Cryptocurrency Development Guide: Define, Develop, Deploy
The evolution of money is happening as we move into the future. We stopped using pure gold and replaced it with physical coins made of gold. Then coins got replaced with paper money, then papers with plastic cards. Nowadays, the world gets filled with non-physical means of payment: online and cryptocurrencies. This tendency defines the direction of money evolution that will happen sooner rather than later, so no wonder that blockchain consulting services gained popularity in the past decade.
Today, when blockchain wallets have firmly found their niche in everyday usage and payments, it might just be the right time to join the ranks and develop your own cryptocurrency. But what is it? How to do it right? And why consider entering the world of DeFi in 2021?
Let’s review the topic with more profound caution and dot the I’s before your first major move.
Crypto basics to get you started
We know that you have at least a general idea of what cryptocurrencies are, their benefits, and specifics. Otherwise, you wouldn’t probably be reading this. However, cryptocurrency development requires a deeper understanding of the crypto world and its concepts. So we’d like to clarify a couple of those to help you navigate this dynamic industry.
Cryptocurrency vs. fiat currency
Fiat currency is any known world currency, like USD or EUR. Fiat is issued by the government of a particular country, has a physical representation (a paper bill or a coin) but no intrinsic value (it is not backed up by gold or another commodity).
Cryptocurrency is, in a nutshell, digital money, like BTC or ETH. It can be used while online, and it is powered by the blockchain technology.
The similarities of both include lack of intrinsic value; it is determined by the common acceptance of the world. Both types can be sent or used for payments, gifted to someone, or stored for saving. However, cryptocurrency is the next level of currency in the general understanding. It is decentralized, which means that no bank or government can decide to produce more cryptocurrency to dilute its value. This feature also means that there is no single point of transaction validation, so no one can impose any fees for the process. And since every transaction made with crypto is made on a blockchain, it is irreversible, unchangeable, and traceable. The latter three components make cryptocurrencies one of the safest and securest ways to make transactions.
How cryptocurrency works
Many years ago, cryptocurrencies started as a protest, an alternative to the traditional establishment-based money. But today, they become a kind of mainstream for corporations, financial institutions, and advanced individuals.
Running on blockchain technology, every transaction made with or through any cryptocurrency embraces all the perks blockchain has to offer. This means that all crypto-based transitions are significantly safer than fiat transactions. They are anonymized and decentralized; they guarantee complete traceability of every transaction and visibility over the process. A cryptocurrency user and/or owner can enjoy full control of the exchange and significantly reduce the transaction fee payments.
Coin vs. token
As has already been mentioned before, physical coins used to be made of gold and other precious metals. Since cryptocurrencies do not have any physical representation, they have crypto coins to serve the function. But you have probably heard that there are also token cryptocurrencies. And while the two have similarities, it is essential to know the differences because they have different features and purposes. Only by defining these variations will you be able to set up the right cryptocurrency of your own.
- Coins are cryptocurrencies that require a standalone blockchain to exist.
- Tokens run on the existing blockchains, such as Ethereum. And they cannot be swapped between platforms. Tokens always belong to the platform on which they were created.
- Coins are closer to physical money since they act as a medium for all digital payments.
- Tokens are frequently used to represent smart contracts and can stand for anything from a physical object to a digital service. In the past year, tokens found a great implementation in the investment world of ICOs.
To put it simply, a coin can buy a token, but a token cannot buy a coin. So if you collected some frequent-customer points that can be used in a particular restaurant, then you got the tokens. But if you bought the points with real money, you used coins for that.
Why develop your own crypto?
The truth is, cryptocurrencies are still in their infancy. Even though Bitcoin has been a buzzword for the past couple of years, and it seems that everyone is mining, it is not true. The crypto adoption index around the world is still pretty low. The currency is still not used across the global geographic spectrum, so cryptocurrency development in 2021 makes all the sense in the world. But besides being a possible pioneer in your market niche, here is what else you can achieve through crypto:
- Business branding: You might have heard that even Microsoft started their own cryptocurrency, and the reason is marketing. Today ownership of a cryptocurrency is a trend that offers businesses a competitive edge on top of other perks. Having your own cryptocurrency definitely adds value to your brand. Once you say you own cryptocurrency, you instantly seem more foreseeing and modern, like you know what you are doing. And this is what makes end customers and investors trust you.
- Savings and guarantees: You remember that cryptocurrencies don’t require any extra fees for transaction completion. And if your business relies on transactions, especially international ones, then you can save up on taxes as well. But besides the savings, the blockchain offers guarantees that the sent coins or tokens get delivered without any losses and mistakes. This confidence also helps with business handling and deal-making.
- Project crowdfunding: ICO is the new trend to raise money for a startup or evolving business. Rather than spending days on paperwork, you can create a token and sell it to raise funds with no paper trail and fuss. And, in this case, the cryptocurrency can do miracles as it did for the well-known Ethereum because ICOs do not guarantee investors any rights to the company’s shares or a say in its development; all you do is sell a token and collect the investment.
- Currency popularization: Yes, this is the true reason to get into crypto today. While the global adoption is low, more and more companies begin accepting payments with crypto (restaurants like PizzaHut or Starbucks, travel businesses like Expedia or CheapAir, most video games like Minecraft, etc.) There are even crypto cards that emerge nowadays. And in this case, the earlier you get on board, the greater experience you can gain and the more potential you will fulfill.
Still have questions or concerns?
Contact us to schedule a meeting with our CTO to discuss project milestones, budget, and technical requirements. Let’s make your project more manageable and understandable together.
7 steps in cryptocurrency development
Yes, the main part of the article is here. Let’s see how cryptocurrency development is done.
Define the idea
You need to know why you are creating a new cryptocurrency, who will be using it, and how you plan to expand the user flow. Think of your initial idea and evolve it to turn into a ready-made marketing strategy. Only then move to the next step.
Select a consensus algorithm
A consensus algorithm or mechanism is a protocol used by the nodes on a blockchain to legitimize a transaction. There are two main options here:
- Proof of Work (PoW) is the most commonly used one. In PoW, the miners who want to add a new block to the chain need to do all the heavy lifting and provide proof that their offered data is genuine and correct. It takes a lot of computer power and time, hence it is quite expensive but the safest one. It is used by Bitcoin, for example.
- Proof of Stake (PoS) is used by Dash and Neo. It divides the miner’s computing power from the voting power. This said, PoS randomizes the selection of a minor who gets to add a block to the chain but at the same time, the more blocks a miner added, the higher are the chances for them to get selected again. PoS allows saving much of the computer power during mining which is the reason many new cryptocurrency development teams choose it.
Besides those two, you can also go with the Proof of Capacity (PoC) mechanism. It is similar to the PoS in its decision-making process: the more free space a node has, the higher are its chances to add a block to the chain. The Proof of Activity (PoA) takes the best from PoW and PoS mechanisms have to offer. Consider which consensus algorithm fits better into your model and select one for your particular project.
Decide on a blockchain platform
Consensus algorithms define how a blockchain works. As a result, they also impact how a particular blockchain platform works. So your choice of the blockchain platform is dependent on the consensus mechanism selected in section 2a. Review the top platforms by Gartner here and choose the right one.
Design the Nodes
Nodes are the building blocks of a blockchain. They store data, verify, process, and distribute transactions. They are responsible for the system’s security, efficiency, and overall support. So when you consider the nodes’ design, think of the following characteristics:
- Public or private nodes permissions
- Cloud or on-premise hosting
- Minimum and acceptable system requirements (OS, processor type, memory, etc.)
Establish internal structure
Blockchain internal architecture, in most cases, cannot be changed after you launch so plan it scrupulously. You need to think of all internally-handled rules of transactions, node participation, and identification, currency exchange, and movements, access regulations, etc. Here is a couple of things to give you an idea:
- Access levels and permissions
- Address and key formats
- Asset issuance and reissuance
- Transactions verification system
- Key management and storage
- Atomic swaps rules
- Hand-shaking mechanism
Integrate the APIs
You need APIs to deliver user responses to your blockchain and then send the system’s response back. Some blockchains have their own APIs but not all of them. So at this point, just ensure that you have the right APIs in place. If the in-built option is not available, go for the third-party services like Coinbase, Neuroware, Colu, or ChromaWay.
Design the UI
Build with the future in mind. Ensure that your front-end interface is simple and intuitive, otherwise, your cryptocurrency will never get popular in the masses. And don’t forget about the differentiation between the admin and the rest of the users by developing different interfaces for the two.
There are still very few regulations in place in a very little number of countries. Nonetheless, you need to follow the latest trends and ensure that you don’t miss the point when plans become laws to register your cryptocurrency. Carefully read through the regulations in place to secure your business and protect your back.
3 best practices from the 4IRE team
We had our share of projects with the goal to develop their own cryptocurrency. And being in the business for more than 10 years, we developed our own ‘rules’ for cryptocurrency development. We’d like to share them to give you the odds in the world of crypto.
- Make it useful. Don’t develop cryptocurrency just because you can. It would be a waste of time and money. Think of the value it can offer to your customers (easier purchase, greater variety, anonymity, security, etc.)
- Make your own code. Develop your own code or outsource to get it done for you. The code needs to fit into your existing infrastructure while also being flexible and adjustable.
- Get a hacker. This is not a joke. Hire an external blockchain expert to test your system for any vulnerability or break-in points. You must guarantee safety to your end-users otherwise new cryptocurrency is not a good one.
The promising future of extensive implementations for cryptocurrency starts today, in 2021. So getting on board of this ship is smart and efficient in both short- and long-term perspectives. Whenever you decide to start your own cryptocurrency development project, make sure to apply the tricks offered above, they will help you get through much easier! And if you have any uncertainties at any step of the way, do not hesitate to use our experience and knowledge in your project. Give us a sign you need help, and we will be happy to assist.