Investing in crypto for profit is one thing, but what if someone decided to create their own cryptocurrency? How complicated, how expensive, and what does it take?
To help those who would like to embark on this adventure, Finbold has put together a quick guide to creating your own cryptocurrency. It lists the most important points to keep in mind in order to achieve the best possible results with this potentially profitable venture. It also helps us not to do anything that might get us into trouble later when creating our desired coin.
1. Determination of the method of use
Any new cryptocurrency should have a use case that stands out from the rest and offers something innovative, as this is the first thing investors learn regarding it. This purpose and the characteristics of the token should be outlined in a white paper.
An ideal example is the whitepaper created by the mysterious creator of Bitcoin (BTC), Satoshi Nakamoto, for the digital asset, which has been translated into more than 40 languages.
2. Consideration of legal consequences
Perhaps nothing might prove better than the events of the last few months, how much trouble it can cause if the regulatory authorities think they discover something wrong with our project. As authorities around the world increase pressure on the crypto industry, investigations and lawsuits once morest crypto companies continue to pile up. Among the most obvious are, for example, the proceedings initiated once morest the crypto hedge fund Three Arrows Capital (3AC), the Terra (LUNA) ecosystem, and the crypto trading platform FTX.
This is why it is extremely important to make sure that cryptocurrencies are not illegal in the jurisdiction where they are created, and that there are no laws and/or regulations that stand in the way of their creation and operation.
3. Distribution of the token supply, writing an emission schedule
The English “tokenomics” term well describes the “token” and that “economics”, i.e. the relationship between the coin itself and its economics. This includes the planned cryptocurrency number of tokens and their distribution between creators, other team members, affiliated third parties and investors.
However, planning the economics of tokens also involves making decisions such as their release schedule, means of controlling supply, how they will be initially distributed, and whether additional tokens will be created following launch.
4. Calculation of initial costs
Whether you bring in an outside expert to design and create your cryptocurrency, or just pay for the electricity used to create it on an existing blockchain, the process inevitably involves some starting cost.
This means budgeting ahead, depending on how much customization you plan to do. Launching a token on an existing blockchain such as Ethereum (ETH) can be done for free or very cheaply, while creating a new blockchain can be an extremely expensive activity.
5. Choosing the blockchain
To start creating cryptocurrency, you need to choose a blockchain platform on which the token will exist, where actions will be recorded permanently and immutably, and through which the token will be distributed.
Depending on the consensus mechanism used to validate transactions, there are several types of blockchains: Proof-of-Work (PoW), Proof-of-Stake (PoS), Delegated Proof-of-Stake (DPoS), and Proof-of-Elapsed Time (PoET). Popular blockchain platforms include Ethereum, Cardano (ADA), Tron (TRX), and Ripple.
6. Preparation of nodes
When the decision on the blockchain is made, it is time to create the nodes – the computers connected to the blockchain network that will be involved in the operation of verifying and processing transactions and recording and distributing data.
In doing so, several things must be taken into account. Among other things:
- availability of nodes (public or private),
- the storage (cloud network or local nodes),
- the operating system (ideally open source) and
- the hardware (GPUs, processors, RAM, hard drives and the like)
7. Select blockchain format
There are three basic blockchain architecture models to choose from;
- centralized (a central node receives data from several others),
- decentralized (nodes share data) and
- distributed (the ledger moves between nodes).
Furthermore, as developers, we need to define details such as the blockchain address, access to blockchain data, key formats, rules for creating assets, block size, transaction restrictions, and reward size.
8. Setting up the application programming interface (API).
An application programming interface acts as a connection between different nodes and/or networks. For example, between a crypto exchange and a cryptocurrency data collection application, and is typically used in crypto trading, data security, or digital asset tracking.
Today, there are many API solutions suitable for blockchains, including NOWNodes, Factom, Bitcore, Infura Ethereum API, Nomics API and others. Nevertheless, if we are not at home in the field of development, it may be a wise decision to involve external API experts for this task.
CoinMarketCap is fresh data according to there are currently 22,273 cryptocurrencies. After all that, creating the digital tool is actually the easiest part. The real challenge is managing the token and helping it grow.