If you’re wondering how to start a cryptocurrency, know that the technical skills are the least of your worries. Therefore, in this article, we will explore how to create a cryptocurrency and where you need to pay attention to succeed in the process.
Before everything else, let’s clarify that a cryptocurrency is a digital currency, based on a coin or a token, that regulates the generation of units and transfer of funds verification using encryption techniques independently of a central bank.
Cryptocurrency allows peer-to-peer transactions, with low to no fees, anywhere in the world. It also provides great privacy and is difficult to hack due to the consensus validation mechanism.
P.S. We won’t go into the coding specifics as the technical processes are already detailed by experts on the internet.
Table of Contents
1. Define the purpose of your Cryptocurrency
When launching a cryptocurrency you first need to define the purpose it will serve. Identify a problem or an unmet request on the market, and create your cryptocurrency as a solution to that problem.
It’s important to understand that most cryptocurrencies have no intrinsic value, and no governmental institution backing them. Their monetary value comes from the people empowering them. When it comes to people that invest in crypto, there are at least two kinds: the investors and speculators.
Investors are usually in it for the long run. They either buy the coin or token in its ICO stages or buy-in along the way. The investors help to raise the value by keeping the currency for longer periods and acquiring products and services.
Speculators are those who only buy-in and cash-out shortly for profit. Most of the new altcoins are reduced to dust soon after release because of speculations. Even Bitcoin and other popular altcoins are affected by speculators, especially when their value increases significantly.
However, a well-taught plan and a revolutionizing concept raise the chances of success considerably.
For example, Bitcoin came out as a purely peer-to-peer version of electronic cash. It was meant to allow online payments to be transferred between parties without the need of a financial institution. Even though it’s far from perfect, people believe in it, making Bitcoin the #1 cryptocurrency.
Besides Bitcoin, there is Ethereum, the pioneer for blockchain-based smart contracts, which has kept its position as the #2 cryptocurrency for years.
SIDENOTE. A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.
In both scenarios, the initiators came up with revolutionary concepts.
For Bitcoin, it was a purely peer-to-peer version of electronic cash. In Ethereum’s case, it consisted of Smart Contracts and Distributed Applications built on top of an existing blockchain. The investors have stuck with them for better or worse.
2. Create a brand identity
According to CoinMarketCap, there are 3,025 Coins and tokens. If you want to start a cryptocurrency, you are going to need a brand. And well, a brand is an emotional and/or philosophical concept. It is closely related to what people think of you.
To create a brand, you first need to design a brand identity. The brand identity refers to the visual components that represent the brand ideas.
To create a cryptocurrency brand identity, focus on the next 3 elements:
The name you choose can be related to the purpose or totally made up. However, you will have to give it meaning through your story because the name you choose will become your brand. Even more, it has to be catchy so you can build a community around it.
Besides being catchy, your name also needs to be easy to pronounce correctly. Getting too creative with the spelling and pronunciation will only make it harder for your audience to correctly pronounce your brand name.
If you are inclined to use tails like coin, token, or cash, just drop them. In the early years of Cryptocurrency, it was a common practice to use “coin” in the name (Bitcoin, Litecoin, Dogecoin) but it became overused.
After you find a suitable name, you will also need a suitable symbol.
Your cryptocurrency’s symbol must be a combination of 3-4 letters, preferably an abbreviation of the name. It has to be unique, easy to remember, and easy to associate with the name. The symbol is also used on listings and exchanges to identify your cryptocurrency.
Next up is the logo. It will be the first graphical element of your identity that investors will see. When you get into the cryptocurrency market you need to make sure your logo is easily identifiable and looks good in a small format on listings. Nowadays cryptocurrency exchanges and listings are essential.
Mainly, your token or coin will be added to a table together with other currencies. If your logo can draw attention inside those listings, it will be easier to extend your community.
Effective branding may kickstart a project and keep it flying. Back in the days, DogeCoin (DOGE) took an internet meme and turned it into a cryptocurrency. The well known Shiba Inu meme was used to brand the coin and the community found it quite entertaining and chose to support it massively.
While Dogecoin is getting listed on Binance, in 2019 the concept of the doge meme-coin seems to be replicated by DogeCash and DogeToken. By looking at CoinMarketCap, the two new currencies don’t seem to be doing well. This situation may just illustrate how important is to be original and innovative when you’re trying to create a new cryptocurrency.
3. Do you want to build a coin or a token?
Before going forward with creating your cryptocurrency you should first decide between creating a coin or creating a token.
Coins don’t just store or exchange value. They are also used to back applications, transactions, smart contracts, and even for staking.
Tokens are representations of particular assets or utilities, tradable to commodities, loyalty points, cryptocurrencies, and others.
Coins took over many characteristics of tokens. The main difference between them is that a coin is based on its own blockchain, independently of any platform. A token is based on top of a protocol through a smart contract, built on a blockchain platform such as:
- RSK Smart Bitcoin
- Binance Coin
4. Check the potential legal issues
Before going forward with the creation of a new cryptocurrency, make sure to check the legislation in your area.
Digital coins and tokens are largely unregulated. However, the fear of illicit usage, high volatility, and investment risks stirred the reticence of governmental agencies.
To make sure of the legal compliance, you can even ask for an external audit.
Cryptocurrency legal status in China
China doesn’t consider Bitcoin and other cryptocurrencies as currencies, but digital commodities at most. The only official currency in PRC is the renminbi (RMB).
Therefore, cryptocurrencies can’t circulate on the market, can’t be used to set prices, to buy or sell goods, or for any other financial or trading activities.
Starting a cryptocurrency exchange is also prohibited, as are all ICO activities.
However, there is no direct ban on owning, sending, and receiving cryptocurrency.
Also, there is no applicable or specific tax for it.
On the other hand, China is supportive of the blockchain technology, and surprisingly, they officially announced in 2019 the development of a cryptocurrency backed by the People’s Bank of China.
Cryptocurrency legal status in the USA
In the USA, cryptocurrencies are not considered to be real money and there is no general law that states a position or another towards them.
Some states, like Wyoming and Colorado, support cryptocurrencies and gave it property tax exemption, while others, like California and New Mexico, issued warnings against them.
Generally, cryptocurrencies are taxed like stocks and fall under existing anti-money laundry regulations.
If a cryptocurrency constitutes a security, it falls under corresponding regulations of the Federal law. Futures and contracts of cryptocurrencies that constitute commodities fall under the Commodity Exchange Act.
Cryptocurrency legal status in France
The French government refers to cryptocurrencies as a crypto asset or digital asset, which may be contained in a digital commodity. They encourage the development of cryptocurrencies and blockchain technology and offer a favorable framework.
The general flat-rate tax for gains obtained from occasional purchase and sales of crypto assets is 30% (including social contributions). Mining, recurring acquisition and sale, commercial activity, and professional trade are taxed with 45% (social contributions not included).
Also, in France cryptocurrencies fall under anti-money laundry regulations, know your customer obligations, and several other EU securities law.
Cryptocurrency legal status in Russia.
The general governmental stand in Russia is against cryptocurrencies, but they are supportive of blockchain technology.
There are no laws to directly govern cryptocurrencies, only the Digital Rights law that covers more aspects of the online sphere.
In Russia, the rouble is the only means of payment, therefore they consider cryptocurrencies as ineligible for payments. Cryptos also fall under the existing anti laundry law without any express regulations.
When it comes to taxes, there applies only the general tax code and for any gains, there is a proportional income tax.
Cryptocurrency legal status in Korea
In Korea, cryptocurrency regulation just began and there is no clear guidance that provides regulatory authority.
Korea does not consider them currencies, electronic currencies, or financial investment instruments, but they can be confiscated if they are obtained through criminal activities.
Korea banned cryptocurrency margin trading and ICOs for coins and tokens registered as securities.
It is unclear what laws apply to Bitcoin and other already existing cryptocurrencies.
Exchanges are not prohibited but they have to abide by the Real-Name Verification System, requiring their customers to provide actual identification information before opening cryptocurrency accounts.
Currently, there is no official taxation law for cryptocurrency, only the applicable law.
5. Create your cryptocurrency
There are several ways to create a cryptocurrency. You can either build it on top of an existing blockchain, or customize your own blockchain, or start it from scratch.
Create a cryptocurrency on top of an existing protocol
If you have decided to build a token you can make use of the smart contracts functionalities of networks like Ethereum and NEO. With ERC-20, respectively NEP-5, you can set up your token pretty quickly without needing too much technical skill.
Even more, you can search the internet and find step by step tutorials on how to build tokens on top of these blockchains, and how to deploy them to the main net.
The greatest advantage of building a cryptocurrency on top of an existing protocol is that you can piggyback an existing network (like Ethereum) and rely on it to update, manage, and improve the technical side of the cryptocurrency.
However, that comes with a major downside.
You will have little to no autonomy and always be dependent on the hosting blockchain. You don’t have any say in the future development of the Blockchain, and you may have to pay certain fees to complete transactions (like Gas in Ethereum).
And if the network is shut down, the smart contracts your token is built on will shut down as well.
Create a cryptocurrency by forking an Existing Blockchain
While launching a blockchain, you don’t have to reinvent the wheel. You can simply take the open-source code of an existing blockchain and add modifications to serve your own purposes.
For example, the open-source code of Bitcoin was released in January 2009. Since then, anyone can launch his own private cryptocurrency based on it.
However, getting access to the source code doesn’t spare you the work you have to put in to build a network large enough to have your blockchain considered secure.
You can try forking Bitcoin manually, or automatically with a fork generator like ForkGen.
Being able to develop your own blockchain using existing already-proven code is a big plus. But creating your own fork out of a consecrated blockchain is the least complicated part.
You may have the autonomy of a coin but the big downside is that you have to get the community’s support in order to succeed. And in case your network won’t be large enough, you will be susceptible to a 51% Attack.
SIDENOTE. A 51% Attack (Majority Attack) is an attack on the blockchain by a miner (or group of miners) who owns more than 50% of the network’s mining hash rate or computational power.
Create your own blockchain
If you’ve got the money, the time, knowledge, and the team, you can just go forward and build your own blockchain from scratch and base your coin on it. This may be the case especially if your vision cannot be supported by any of the existing protocols.
When you create your own cryptocurrency from scratch, you get the best control over it, especially what consensus mechanism to use.
In Blockchain, the consensus mechanism refers to the system of rules used to approve the transactions on a chain. To define the identity of your cryptocurrency, you should also look into the current Consensus Mechanisms and choose the most fitting.
There are quite a few of distributed consensus mechanism, and the Proof of Work (POW) and Proof of Stake (POS) are the most spread.
Proof of Work is based on members of the blockchain to solve computational puzzles through hash functions. In exchange for they effort, miners miners receive with a fraction of the coin each time they solve an equation.
With the energy consumption and mining cost continuously growing, the need for a new consensus mechanism manifested in Proof of Stake. PoS, a significantly cheaper and environmentally friendly mining method, doesn’t require powerful computers but as the confirmation of operations through existing coins.
The more coins someone is holding, the more chances he has to validate. In a PoS consensus mechanism, validators are people who stake their coins.
The great advantage is that you will be autonomous and may bring significant innovations to the Blockchain technology. On the other hand, starting from scratch is the costliest option. You will need a passionate team to develop the project and gain the support of a vast enough community, to form an extensive network of nodes.
SIDENOTE. You can employ and commission dedicated development companies (known as Blockchain as a Service – BaaS) to build Blockchain for you.
6. ICO or IEO?
Congratulations on building a cryptocurrency. Once you have reached this step you might as well want to give it value. To do so you are going to need investors and to acquire investors you can approach an Initial Coin Offering (ICO) strategy or an Initial Exchange Offering (IEO) strategy.
ICOs had a boom in 2017 and 2018, raising billions of USD. However in 2019. IEOs seem to be taking the lead.
If you have decided on ICO, go ahead and check our previous article on how to market an ICO.
If you have decided to go with an IEO, the crypto exchange is the one who manages the crowd sale, the KYC (Know Your Customer), AML (Anti-Money Laundering), and most of the Marketing activities as well. Some of the best crypto exchanges that offer services for IEOs are Binance Launchpad, Bittrex, and Kucoin Spotlight.
In January 2019, BitTorrent launched a token sale on Binance Launchpad and managed to raise $7.2 million, hitting the hard cap in less than 15 minutes.
However, BitTorrent was a significant brand, to begin with.
When launching an IEO you should also pay attention to your website and whitepaper. Keep it real and connect with your community on social media. You can even go forward and have some press releases published about you.