After a decade of explosive growth, cryptocurrency has really gone mainstream. In addition to the established big names, new cryptocurrencies are being launched on an almost daily basis. So let’s take a look at some of these coins and the process behind launching a new cryptocurrency.
How are new cryptocurrencies made?
One of the unique things about cryptocurrencies is that they are powered by open source technology.
Cryptocurrencies can be launched easily because instead of building your own blockchain from scratch, you can copy code from an existing blockchain. Modifications can be made according to the wishes of the builder, and the code of a blockchain is often copied without changes. A new cryptocurrency is then born, with the same underlying techniques as the original, but it is a different blockchain.
Another way that cryptocurrencies can be born is through a contentious “fork.” A hard fork is simply a change in the blockchain protocol.
Sometimes a community can disagree on the direction of a blockchain. If this disagreement is not resolved, it can sometimes result in what is known as a bifurcation. This is when the underlying code is modified, creating a second blockchain.
A high-profile example of this occurred with Bitcoin (BTC) between 2015 and 2017. Debates over scalability issues related to Bitcoin’s design eventually led to a hard fork, creating Bitcoin Cash, a completely separate cryptocurrency from Bitcoin.
Vitalik Buterin, the creator of Ethereum (ETH), said in a January 2022 tweet: “I would say BCH is mostly a flop. My main takeaway: Communities formed around rebellion, even with good cause, often struggle in the long run because they value bravery over competition and are united around resistance rather than a coherent path forward. ”.
Of course, it is also possible to create a blockchain from scratch, although this is a much more arduous task.
Aptos (APT) is one example and was launched by former Meta Platforms employees.
After much publicity surrounding Aptos, it tanked on its commercial debut. It has faced criticism for the allocation of its tokens, with nearly half allocated to investors, major contributors, and the Aptos Labs foundation. This token allocation, known as tokenomics, is a primary factor when evaluating a new cryptocurrency.
New cryptocurrencies on existing blockchains
There is another way to launch a new cryptocurrency.
Certain blockchains are designed with the ability to host other cryptocurrencies.
Therefore, developers can launch new cryptocurrencies on top of these existing blockchains, with the newly created currency referred to as a “token”. A token can act as digital currency and not be native to the blockchain on which it operates.
While some tokens launch with a high degree of customization, which can require experience and time, others come online with just a few clicks. No technical knowledge is required to launch a token on top of another blockchain, just a few minutes of your time.
There are even online services that help you launch a new token in minutes.
In August 2022, the number of cryptocurrencies listed on CoinMarketCap exceeded 20,000. A large portion of these will have been mere copies of existing tokens.
The second largest cryptocurrency in the world by market capitalization has only been around since 2015.
Despite its youth, Ethereum is the most popular blockchain for launching cryptocurrencies. It has become a playground for developers, rapidly expanding to become one of the most popular blockchains for decentralized applications and tokens.
You may have even heard of some of the popular tokens launched on Ethereum, such as the Shiba Inu (SHIB) meme token, which is an alternative to Dogecoin (DOGE); DAI and the metaverse game The Sandbox (SAND).
Instead of launching on the Ethereum blockchain, another popular option is the BNB blockchain.
BNB stands for “build and build” and is the blockchain launched by the world’s largest cryptocurrency exchange Binance and contained within the Binance Smart Chain ecosystem.
BNB Chain proponents enjoy its lower fees and higher speed. The main criticism of Ethereum is its onerous transaction fees, known as “gas,” which can make it inaccessible to the average user.
But BNB Chain’s lower fees and higher speeds don’t come without a trade-off. Binance is a centralized company, so BNB Chain users sacrifice an element of decentralization.
This has led some cryptocurrency “purists” to denounce that it goes against some of the fundamental pillars of cryptocurrency.
Low fees, high speeds, and the ease with which cryptocurrencies can be launched mean that there were some highly speculative assets trading on BNB Chain especially during the height of the pandemic.
One such example was Safemoon, launched in March 2021. It immediately went up, trading at a market capitalization of £8.9bn in May 2021.
However, as with many of these copy-paste tokens, the drop has been just as dramatic. Safemoon has lost 99.9% of its value, trading near zero, with a market capitalization of £2.7m, at the time of writing. Safemoon, according to CoinMarketCap, has been migrated to a new version – SafeMoon V2.
The wrapped crypto has also faced accusations of being a Ponzi scam, with its founders controlling large amounts of the token. In addition to the fraud allegations, a class action lawsuit was filed accusing celebrities including Jake Paul and Soulja Boy of participating in an alleged pump and dump scheme.
It’s a poignant reminder that given the ease with which these new cryptocurrencies can be created, it’s important to stay vigilant.
With new cryptocurrencies, the underlying code can be vulnerable in certain new projects, Chris Zaknun, CEO of the DAO Maker blockchain project launch pad.
“Hackers and malicious actors can exploit bugs in the contract code to fool investors and steal user funds,” Zaknun says. “It’s important for investors to check whether a trusted third-party company has independently audited the code.”
Solana is another popular blockchain that developers can drop tokens on.
It is another alternative that offers higher speed and lower fees than Ethereum. Again, though, there are trade-offs, as Solana has been beset by issues related to its reliability, with several major outages.
Despite the issues, interest in Solana has increased over the past year, with an increasing number of non-fungible tokens (NFTs), apps, and tokens being launched on the blockchain.
Should I invest in a new cryptocurrency?
Investing in new currencies soon after launch is an extremely risky undertaking.
For many VC-funded cryptocurrencies, a public launch is the first opportunity for the company to unload liquidity and withdraw its investment.
Coupled with the lax regulatory environment for cryptocurrencies and the often anonymous nature of the founding teams, this has led to retail investors being used as exit liquidity in the past. Retailers are subject to being taken advantage of, buying new tokens only to see the tokens plummet as pundits and VCs unleash a wave of selling pressure.
Furthermore, the unfortunate reality is that some cryptocurrencies are nothing more than scams, launched in a matter of minutes through the processes outlined above. The founders hope they can make a quick buck while hiding behind the anonymity of the blockchain.
Beware of crypto scams
Retail investors may also be subject to crypto scams.
“Rug pull” is slang for the practice, such is its frequency. This is where developers promote a new cryptocurrency before “pulling the rug” out of investors and pocketing the liquidity.
However, the other side is also true. Even if newly launched cryptos are scams, they can sometimes multiply before the inevitable crash; these gains often make headlines and fuel the “fear of missing out” even if they are the exception to the rule.
It must be said that out of the 20,000+ cryptocurrencies currently on the market, there are a few that come online from time to time that have staying power, even if only a minority.
But make no mistake, playing around these parts is a dangerous game.