Cryptocurrencies are created through technological processes involving programming, computers, and willing volunteers. Depending on the form used, anyone with basic knowledge can bring digital assets to life. The activity is therefore decentralized and does not involve governments or central banks, which are essential for issuing fiat currencies.
But if the ease of creating crypto is positive on the one hand, it also has a negative side. This is because although serious projects have been launched in recent years, the market is also flooded shitcoins (slang used to refer to worthless digital currencies). Additionally, opportunists often exploit the simplicity of the methodology to create worthless digital currency scams.
In this guide, InfoMoney explains how cryptocurrencies are created and on which platforms they are issued. It also describes how they reach brokerage houses and gives advice on how to spot unfounded projects.
• What are crypto assets
• How cryptocurrencies are created
• Are NFTs, cryptocurrencies and DeFi created equal?
• Who can create cryptocurrencies
• Where to create cryptocurrencies
• How to recognize shitcoins
• How cryptocurrencies reach stock exchanges
• Is mining and creating cryptocurrency the same thing?
What are crypto assets
Crypto assets are digital assets that can be transferred, stored and traded in a virtual environment. They are usually protected by encryption, a security mechanism that allows encrypted messages and data to be sent.
Today, there are several types of crypto assets on the market, the most famous are cryptocurrencies that function as money – dollar, euro, real, etc. Crypto such as Bitcoin (BTC) and Ethereum (ETH), for example, can be used as a means of exchange, storage values or even as a unit of account.
The list of cryptoassets also includes non-fungible tokens (NFTs), utility tokens, governance tokens, gamecoins, metaverse crypto, fan tokens, digital assets generated in decentralized finance (DeFi) applications, and so on. In August 2022, according to data from the aggregator CoinMarketCap, there were almost 21,000 cryptocurrencies on the market.
Typically, these digital assets run on blockchains, public databases that record user transactions. In public blockchains, such as BTC, for example, there is no government or private control. Everything is managed by nodes, which are system participants.
How cryptocurrencies are created
Cryptocurrencies exist only in a virtual environment. Therefore, they are created using computer codes, specific software and hardware. There are different forms of production, but generally the four main ones are as follows:
The first cryptocurrency and blockchain in the world was Bitcoin, and from it, directly or indirectly, other digital assets were created. Ethereum (ETH), for example, although very different from BTC, was created by modifying the source code of the first cryptocurrency – in this sector, projects are made in open source, which means that they are available to anyone who wants you to copy and modify them.
This dynamic works in one way or another to this day. Anyone who wants to create a cryptocurrency “from scratch”, with their own blockchain, usually drinks from other existing digital assets, modifies the necessary information and launches a new network to the market. However, such a project requires the developer to have a deep understanding of blockchain technology, not to mention building a community and network of validators to maintain the chain.
Third Party Blockchain
The aforementioned method involves creating unique blockchains with their native cryptocurrencies. However, there is also the possibility of using ready-made blockchains to create new tokens, with different rules and names. This is possible in those that offer smart contracts, protocols that are executed based on predefined rules.
The main chain used to launch new tokens is Ethereum. Digital assets built on this network follow a technical document called the “Ethereum Request for Comments” (ERC). In the market, assets that follow this pattern are called ERC-20 tokens. (The number 20 refers to the ID number of the rule).
Through this “outsourcing” method, anyone can put new tokens on the market. In general, you just take a contract from a ready-made project, edit it with information about the new digital asset – name, asset number, etc. – and make some basic settings.
Mining is the name of the process that results in the creation of new units of digital assets that already exist, so it does not create something entirely new. It is equivalent to issuing coins by a central bank, but with some differences, such as the absence of government. The forerunner of this model, which is used by most cryptocurrencies on the market, was Bitcoin. Behind it is a computer algorithm called Proof of Work (PoW). In short, it works as follows:
All user transactions are recorded on the BTC blockchain. As there are no employees in this system, those who confirm and confirm the transfers of people are miners, participants who are willing to cooperate on the project. The process is highly competitive, and today only groups with a lot of computing power can participate – imagine farms full of mining machines. As a reward for their cooperation, they receive 6.25 BTC as a “payment” – this amount is halved every four years, according to pre-established rules in the code.
Another well-known way of generating previously created cryptocurrency units is through staking. In practice, in this method, participants must “lock” digital currencies into the blockchain to help confirm user transactions. In return, they pocket cryptocurrency as a reward. The algorithm behind this model is called proof-of-stake or PoS.
The second largest cryptocurrency in the market, Ethereum, is expected to change its algorithm from proof-of-work to proof-of-stake in September 2022. Some big projects in the crypto market, such as Avalanche (AVAX), Polkadot (DOT) . ) and Cardano (ADA), already use this model. The big difference between PoS and PoW is therefore that the nodes do not need a lot of computing power, but a certain amount of digital currencies to participate in the process.
Are NFTs, cryptocurrencies and DeFi created equal?
No, NFTs, cryptocurrencies and DeFi platforms are created in different ways. See the procedure for each of them below:
Non-fungible tokens are cryptographic representations of something unique. It can be digital art, a song, a video, a photo of a particular moment or even a tweet. Their creation is extremely simple: if you have digital art, for example, to transform it into NFT, just register it on platforms such as OpenSea and Rarible. You must have a cryptocurrency wallet linked to the tools, and fees and commissions are involved.
Cryptocurrencies, unlike NFTs, are not unique. They are fungible – that is, they can be exchanged for others of the same kind – and work like money. These assets are born alongside their own blockchains, such as BTC and ADA, for example, or issued on third-party blockchains, such as Chainlink (LINK), created on the Ethereum blockchain.
Decentralized finance (DeFi) refers to a set of financial services and products built on blockchains through smart contracts. Developers must therefore have deep technical knowledge. There are several types of DeFi in the market, some of the main ones being decentralized cryptocurrency exchanges (DEX), lending platforms and payment systems. Two well-known protocols are Uniswap (UNI) and MakerDAO.
Who can create cryptocurrencies?
Vinicius Zampieri, founder of Beplix, said this in general terms anyone can create cryptocurrencies. In the case of tokens generated on a third-party blockchain, he said, basic programming knowledge is sufficient.
“Then the seriousness of the project will vary. For example, the Bitcoin blockchain has a very strict, immutable mining protocol, meaning there is no way to invent coins at any time. Now, you can launch a token immediately, create a million of them and distribute them for R$1 each, for example.”
Where to create cryptocurrencies?
In addition to Ethereum, developers can use other blockchains to create cryptocurrencies. Some examples are Solana (SOL) (backed by FTX exchange), BNB Chain (sponsored by Binance) and Cardano. The process is similar, but each has its own rules and fees.
How to recognize shitcoins?
It is precisely because of the simplicity of creating crypto assets that those interested in any cryptocurrency must study the project in detail before making any investment.
It is worth reading the white paper (manual), checking who are the people behind the crypto asset, analyzing whether the members have knowledge in the field, talking to other users and reading opinions on forums and websites.
Anonymity is never a good sign in the cryptocurrency market. Crypto projects that do not reveal the names of those involved are often financial scams, and a brief history of the industry is here to prove it. The only exception is Bitcoin, which over time has proven to be a serious project.
How do cryptocurrencies get to stock exchanges?
Cryptocurrencies are usually listed after an agreement between the exchange and those responsible for the crypto project. Each stock exchange has its own rules. Overall, however, they take into account the technical issues of digital assets, security, seriousness and community size.
“Brokerage firms are usually initially influenced by public demand. Once their clients are interested in trading that particular cryptocurrency, they start, among other things, to check the technical conditions for portfolio integration for safe custody of funds, quality, commercial market conditions (if there is already a listing in other global environments). other factors that may vary from project to project,” said João Canhada, CEO of Brazilian exchange Foxbit.
Binance, the largest exchange in the market in terms of trading volume, provides space on its website for those interested in registering new tokens. People or companies need to follow a series of rules and fill out forms. In June 2021, the CEO of the broker Changpeng Zhao said the following: “There is a 98% chance that we will not hear from you after you submit your application. This is the norm”. That is, few projects are approved.
Coinbase, the largest cryptocurrency exchange in the United States, also has a similar process. In general, the company conducts legal, compliance and technical security analyzes on projects.
Is mining and creating cryptocurrency the same thing?
Not. Mining is the process of confirming and adding new transactions to the blockchain. As a result, miners who “worked” and managed to complete the procedure receive as a reward new digital coins circulating in the market. However, these cryptocurrencies were already predicted by the code and their origin was already foreseen.
In the case of Bitcoin, for example, a block (a place that groups user transactions) is mined every 10 minutes. At the beginning of BTC, in early 2009, every time this happened, the responsible miner would pocket 50 units of the crypto asset. However, every four years, in an event called the “halving,” that amount is cut in half. “That’s why they say Bitcoin is deflationary,” Beplix’s Zampieri explained.
Creating a new cryptocurrency, which does not actually exist yet, is somewhat more complex and, as stated above, may require at least basic technical knowledge (for tokens on existing networks) or even deeper (for your own blockchain).
Sign up and discover how to surf the third wave of cryptocurrencies and understand why you should be looking at this type of investment now