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How are Cryptocurrencies Created?

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A cryptocurrency is a digital currency, which uses cryptography for secure transactions. It is designed to act as a medium of exchange on a computer network without relying on a central authority such as a government or a bank to manage it. Since cryptocurrencies have no central issuing or regulatory authority, they use a decentralized system to record transactions and issue new units. Cryptocurrency uses blockchain technology. Cryptocurrency units are created through a process called mining, which uses computer hardware to solve complex mathematical problems that produce coins. There are many cryptocurrencies in the market like Dogecoin, Bitcoin, and many more. 

How is Cryptocurrency Created?

The units of cryptocurrency are created through a process called mining. Mining is the process of validating cryptocurrency transactions and creating new units of cryptocurrency. The mining process uses powerful computer hardware and software to solve complex mathematical problems that generate coins.

Cryptocurrencies use blockchain technology. Therefore, whenever a cryptocurrency transaction occurs, cryptocurrency miners (who also act as nodes on the blockchain network where these types of cryptocurrency transactions take place) try to decrypt the block containing the transaction information. The block not only verifies the transaction but also provides information about who sent how much cryptocurrency to whom, when and on what date. Once a block is decrypted and accepted as authentic by the majority of nodes in the blockchain network, the block is added to the blockchain. The verification process is very resource-intensive in terms of the required computing power. As a result, individual cryptocurrency miners often find the process too expensive, So because of this miners join mining pools to share computing power.

Coins and Tokens

Cryptocurrencies are broadly divided into two groups – coins and tokens. A coin is a cryptocurrency application that runs on its own blockchain, where all transactions take place. Tokens, on the other hand, work on existing blockchain infrastructure and are typically used for physical objects like smart contracts. digital services, etc.

S No.

Coins

Tokens

1. A new blockchain must be created for the coin.Tokens can use an existing blockchain
2.An in-depth understanding of how blockchain works and programming skills are required.Tokens use open-source code and are relatively easier to create.
3.Due to the creation of a new blockchain, the investment can be significant.Creating tokens is faster and cheaper.

Create Coin and Token:

1. Creating a coin: The coin creation process is not that challenging. You can simply copy Bitcoin’s code, add a new variable, or even change its value, and that’s it – you have your blockchain and your coin. However, you must understand the code and know how to modify it, which requires extensive programming knowledge.

2. Creating a Token: As mentioned above, the token works with the existing blockchain infrastructure. Therefore, if you create a token on a high-performance blockchain such as Ethereum, your token should run on a highly secure network and also be secure from fraud attacks. Tokenization is less expensive in terms of money and time when you leverage your existing decentralized architecture and implement a consensus mechanism.

Popular solutions for making cryptocurrency

  1. Ethereum: Ethereum is the first blockchain to offer a token creation service. It offers a superior level of trust due to its maturity and strong position in the cryptocurrency market. All tokens built on Ethereum use the ERC-20 standard. Tokens on Ethereum can only be written in Solidity (its own programming language).
  2. EOS: EOS tokens use the EOSIO. Token standard and can be created with C++ or any other language like python, java, etc. that compiles to WebAssembly. With no transaction fees, blockchains offer excellent scalability, high transactions per second, and cost-effectiveness.
  3. NEO: Neo is an open-source community-driven blockchain platform, Neo’s vision is to be an open network for a smart economy. Neo uses the NEP-5 standard. Unlike Ethereum, you can create your own tokens on it using almost any high-level programming language like Java, Python, etc. HTTP API can be used to interact with the blockchain.

Steps to Create a Cryptocurrency

Below are the steps to create a cryptocurrency:

Steps-to-Create-a-Cryptocurrency

1. Choose a Consensus Mechanism: Consensus mechanisms are the protocols that consider a particular transaction legitimate and add to the block.

2. Pick a Blockchain Platform: Choosing the right blockchain platform for your business depends on the consensus mechanism you choose.

3. Design The Nodes: You need to determine how your blockchain will work and function, and design your nodes accordingly.

4. Establish Blockchain’s Internal Architecture: Set up the internal architecture of the blockchain, Be sure about all the aspects before the launch as you won’t be able to change several parameters of the blockchain after it’s launched and running.

5. Integrate APIs: Some platforms don’t offer pre-built APIs.Don’t worry, there are several third-party blockchain API providers like ChromaWay, Gem, Colu, BlockCypher, etc.

6. Designing the UI: Building a top-notch cryptocurrency is useless if your UI is bad. You need to ensure that the web, FTP server, and external databases are up-to-date and that front-end and back-end programming is done with future upgrades in mind.

7. Legalize your cryptocurrency: Make sure your cryptocurrency is ready and compliant with upcoming international cryptocurrency regulations. That way, your work is preserved, and no sudden surprises can sabotage your efforts to create a new cryptocurrency.

Cryptocurrency mining reward

Cryptocurrency miners need money. They receive a small fraction of new units of cryptocurrency for completing “blocks” of verified transactions that are added to the blockchain. 

  • Miners are paid in the cryptocurrency they wish to mine. 
  • So when miners decide to decrypt a block of bitcoins, they get paid in bitcoins. 
  • By pooling resources, miners increase their chances of success and share the cost, but only receive a portion of the reward. This is known as a Cryptocurrency mining reward.

Pricing Cryptocurrencies

To understand cryptocurrency pricing, let’s take the most famous example of Bitcoin. 

  • Like most other commodities in the market, the price of Bitcoin is determined by the interaction of supply and demand and expectations of future prices. 
  • For cryptocurrencies, pricing is entirely based on market dynamics. 
  • If the market believes that the price of Bitcoin will rise in the future, they will now be more people who are ready to pay more for it. 
  • On the other hand, if the market believes that the price will fall in the future, there will be more people selling cryptocurrencies now, and the price will be higher than at the future level. 
  • When selling, there are many people who accept lower prices than usual and expect lower prices in the future. 
  • Many Individual influencers can also significantly influence the price of cryptocurrencies.

Bitcoin Halving

The reward for mining, i.e. the amount of bitcoins a miner earns through successful authentication, is fixed. However, this reward is numerically halved every four years. So, when Bitcoin was introduced, miners could earn 50 BTC as a reward for successfully processing a block. This is called the Bitcoin halving. After the first halving, this number was reduced to 25, followed by 12.5, and the last halving as of 2020, which is currently 6.25. The next halving is planned for 2024.

Cryptocurrencies in the Market

Currently, According to Forbes in 2022 top Five best cryptocurrencies in the market are given below:

  1. Bitcoin (BTC): Market cap of Bitcoin (BTC) is $880 billion.
  2. Ethereum (ETH): Market cap of Ethereum (ETH) is $415 billion.
  3. Tether (USDT): Market cap of Tether (USDT) is Over $79 billion.
  4. Binance Coin (BNB): Market cap of Binance Coin (BNB) is Over $68 billion.
  5. U.S. Dollar Coin (USDC): Market cap of the U.S. Dollar Coin (USDC) is Over $53 billion.

Advantages of Cryptocurrency

  1. Self-governed and managed: Cryptocurrencies do not have a central issuing or regulatory authority, they use a decentralized system to record transactions. Records of cryptocurrency transactions are stored by miners on their hardware. Miners receive transaction fees as a reward. Therefore miners keep transaction records accurate and up-to-date.
  2. Secure and private: Privacy and security have always been the main concerns of cryptocurrencies. Cryptocurrencies use blockchain technology, which uses encryption for secure transactions. This makes cryptocurrencies more secure than ordinary electronic transactions.
  3. Currency exchanges can be done easily: Cryptocurrencies can be purchased in multiple currencies such as USD, EUR, GBP, INR, or JPY. With the help of various cryptocurrency wallets and exchanges, it is possible to convert one currency to another with minimal transaction fees by trading cryptocurrencies between different wallets.
  4. Transparency and anonymity: Due to the distributed nature of the blockchain, every transaction is recorded and not changed. At the same time, if a crypto address is not publicly verified, no one knows who made the transaction and who received the cryptocurrency.
  5. A fast way to transfer funds: Cryptocurrencies have always been the best solution for transactions. Cryptocurrency transactions, both international and domestic, are lightning-fast. This is because verification takes very little time.
  6. Low transaction fees: Compare with Banks and other financial institutions, Cryptocurrencies charge relatively small amount transaction fees.

Disadvantages of Cryptocurrency

  1. Decentralized but still operated by some organizations: Cryptocurrencies are known for their decentralized nature. However, the circulation and quantity of some currencies in the market are still controlled by their creators and some organizations. 
  2. Can be used for illegal transactions: Due to the high privacy and security of cryptocurrency transactions, it is difficult for governments to track users by wallet address or track their details. Bitcoin has historically been used as a currency exchange for many illegal businesses, such as buying drugs on the dark web.
  3. Data losses can cause financial losses: Developers want to create virtually untraceable source code, strong protection from hackers, and authentication protocols that are hard to penetrate. This makes investing in cryptocurrencies safer than investing in physical cash or bank vaults. However, if the user loses the wallet’s private key, it cannot be retrieved. The wallet remains locked along with the number of coins in it. This will bring financial losses to users.
  4. Cryptocurrencies are highly volatile: Cryptocurrency markets are volatile and fluctuate frequently, even for famous cryptocurrencies like Bitcoin. Investing in cryptocurrencies is risky because you never know if it will be a profitable investment or not.
  5. Cryptocurrencies Transactions are irreversible: If you enter an incorrect cryptocurrency address then there is no way to reverse a transaction.
  6. Cryptocurrency storage:- If the user loses the wallet’s private key, it cannot be retrieved. The wallet remains locked along with the number of coins inside. This will result in the financial loss of the user.


Last Updated : 05 May, 2022
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