Digital Assets like Cryptocurrency have grown immensely during the past few years. Cryptocurrency are volatile in nature and sometimes it reaches record high whereas sometimes it drops significantly. These currencies do not have a central authority such as government to manage it. Demand and supply of cryptocurrency causes fluctuations. But did you know from where the word cryptocurrency is derived from? And also another question that comes to our mind is How to Make Cryptocurrency. Let us understand both the concepts.
The word crypto comes from Greek word ‘kryptos’ which means ‘hidden or secret’ and word ‘currency’ is derived from the Latin word ‘currere’ meaning ‘to run’. Around the year 1699 the word ‘currency’ began to be used to describe the flow of money between people.
What is Cryptocurrency?
- Cryptocurrency means a digital money that is a form of currency that exists virtually and it does not rely on banks to verify transactions. Units of cryptocurrency are made through a process called mining. This process usually involves using computer power to solve complicated mathematical problems that generate coins. The name cryptocurrency became popular because of its encryption to verify transactions. This involves advanced coding in storing and transmitting cryptocurrency data between wallets and to public ledgers.
- Using Cryptocurrency makes it easier for two people or business with low fees and faster processing time. Though Cryptocurrency is still an unaware concept for many, it is looked upon as an easier and convenient mode for making payments and for people who make purchases online.
Now that we know what is Cryptocurrency all about, Let us understand
How Cryptocurrency Works?
- Cryptocurrency works on a distributed public ledger called block chain, a record of all transactions updated and held by currency holders. Users can buy currencies from brokers, store and spend those using cryptographic wallets.
- There is nothing tangible in case of cryptocurrency. There is a key that allows you to move a record or a unit of measure from one person to another and there is no trusted third party involved.
- It is said that block chain technology improves transparency, increase trust and security of data being shared across a network. But there are few categories who believes that block chain technology are cumbersome, inefficient, and expensive and can use too much energy. In cryptocurrency group of transactions are added to the chain in the form of blocks which validate the authenticity of the transactions.
- All transaction batches are recorded on the shared ledger and it is public. Anyone can have a look at the transactions being made on the major block chain.
- To make a transaction in cryptocurrency a wallet is needed known as digital currency. A cryptocurrency wallet doesn’t hold currency it merely provides an address of your funds on the block chain.
- Every time when the crypto transactions are initiated you are actually authorizing a specified amount of the cryptocurrency from your wallet to wallet address of the seller. Crypto transactions are encrypted with a private key and pushed to the block chain.
- Once the block that includes the transaction is confirmed, the ledger is updated to show the new cryptocurrency balances for both the seller and buyers address. This entire process is conducted through the software.
Why Cryptocurrency is called a block chain?
- A block is a collection of transactions data on a network. The blocks create a chain, linking one to another through references of previous blocks. In order to change a block in the ledger a hacker would have to reproduce the entire chain of blocks following it since not doing so would create a chain of invalid references and that would not be accepted by the cryptocurrency network.
- Blocks include additional information that further enables the cryptocurrency networks to verify the block. The miners are rewarded with cryptocurrency and transaction fees.
- Without computing a valid solution to the blocks puzzle by the miner, new blocks cannot be added to the block chain.
How to Make Cryptocurrency?
The one question that arises in our mind in case of cryptocurrency is how to make or create cryptocurrency. Well yes one can make their own cryptocurrency with following steps
Let us discuss each point
- Define Your Objectives
- The first step while making cryptocurrency is to think how different is your cryptocurrency from other currencies and do you want to use the cryptocurrency as payment system or store value. This will help to develop a unique cryptocurrency.
- For example Bitcoin was created as a decentralized alternative to fiat currency. Whereas Ethereum was designed to be a platform that allows developers to create decentralized applications.
- Once the objectives are defined logo must be selected for the currency. Also website and whitepaper must be created. The website should describe about the currency and how it works. It is important to make sure that both the website and whitepaper are clear, concise and free of technical jargon. If the website is not clear, then people will not invest in such currency.
- Design A Mechanism
- The next step in this process is to design a consensus mechanism. There are two main types of consensus mechanism – a) proof of work and b) proof of stake. Proof of work is the most common type of consensus mechanism.
- In this the miners compete against each other to validate transactions and add blocks to the block chain. The miner who adds a block to the block chain is awarded with cryptocurrency.
- Proof of stake doesn’t require miners to compete against each other. Instead the system relies on validators who stake who stake their cryptocurrency to verify transactions.
- Choose a Block chain Platform
- Once the consensus mechanism is decided, the next step is to choose own block chain platform. If Proof of work mechanism is selected then bitcoin block chain is obvious whereas if Proof of stake is selected then there are number of platforms like Ethereum , Cardano and the Speedy EOS.
- Create the Nodes
- The next step is to download the software and set up a node. A node is a computer that stores a copy of the blockchain and helps to validate transactions. If proof of work is chosen then mining pool will be needed which means miners who work together to mine blocks and share the rewards.
- Generate a Wallet Address
- After setting up a node, you will need to generate a wallet with the best cryptocurrency wallet option. This is where people will send funds when they want to buy our cryptocurrency. Wallet Address can be chosen by using online services by running the software on your computer.
- Design the Internal Architecture
- The next step is to design the architecture of cryptocurrency. This includes things like the transaction format, network protocol and consensus algorithm. Also you will need to decide how many coins will be needed. This is known as Coin supply. It is very important to strike a balance here. If too many coins are created they will not be worthy. On the other hand if very few coins are created then people might not be able to buy it.
- Integrate the APIs
- The next step is to integrate the API’s. The API means Application Programming Interface allows different software applications to communicate with each other. For example , if Proof of work is used then you will need to integrate with bitcoin API. This will allow cryptocurrency to interact with the Bitcoin Blockchain.
- Make Your Cryptocurrency Legal
- The second last step is to make the cryptocurrency legal as per defined rules. This involves setting up a company and getting a license from the government. One thing that must be remembered is cryptocurrency is banned in certain nations so adequate research is required for the laws before the launch.
- Grow Your New Cryptocurrency
- While there are lot of technicalities involved in Cryptocurrency, it is also important to focus on the marketing and promotion of new currency. Without adoption the cryptocurrency is likely to fall. So one should make sure that people are accepting the cryptocurrency. A good way to promote the cryptocurrency is by making it free. This will make easier to buy and sell currency.
What are the different ways of creating Cryptocurrency?
How to create a cryptocurrency is the next question that comes to our mind. So following methods can be used
- Make Your Own Block chain
- Block chain based currency can be created from scratch to support native crypto. However creating a new block chain is not that easy. The process is very complex and requires at least basic coding skills and in depth understanding of block chain.
- If you are not a programmer, you can hire someone to create block chain without any coding.
- Change the Code of Existing Block chain Technology
- The second way is to create own cryptocurrency by changing the code of an existing blockchain. This method is less complex than creating a block chain from the scratch. However it is still technical and requires programming skills.
- You will need a good understanding of how block chain works before making changes to the code. Block chain architecture will depend on the goals of project and the resources available. To change the protocol access to the code will be required and most block chains are open source which means anyone can download them.
- Create a New Cryptocurrency on an Existing Platform
- The third way is to create a cryptocurrency which is new on an existing block chain Platform. By creating a new currency on the block chain it is known as token, a form of digital cash that isn’t native to the block chain it will operate on.
Understanding Coins V/s Tokens
- Cryptocurrencies can be crypto coins or it can be crypto tokens. Creating own coin or token a complex process. Both represents digital asset but still there are differences between the two. Crypto coins are standalone currencies.
- For example Bitcoin is a cryptocurrency that does not require any other platform to exist. Ethereum is another popular cryptocurrency coin that has its own digital asset. A cryptocurrency coin is decentralized digital money that uses cryptography to secure its transactions and also to control the creation of new units of the currency. Bitcoin, Ripple and Litecoin are examples of crypto coins.
- A cryptocurrency token is a digital asset that is created to use on a specific platform. Crypto tokens are often used to represent an asset or utility on a blockchain based platform. These tokens can be used to represent anything a digital asset, a utility or even a physical object.
- Also, if you create an own standalone currency then you can create a cryptocurrency coin whereas if you use block chain technology to create a new application or service then crypto token needs to be created.
How long does it take to create a Crypto Currency?
- It depends on the method used for creating cryptocurrency. Using automated tools, crypto will be ready in as low as 5 to 20 minutes. The time to modify the existing cryptocurrency code differs depending on the technical expertise.
- On a proficient level the process can take up to 4 hours. The process can be outsourced to allow specialized developers to work on your behalf. This will complete the process in short time. When creating the crypto coin from scratch the process can take months. It is because the development process takes longer time.
What are the cost involved in Creating Cryptocurrency?
- The cost for creating cryptocurrency is not fixed. The cryptocurrency business model grew three times faster compared to other investments in the market.
- What exactly is your goal from cryptocurrency will decide the cost. For example cryptocurrency has lot of customization then the cost will be high. Another scenario is that you might outsource the same to a developer or a team. Other cost involved will be
- Promotion- Marketing the cryptocurrency involves costs like blogging, social media marketing, press media or email marketing
- Auditing- External auditors often do this to ensure credibility. This will include fee and it will vary depending on the ones you choose.
- Development- If you have technical skills a lot can be saved. Otherwise a developer has to be hired or a team to handle it.
- Legal issues- Specialized lawyer will be required. Many firms offer blockchain expertise. So this also adds up the cost.
Types of Cryptocurrencies available in Market
- USD Coin
- Binance Coin
How to Make Money from Cryptocurrency?
- The next question that often comes to our mind is how to make money from cryptocurrency. Here are few steps to earn money in crypto market. First option to earn money through cryptocurrency is to do trading without owning any crypto yourself. Second Option is using the coin one holds as a stake and lend to the system or users. Thirdly one can participate In the blockchain system by mining or receiving coin rewards for work done in the system.
What are the Advantages and Disadvantages of Cryptocurrency?
Cryptocurrencies are generally decentralized. Most of the cryptocurrencies are controlled by developers and those who have significant amount of coin. The decentralization helps to keep the currency monopoly free and in restraint, so nobody can determine the flow and worth of the coin, unlike fiat currencies which are controlled by government.
- Ease of Use
Cryptocurrencies have kept themselves as an option for transactions. Both International and Domestic Transactions in Cryptocurrency happens at a lightning speed. Verification procedure in case of cryptocurrencies is very fast because there are only few barriers.
- Protection from Inflation
Inflation has caused many currencies value decline with time. At this time of launch every cryptocurrency is released with fast amount. The ASCII computer files specifies the quantity of coin, there are only 21 million Bitcoins released. So as the demand increases the value will also increase which maintains the market and prevents inflation.
- Self-Governed Managed
Currency governance and maintenance is a serious factor for development. The crypto currency transactions are stored by developers/miners on their hardware. Since the miners have acquired it, they keep the records up to date and keep the integrity of the cryptocurrency and also records decentralized.
- Cost effective Mode of Transfer
One of the most uses of cryptocurrency is to transfer money across borders. With the help of cryptocurrency, the transaction fees paid by the user are reduced and negligible or zero amount. It does so by eliminating the third party like VISA or PayPal to verify the transactions. Here there is no need to pay any extra transaction fees.
- Unlawful Practices
Cryptocurrencies are not completely free from security issues. As a crypto owner you could lose your private key that is used to access coins. Also it involves hacking, phishing, and all other attempts to gain control through malicious means. This is something that investors keep an eye but still new investors get trapped easily.
- Risk of Data Loss
In cryptocurrencies if anyone loses the private key in their wallet, then it is very difficult to get back. The wallet will remain locked with number of coins inside it. It results in loss of user.
Power Lies in Few Hands
Although cryptocurrencies are decentralized the flow and amount of the currencies within the market are still controlled by their creators and some organization. These holders can manipulate the coin for enormous swings in its price. Hugely traded coins are at risk of these manipulations like Bitcoin, whose value doubled several times.
- Buying NFTs with other tokens
Some cryptocurrencies are traded in one or fiat currencies. It therefore forces the user to convert the currency in to Bitcoin or Ethereum first and then through other exchanges. By doing this, extra fees gets added to the cost.
- No refund or cancellation
If there is dispute between parties, or if someone makes a mistake while sending funds to the wrong wallet address , the coin cannot be retrieved by the sender. The Counterparty can cheat and since there are no refunds one can easily create a transaction for which no service or products will be received.
- Vulnerable to Hacks
Though Cryptocurrencies are secured, exchanges don’t see, to be that secured. Most exchanges store the wallet data to figure their user ID Correctly. This data is often stolen by hackers giving them lots of accounts. After getting the access these hackers can efficiently transfer funds from those accounts. For example Bitcoin has been stolen in thousands and countless US Dollars. Even though the exchanges are highly secured there is a possibility of further hack.
- High Consumption of Energy
Mining of Cryptocurrency requires plenty of computational power and electricity input, making it highly energy intensive. The main culprit during this is Bitcoins. Because mining of bitcoin requires computers that too advanced one and plenty of energy. This cannot be done with ordinary computers. Major Bitcoin miners are in countries like China that uses coal to produce electricity. Also it has increased China’s carbon footprints.
- Cryptocurrency can be created by anyone, even for fun. But launching a cryptocurrency and making it successful with gaining returns is a difficult task. It requires commitment of time, money, resources and also technical knowledge. Maintaining the cryptocurrency is more challenging than making it. But the fact is, the future of cryptocurrency market is still a question. Some people believe that it has immense potential whereas some believe that it is not worth to invest in cryptocurrency.
- Due to the conspiracy of the cryptocurrency some countries have totally banned it. For example in China raising money through virtual currency is considered illegal since 2017. One should not fall for fraudulent activities like Fake websites, virtual schemes, celebrity endorsements. Before investing in cryptocurrency one should research about the exchanges, know how to store the digital currency, Diversify the investments and be prepared for the volatility. So , Knowing and understanding the strategies will be helpful in cryptocurrency market.