Lifestyle

How to Create Your Own Cryptocurrency

Illustration for article titled How to Create Your Own Cryptocurrency

Photo: Igor Igorevich (Shutterstock)

Unless you’ve been avoiding the news completely in recent months, you’ve probably heard about the wild ride that is the cryptocurrency market. Bitcoin and Ether are experiencing huge swings in value on a daily basis, while Dogecoin—created as a joke in 2013—has become a very real (if volatile) asset thanks in part to Elon Musk’s Twitter feed and his recent SNL appearance.

Meanwhile, China is cracking down on cryptocurrency trades and the IRS is hunting down investors who haven’t reported profits from cryptocurrency holdings—so if you’ve sold or exchanged coins, you could be on the hook for capital gains or income taxes.

If the excitement of playing armchair observer or amateur investor isn’t enough for you, you might be wondering if it’s possible to jump in on the action by creating your own cryptocurrency. The short answer is yes, but there are quite a few different options to consider—and caveats to keep in mind—before you dive in.

Know the difference between a coin and a token

First, it’s important to understand the difference between coins and tokens. Both are cryptocurrencies, but while a coin—Bitcoin, Litecoin, Dogecoin—operates on its own blockchain, a token lives on top of an existing blockchain infrastructure like Ethereum.

A blockchain is, at its simplest, a record of transactions made on and secured by a network. So while coins have their own independent transaction ledgers, tokens rely on the underlying network’s technology to verify and secure transactions and ownership. In general, coins are used to transfer wealth, while tokens can represent a “contract” for almost anything, from physical objects to event tickets to loyalty points.

Tokens are often released through a crowdsale known as an initial coin offering (ICO) in exchange for existing coins, which in turn fund projects like gaming platforms or digital wallets. You can still get publicly available tokens after an ICO has ended—similar to buying coins—using the underlying currency to make the purchase.

Anyone can create a token and run a crowdsale, but ICOs can be murky if creators take investors’ money and run. Some ICOs are considered securities and are therefore are regulated by the Securities and Exchange Commission, which cautions investors to do their research before buying tokens launched in an ICO. The SEC is increasingly cracking down on fraudulent ICOs.

At the time of writing, CoinMarketCap lists more than 5,200 coins and tokens available on public exchanges. Not all tokens made it to exchanges, however — Etherscan, which provides Ethereum analytics, has more than 403,000 contracts in its archive. In April 2018, that total was just 71,000.

The idea behind cryptocurrency is that the underlying code is accessible to everyone—but that doesn’t mean it’s easy to understand. Here are the paths to creating your very own coins and tokens.

Build your own blockchain—or fork an existing one

Both of these methods require quite a bit of technical knowledge or the help of a savvy developer. Because coins are on their own blockchains, you’ll have to either build a blockchain or modify an existing one for your new coin.

The former takes serious coding skills, and even though tutorials and online courses exist to walk you through the process, they assume a certain knowledge level, and you generally don’t finish the process with a fully functioning coin that’s ready for public exchange.

Alternatively, you can fork an existing blockchain by taking the open-source code found on Github, making a few changes, and launching a new blockchain with a new name (like Garlicoin, which is forked from Litecoin). Again, this requires you to understand the code so you know what to modify and why.

Launch a coin or token on an existing blockchain

For the average person who doesn’t know the ins and outs of coding, a creation service that does the technical work and delivers your finished coin or token back to you is one option. For example, WalletBuilders has a free coin launch tool for those who just want to experiment with the process, as well as a paid package (0.0023 BTC as of this writing) that creates a functional coin. Rally is an invite-only platform for coin creation that’s built on the Ethereum blockchain.

You can also create a token—what is essentially a smart contract—with or without a public ICO. Because tokens can represent any asset, you can even create a token with no real value or serious purpose other than to exchange among friends.

This is faster, simpler, and cheaper than creating a coin because it doesn’t require the time and effort to build and maintain a new or forked blockchain, and instead relies on the technology already in use for Bitcoin or Ethereum.

A common product is an ERC-20 token, the standard for those built on the Ethereum blockchain. The code for these token contracts and crowdsales is also available for the very ambitious, and there are user-friendly tutorials and YouTube videos as well as platforms that will walk you through the process of creating a token in just a few clicks.

This generator on Github, for example, simply requires you to install MetaMask (a blockchain utility for buying, exchanging and storing tokens) and enter a few details as outlined in this video tutorial about the token you’re launching. There’s a free option if you don’t care much about customization, and plans with more control cost up to 0.75 ETH as of this writing.

If you’re crypto-curious, there’s no penalty to experimenting with token contracts. Start with an ERC-20 token that you can distribute to your friends and then cash in to whoever buys drinks at the bar. There’s no monetary value or commitment attached, but this will help you understand the technical aspect as well as how tokens work. An ICO probably won’t be appropriate for the casual observer because of SEC regulation and steep penalties for misrepresentation.

Not all cryptocurrencies are worth real money

The technical creation of a cryptocurrency isn’t actually the hardest part of launching a successful crypto project. The real work is in giving your coin or token value, building the infrastructure, maintaining it, and convincing others to buy in, which requires a team of developers and staff. With the right support and promotion, even memecoins can garner real value (again, think of Dogecoin).

That said, plenty of cryptocurrencies are unsuccessful, or even questionable from a legal standpoint, whether because the ICO wasn’t created in good faith or the coin failed to generate lasting interest.

Before you go all in on a possible shitcoin, research all the details of the project for yourself. Don’t rely solely on what’s popular in the news or what your friends say. Crowdsourced online forums are a decent place to find up-to-date information on what’s real and trustworthy and what isn’t—though ultimately, common sense is king.

This article was originally published in April 2018 and updated on May 24, 2021 with updated context about the crypto market, up-to-date statistics, additional links, and more detailed information on the coin-creation process.


Source link