus algorithm you want to use. Is your cryptocurrency focused on sustainability? Well, in that case, you might not want to use Proof-of-Work because it requires high energy consumption and uses massive computing power. Is the number of transactions per second important to you? In that case, you may want to use a consensus algorithm that is faster than Proof-of-Work. Proof-of-Work is like a turtle and the other consensus mechanism is like a dog. Which one will win in a race to see which is fastest? 

Proof-of-Stake is newer and thus has not been battle-tested in the same way as Proof-of-Work. Are you looking for very fast block confirmation? In this case Delegated Proof-of-Stake might be a great option for you. Which consensus algorithm you use all depends on what is most important to you. It all goes back to your purpose, business concept and target audience. Who are you trying to attract and what factors are most important for you to advertise? Environmental friendliness? Speed? Something else?

Step 3: Pick the Right Blockchain Platform

Are you looking for a blockchain with the support of having allowed others to build on top of it for a relatively long time? In that case, Ethereum is a great option. Are you interested in creating a cryptocurrency using the ERC-20 token standard? Again, in this case you might want to choose Ethereum. Are you looking for a blockchain to build on that has lightning-fast transaction speed, transactions per second (throughput), etc? In that case, you might want to build on top of Solana. If you are choosing to build on top of an existing blockchain platform, again it all comes down to what characteristics you value the most.

Step 4: Design and Set Up Blockchain Nodes

If nodes are designed and set up correctly, you can be sure that they will validate transactions accurately. If nodes are misconfigured, they can go offline which leads to slower confirmation times. Well distributed and properly configured nodes are more resistant to attacks. For these reasons, designing and setting up nodes correctly can positively impact how the blockchain functions.Think about if the nodes were a house. Would you want your house to have good security so people don’t break in?

Step 5: Decide on the Blockchain Architecture

The next step is to decide on the blockchain architecture. There are three main types of blockchains. Public blockchains are open and allow anyone to participate in consensus but the tradeoff is that they are slower and less scalable. 

Private blockchains are permissioned blockchains controlled by a single organization or entity. They are fast and highly scalable due to fewer nodes and simplified consensus. Only authorized participants can read, write, and validate transactions. Consortium blockchains are like somewhere in between. They are hybrid, permissioned networks governed by a group of organizations instead of a single entity. They are more decentralized than private chains and faster and more scalable than public blockchains. Weigh the pros and cons of each and what you value the most in order to decide which type of blockchain you want to use. 

Step 6: Connect Blockchain APIs

APIs (Application Programming Interfaces) play an important role in connecting blockchains to external applications. They act like a bridge between decentralized networks and traditional software. Just think of the Golden Gate bridge in San Francisco, but on one side of the bridge is decentralized networks and the other side is traditional software.  If you want your blockchain to be able to interact with apps and services that are not on the blockchain, you need Blockchain APIs to do this. 

Step 7: Develop User and Admin Interfaces

To make it easy for other people to use your cryptocurrency, you need to think about user experience (UX) when designing your User and Admin Interfaces. If you don’t have a user-friendly product, users will be lost and will not interact with your cryptocurrency. 

Step 8: Navigate Legal and Regulatory Challenges

If you want to make a cryptocurrency, you need to also consider the legal and regulatory situation everywhere where your coin or token will be made available. Every country has their own cryptocurrency laws and regulations. I can’t stress enough how important it is to know about these regulations and follow them. 

Make sure you do what is required in the regulations up front so that you don’t run into legal issues later. Remember, making a cryptocurrency is a privilege, so be sure to follow the rules. 😀 You don’t want to get caught breaking the law, even if it’s by accident! Make it your mission not to end up in a jail cell next to FTX Founder Sam Bankman-Fried.

Step 9: Market and Maintain Your Cryptocurrency

Making a cryptocurrency isn’t a set it and forget it type of thing. In other words, it’s not like heating a frozen TV dinner. You have to be sure to continue to maintain it technically once it is created and listed on exchanges. It’s also important to continue to market your cryptocurrency. After all, if nobody knows about it, nobody will buy it. You need people using the cryptocurrency and a strong marketing effort behind it in order to have it really take off! If you develop a strong user community through marketing efforts and people talk about your cryptocurrency on social media and in communities on the internet then you might even get the added bonus of having your cryptocurrency grow organically.

Conclusion

There are a number of things you need to consider and decisions that you need to make when you are going to create a cryptocurrency. Starting with determining the purpose for your cryptocurrency and the target audience through to marketing and maintaining it after it has been made, it can be said that the cryptocurrency development process is ongoing. The marketing and maintenance don’t conclude once it’s listed, but rather continue throughout the process of growing the user base. It keeps going and going and going, like a battery that never dies.

The good news is, that anyone can make a cryptocurrency! So, if you are about to embark on your own cryptocurrency development journey, the Venga team would like to wish you success and good luck! We hope to see your cryptocurrency listed on an exchange some day relatively soon. 

Disclaimer: The content provided in this article is for educational and informational purposes only and should not be considered financial or investment advice. Interacting with blockchain, crypto assets, and Web3 applications involves risks, including the potential loss of funds. Venga encourages readers to conduct thorough research and understand the risks before engaging with any crypto assets or blockchain technologies. For more details, please refer to our terms of service.