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 a 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.
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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)BlockStarterEOSBitShares 2.0CoinListHyperledger FabricIBM blockchainMultiChainHydraChainBigChainDBOpenchainChain CoreQuorumIOTAKICKICOStep 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. Here are some of them for you to check out:
