How to Get Started on Creating Your Own Cryptocurrency
How to Get Started on Creating Your Own Cryptocurrency
Cryptocurrency is one of the words you can’t avoid these days. News, blogs and even big-time financial authorities obsess over it, and by now everyone has to admit: the world is changing in front of our eyes. Miss this bandwagon now and you will be left so far behind that you might never recover.
So, here you are with this great new business idea or getting ready to launch a startup, and you want to embrace the fascinating opportunities of the new world and create your own cryptocurrency. But how exactly does one do that? The Internet is full of information but, as it often happens, it’s contradicting, spattered all over the place, and sometimes simply hard to understand due to heavy industry jargon.
After reading this article you will know exactly what a cryptocurrency is, how a token is different from a coin, how to make your own cryptocurrency and whether your business needs it.
Difference Between Token and Coin
Before we dive into the technicalities of how to create your own cryptocurrency, we should set our facts straight and take a look at some basic definitions used in all cryptocurrency-related conversations.
So, what is a cryptocurrency?
Let’s take a step back and refresh in memory a definition of a currency first. While we tend to think about currencies in terms of banknotes and coins or dollars and euros, a currency is a unit of storage and account and a means of exсhаnge, i.e. a universally accepted way to obtain goods and services as well as to store and distribute wealth.
Now, a cryptocurrency can be defined as a digital currency relying on encryption to generate new units and confirm the transactions. It has all the functions of the currency with the difference of running outside of a single centralized platform (such as a bank).
Cryptocurrencies don’t have banknotes but they do have coins, which are often confused with tokens. So what exactly is the difference between them? Simply put, it all comes down to these three points:
Coins require their own blockchain while tokens can operate on the existing ones.Tokens are limited to a specific project; coins can be used anywhere.Coins buy tokens but tokens can’t buy coins.
If you want to put tokens and coins in a real-life context, think about tokens as your Frequent Flyer Miles while coins are actual money: you can use both to get an airplane ticket, but with the miles your choice will be limited to the air company that issued them, while with the money you can take your business anywhere you want.
The bottomline is that you need to build a blockchain if you want to create a crypto coin.
Benefits of having your own cryptocurrency
In some cases it’s a no-brainer: if your project or startup requires its own blockchain, you need to create your own digital currency to incentivize the nodes contributing their processing power. One more word on blockchains here: many authoritative business analysts foresee a big future and a growing list of the markets and industries where the blockchain technology will significantly disrupt the status quo and generously reward the early adopters. The good news is that for many fields the blockchain technology has never truly arrived yet so it’s not too late to join the ranks of pioneers.
The other important aspect is that when you decide to start a cryptocurrency you get a whole set of powerful marketing tools and consumer benefits which will help you differentiate yourself from the competition. Here is a list of the most significant advantages:
Eliminating fraud risks — cryptocurrency is impossible to counterfeit and no party can reverse past transactions.Providing transaction anonymity — customers decide what exactly they want sellers to know about them.Cutting down operating costs — cryptocurrency is free from the exchange or interest rates, as well as the transaction charges.Offering immediate transactions — state holidays, business hours or geographic location of the parties don’t affect cryptocurrency.Ensuring an immediate pool of potential customers — now you can make business with those without an access to traditional exchange resources. No more trade restrictions in any markets.Providing security for their funds — since cryptocurrency is a decentralized system, there is no Big Brother figure like banks or government institution that can seize or freeze your assets.How to Create a Blockchain
Now that you know how your own cryptocurrency can boost your business, let’s see the main steps you need to take to build a blockchain.
Step 1. Know your use-case.
Do your business interests lay in smart contracts area, data authentication and verification or in smart asset management? Define your objectives clearly at the very beginning.
Step 2. Choose a consensus mechanism.
For your blockchain to operate smoothly the participating nodes must agree on which transactions should be considered legitimate and added to the block. Consensus mechanisms are the protocols that do just that. There are plenty to choose from for the best fit for your business objectives.
Step 3. Pick a blockchain platform.
Your choice of a blockchain platform will depend on the consensus mechanism you’ve selected. To give you a better idea of what is out there, here is a list of the most popular blockchain platforms:
- Ethereum (market share — 82.70%)
- Waves (WAVES)
- NEMNxt (NXT)
- BitShares 2.0
- Hyperledger Fabric
- IBM blockchain
- Chain Core
Step 4. Design the Nodes
If you imagine a blockchain as a wall, nodes are the bricks it consists of. A node is an Internet-connected device supporting a blockchain by performing various tasks, from storing the data to verifying and processing transactions. Blockchains depend on nodes for efficiency, support, and security.
There is a number of choices you have to make about the nodes you will employ:
- What are they going to be in terms of permissions: private, public, or hybrid?
- Will they be hosted on the cloud, on premise or both?Select and acquire necessary hardware details, such as processors, memory, disk size, etc.
- Pick a base operating system (most common choices would be Ubuntu, Windows, Red Hat, Debian, CentOS, or Fedora)
Step 5. Establish your blockchain’s internal architecture
Tread carefully as some of the parameters can not be changed once the blockchain platform is already running. It’s a good idea to take your time and really think through the following:
- Permissions (define who can access the data, perform transactions and validate them, i.e. create new blocks)
- Address formats (decide what your blockchain addresses will look like)
- Key formats (decide on the format of the keys that will be generating the signatures for the transactions)
- Asset issuance (establish the rules for creating and listing all asset units)
- Asset re-issuance (establish the rules for creating more units of the open assets)
- Key management (develop a system to store and protect the private keys granting the blockchain access)
- Multisignatures (define the amount of keys your blockchain will require to validate a transaction )
- Atomic swaps (plan for the smart contracts enabling the exchange of different cryptocurrencies without a trusted third party)
- Parameters (estimate maximum block size, rewards for block mining, transaction limits, etc.)
- Native assets (define the rules of a native currency issued in a blockchain)
- Block signatures (define how the blockchain participants creating blocks will be required to sign them)
- Hand-shaking (establish the rules of how the nodes will identify themselves when connecting to each other)
Step 6. Take care of APIs
Make sure to check whether the blockchain platform of your choice provides the pre-built APIs since not all of them do. Even if your platform doesn’t come with those, not to worry: there are a lot of reliable blockchain API providers out there.
Step 7: Design the Interface (Admin and User)
Communication is the key and a well-thought-out interface ensures a smooth communication between your blockchain and its participants.
Here are the things to consider at this stage:
- Web, mail and FTP servers
- External databases
Step 8. Make your cryptocurrency legal
Slowly but surely the law is catching up with the cryptocurrencies and you better protect yourself from any surprises by looking into the trends around the cryptocurrency regulations and the direction they are headed.
Bonus step for overachievers: Grow and Improve your Blockchain
You’ve come so far, don’t stop now. Get a headstart into the future and think how you can boost your blockchain by tapping into the future-proof technologies like the Internet of Things, Data Analytics, Artificial Intelligence, Cognitive service, Machine Learning, Containers, Biometrics, Cloud, Bots and other inspiring developments.
Bitcoin Forks as an Alternative to Building Your Own Blockchain
As you can see, it takes a lot of time, resources, and particular skills to build a blockchain. So what can you do if you don’t possess all of the above but still want to build your own cryptocurrency? Then it’s time to talk about Bitcoin forks.
How to Create a Bitcoin Fork?
It’s time for another basic definition to make sure that we speak the same language.
What is forking in cryptocurrency?
In layman’s terms, a blockchain fork is a software update. All blockchain participants (aka full nodes) run the same software and it’s crucial that they run the same version of that software to be able to access the shared ledger to verify transactions and ensure network security. Therefore, every time you want to change your blockchain parameters or introduce new features, you will need to create a fork.
What is the difference between hard and soft forks?
Forks can be divided into hard and soft.
Hard forks require 90% to 95% percent of the nodes to update their software; the system will no longer accept the nodes running a non-updated version.
Soft forks are less demanding. Simply a majority of the nodes is required to update the software and those who run a previous version can continue to operate.
What are Bitcoin forks?
Now, the Bitcoin forks are the changes in the Bitcoin network protocol. Since the Bitcoin code is an open-source protocol, it is a low-lift exercise for those who want to create their own cryptocurrency and built on the existing by adding new features or addressing current imperfections.
How to create a Bitcoin fork?
Option 1. Use a fork coin generator.
If you don’t have any programming skills, services like ForkGen might be a perfect solution for you. ForkGen is an automated fork coin generator where anyone can create a unique Bitcoin offshoot by changing some parameters and rules.
Option 2. Do It Yourself.
If you want to take a hardcore way to create a Bitcoin fork and aren’t afraid to get your hands dirty, follow these steps:
- Go to Github, find, download and compile Bitcoin code on your computer.
- Then, the programming part starts: you’ll have to reconfigure the Bitcoin code, implement your customization.
- Publish the code (open source) back to Github.
- Provide a website and some kind of documentation (normally a white paper).Bitcoin forks: success stories
Bitcoin forks are worth exploring if you want to start your own cryptocurrency leveraging the social and financial capital around the Bitcoin name. Some examples of successful Bitcoin forks include:
Recapping the Steps of How to Make Your Own Cryptocurrency
To sum it up, you have two ways to go about starting your own cryptocurrency: build a blockchain or create a fork.
To build a blockchain you need to:
- define how it will be used in your business model
- decide upon a consensus mechanism
- choose a blockchain platform
- design the nodes and blockchain properties
- provide APIs for the tasks executed on your blockchain
- develop intuitive and comprehensive Admin and User Interfaces
- take care of the legal side of the business
To create a Bitcoin fork you can either:
Use an automated fork coin generator like ForkGen
- Download the Bitcoin code
- Customize it
- Publish and maintain your code.
Starting a New Cryptocurrency: Is It Worth the Effort?
Having read this far, you already have a fairly clear picture of what it takes to create a new blockchain. Before starting any new complex project it’s always a good idea to take a deep breath and evaluate once again if this is something you should be investing your time and money in.
So, how to decide if you even need a blockchain in the first place? Here is a list of questions that will help you to answer this question before you make this commitment.
- Do you need data storage?
- Do your requirements reach beyond what a traditional database can provide?
- Do you have multiple participants updating the data?
- Are you looking to eliminate a third-party?
- Do you want to establish a safe environment for the parties that don’t trust each other?
- Is your environment going to have hard rules requiring little to no updates?
- Do you need to maintain the privacy of your data?
If you’ve answered “yes” to 3 and more of these questions, you will get all the benefits of a blockchain including:
- Enhancing data security.
- Cutting down transaction costs.
- Preventing frauds.
- Improving efficiency.
- Providing transparency.
- Executing Smart Contracts.
While the benefits are numerous, the amount of work that goes into creating your own blockchain is significant and requires a wide range of knowledge and tools to execute all steps of the process in the most time- and cost-efficient way.
Having employed the help of professional developers you will significantly cut down your expenses in the long run by eliminating the room for errors, and, therefore, time and cost of the rework and updates; future-proof your solutions by working with the experts who stay on top of all the latest industry developments and innovations, and free up your time for growing your business.