How to Create Your Own Cryptocurrency
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Cryptocurrencies and other decentralized digital assets, such as non-fungible tokens (NFTs), fulfill an ever-evolving range of blockchain-powered cases for converging industries, which include the likes of decentralized finance (DeFi), both Web2 and Web3, the Internet of Things (IoT) and Artificial Intelligence (AI).
If you’ve ever thought about following in Messieurs Satoshi and Vitalik’s pioneering footsteps and creating your own cryptocurrency to help build the future of money, then be prepared for a fascinating but very challenging journey.
In this beginner article, we’ll take a look at what it takes to create your own cryptocurrency, and the various options available to you.
What To Understand Before You Start
There are many things to grasp before you start the complex process of designing your crypto. Just like any digital real estate on the web, you’re going to need to market the new asset effectively to ensure it gains traction and gets adopted by a community.
Let’s start with the basics:
When creating a cryptocurrency, you have the option to create either a coin or a token. A coin operates on its own blockchain, while a token is built on an existing network. Both rely on a blockchain for security and decentralization.
There are three main ways to create a cryptocurrency yourself: building your own blockchain (coin), modifying an existing blockchain (coin), or building on top of an existing blockchain (token). To choose the right option for your project, you’ll need to weigh up additional factors such as legality, use cases, tokenomics, and startup costs beforehand.
Depending on the route you take, you may require anything from basic to specialized technical and programming knowledge as well as a hefty commitment of time, money and other resources (patience, grit and a bit of insanity come to mind). Finally, maintaining, nurturing and growing your cryptocurrency over time will be the biggest challenge of all.
Why Does a Blockchain Need Cryptocurrency?
It’s important to understand why cryptocurrencies actually exist. They are generated by public blockchains as rewards to incentivize their network infrastructure service providers (e.g. mining or staking validators) who help secure and scale the chain and process transactions and users, who help the network grow through their interactions (e.g. DAO voting) and transactions. Without cryptos there would be no reason for network participants to provide and maintain their own equipment and/or staking investment for the blockchain’s benefit.
Example: Public blockchains like Bitcoin incentivize network participants called miners with cryptocurrency rewards for solving a complex mathematical puzzle. This reward system motivates participants and helps achieve consensus. By eliminating cryptocurrency rewards, there is no motivation for stakeholders to secure the consensus mechanism, especially as they actually have to lay out a significant investment in funds to acquire and maintain their computer hardware and cover monthly overheads. The risk of crypto breaches and threats, such as the 51% attack, is due to less decentralization and fewer gatekeepers to protect the network.
However, if you’re going to be building a private or permissioned blockchain where you or selected entities control the nodes and validators, like the new Amazon NFT chain, you don’t need a crypto asset, because there’s no need to incentivize a validator. Examples of private blockchains include Hyperledger and Corda.
Only public blockchains require cryptocurrency to function; private blockchains don't need it. Public blockchains are permissionless and open to anyone, while private blockchains are, in most cases, invitation-only networks run by a single organization that retains full control over the blockchain.
Coin vs Token
Cryptocurrencies can be split into coins and tokens, and it’s crucial to understand the difference. While a coin like Bitcoin (BTC) or Solana (SOL) exists on its own blockchain, a token lives on a specific base chain, adhering to a specific format like ERC20 (Ethereum), BEP20 (Binance Smart Chain), SPL (Solana) and so on.
Coins have a specific utility over their whole network (such as for gas or governance) and are normally used to store, create or transfer monetary value between all participants. For example, some ETH is required as a gas fee to power any transaction on the network, whether the currencies involved are ETH or an ERC20 token.
Tokens meanwhile are built on blockchains that already exist and provide a specific utility for their own projects, such as governance or staking. They are not used for gas, which limits their use case and value.
Whitepaper
A founder will usually create and publish a crypto whitepaper before launching a cryptocurrency. It’s a detailed technical document that explains what the crypto project is trying to achieve and how.
A whitepaper is very important for early fundraising and drawing attention from early supporters. It blurs the line between an academic paper and a business plan, relaying both technical and economic specifics including how the cryptocurrency aims to meet a specific need, solve an existing problem(s) and improve our lives.
Whitepapers should also provide insight into the crypto’s tokenomics and roadmap. They should be easy to understand and offer technical explanations of the project's competence.
To get some inspiration, start with the original. Bitcoin’s “A P2P Cash Electronic System” whitepaper bible is mandatory reading for all cryptocurrency founders.
What To Consider Before Starting?
Before creating a cryptocurrency, there are a few important considerations to mull over. While most will be simple enough, others (such as legality) could cause you a massive headache if you don’t do your homework.
Is It Legal in Your Country?
First, check if your cryptocurrency project is legal to execute and maintain in the country you are in. Cryptocurrencies are still banned outright in some countries like China, while in other countries they are strictly regulated. Even in the US, there’s a constant battle going on between regulators and crypto companies. Regulators often keep crypto in a legal gray area, where regulations could suddenly change from crypto-friendly to hostile.
What Is the Purpose and Use Case of My Cryptocurrency?
Every cryptocurrency should, in theory, have a use case or purpose that serves as a unique selling proposition (USP) for your crypto. This use case, as outlined in the whitepaper, will determine the type of blockchain and technology you will use.
Which Consensus Mechanism Should I Use and Why?
The early days of crypto saw a preference for proof-of-work (PoW) over proof-of-stake (PoS) networks consensus mechanisms.
A consensus mechanism helps to process transactions and secure the network, and its choice will affect the energy consumption, decentralization and security of the cryptocurrency. While PoW chains like Bitcoin are praised for their great decentralization and security, they are also energy-intensive and expensive to maintain. Ethereum last year became 99.95% more energy-efficient when it moved from PoW to PoS during its Merge upgrade.
Should I Issue a Coin or a Token?
There are big benefits to creating a token over a coin: it’s easier and much cheaper to create a token than to issue a coin, which requires you to establish your own blockchain and then try to secure it. For example, an ERC20 token can be created in minutes and immediately leverages Ethereum’s superior and battle-tested security, while also having access to a huge compatible ecosystem and community of existing users.
Of course, lest we forget, many hugely popular coins such as Cardano (ADA), BNB Coin (BNB), Tron (TRX) and Chainlink (LINK) started life as humble ERC20 tokens before they finally migrated to their own mainnets once they grew too big.
However, if you decide on issuing a token, you’ll have to adopt the architecture and rules of the underlying blockchain, and likely also all the transaction fees you generate will be denominated in its native asset. For example, all ERC20 token transactions require some ETH for gas in order to execute.
Tokenomics
Tokenomics is an absolutely vital component of any cryptocurrency which is still completely misunderstood by some crypto investors.
Tokenomics relate to the supply and demand of your cryptocurrency, and is an essential element for any savvy investor, who might look at how many coins or tokens will be created, how they are released over time, how much is owned by the creators or early investors, and how they are burned or bought back in order to curb emissions. Get it wrong, and your project will eventually pay the price.
Do I Get a Developer or Build It Myself?
Designing, building and maintaining a cryptocurrency is no small feat (even Satoshi Nakamoto had some help when launching Bitcoin) and requires specialized technical expertise. If you’re not a developer, there are options to create it yourself or hire a blockchain developer or service provider. This can become very costly depending on the scale of your chain’s scope and activity.
Whitepaper and Website
Is your whitepaper sophisticated, specific and different, yet simple enough to understand? Creating a clear and concise whitepaper and website helps to claim a rightful stake for your cryptocurrency, and aligns your vision and strategy with its roadmap for the whole world to see and invest.
3 Ways to Create a Cryptocurrency
Now that you hopefully know what you want to build and why, it’s time to actually create your magic internet money. There are three ways in which you can create your own crypto asset:
Modifying (forking) an existing chain
Building on an existing layer-1 or layer-2 blockchain
Create a New Blockchain (Create a Coin)
Launching your own chain to create a cryptocurrency is the most difficult path by some margin, as it requires resources such as advanced coding and other technical skills. While educating yourself through online courses can help, they may require some pre-existing knowledge and also may not be in-depth enough.
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