After a decade of explosive growth, cryptocurrency has truly gone mainstream. Aside from the big, established names, new cryptocurrencies are launched almost daily. So let’s look at some of these coins and the process behind launching a new cryptocurrency.
How are new cryptocurrencies created?
One of the unique things about cryptocurrencies is that they run on open source technology.
Cryptocurrencies can be easily launched because, instead of building your own blockchain from scratch, the code of an existing blockchain can be copied. Modifications can be made according to the wishes of the builder, and a blockchain’s code is often copied without modification. A new cryptocurrency is then born, with all the same underlying technical characteristics as the original, but a distinct blockchain.
Another way cryptocurrencies can be born is via a contentious “fork”. A fork is simply a change in the blockchain’s protocol.
Sometimes a community can disagree about the direction of a blockchain. If this disagreement is not resolved, it can sometimes lead to what is called a fork. This is when the underlying code is adjusted, creating a second blockchain.
A high-profile example of this happened with Bitcoin (BTC) between 2015 and 2017. Debates surrounding scalability issues related to Bitcoin’s design eventually led to a hard fork, creating Bitcoin Cash, a cryptocurrency completely different from Bitcoin.
Vitalik Buterin, creator of Ethereum (ETH), said in a January 2022 tweet: “I would call BCH mostly a failure. My main takeaway: Communities formed around a rebellion, even if they have a good cause, often have difficult in the long term because they value bravery over competence and are united around resistance rather than a coherent way forward.”
Of course, it is also possible to create a blockchain from scratch, although this is a far more demanding task.
Aptos (APT) is an example, and was launched by former employees of Meta Platforms.
After much hype around Aptos, it fell in its trading debut. It has faced criticism over the allocation of its tokens, with almost half allocated to investors, core contributors and the Aptos Labs foundation. This distribution of tokens, known as tokenomics, is a major factor when considering 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.
Developers can thus 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 money and not be native to the blockchain it operates on.
While some tokens launch with a high degree of customization, which can take expertise and time, others come online in a few clicks. It requires no technical knowledge 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 crossed 20,000. A large part of these will have been just copies of existing tokens.
Ethereum based cryptos
The world’s second largest cryptocurrency 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, and is rapidly expanding to become one of the most popular blockchains for decentralized apps and tokens.
You may have even heard of some of the popular tokens launched on Ethereum such as the meme token Shiba Inu (SHIB), which is an alternative to Dogecoin (DOGE); DAI and the metaverse game The Sandbox (SAND).
Binance based cryptos
Instead of launching on the Ethereum blockchain, another popular alternative is the BNB blockchain instead.
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.
Proponents of the BNB Chain enjoy lower fees and higher speed. The main criticism of Ethereum is its burdensome 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 users of the BNB Chain sacrifice an element of decentralization.
This has led some cryptocurrency “purists” to dismiss it as going against some of the core pillars of cryptocurrency.
The low fees, high speeds and ease with which cryptocurrencies can be launched means that there were some highly speculative assets traded on the BNB Chain especially during the pandemic.
One such example was Safemoon, launched in March 2021. It immediately soared, trading at a market capitalization of £8.9 billion in May 2021.
But as with many of these copy-paste tokens, the fall has been just as dramatic. Safemoon has lost 99.9% of its value, trading close to zero, with a market value of £2.7m at the time of writing. Safemoon, according to CoinMarketCap, has been migrated to a new version: SafeMoon V2.
The convoluted crypto has also been accused of being a Ponzi scheme, where the founders control large amounts of the token. In addition to allegations of fraud, a class-action lawsuit was filed, naming celebrities such as Jake Paul and Soulja Boy for 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 be vigilant.
With new cryptocurrencies, the underlying code can be vulnerable on certain new projects, says Chris Zaknun, CEO of blockchain project startup DAO Maker.
“Hackers and malicious actors can exploit flaws in the contract code to deceive investors and steal user funds,” says Zaknun. “It is important for investors to verify whether a trusted third-party company has independently audited the code.”
Solana based cryptos
Solana is another popular blockchain that developers can launch tokens on.
It is another option that offers faster speed and lower fees than Ethereum. Again, however, there are trade-offs, as Solana has been beset with reliability issues, with several major power 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 launched on the blockchain.
Should I invest in a new cryptocurrency?
Investing in new currencies shortly after launch is an extremely risky endeavor.
For many cryptocurrencies funded by venture capital firms (VCs), a public launch is the first chance that the firm will be relieved of liquidity and cashed out on the investment.
Coupled with the lax regulatory environment for crypto and the often anonymous nature of founding teams, this has led to retail investors being used as exit liquidity in the past. Traders are vulnerable to predation, buying new tokens only to see the token crash to record lows as insiders and VCs unleash a wave of selling pressure.
Additionally, the unfortunate reality is that some cryptocurrencies are nothing more than scams, launched in minutes via the processes described above. The founders hope they can make money while hiding behind the anonymity of the blockchain.
Watch out for crypto scams
Retail investors can also fall victim to crypto scams.
“Rug pull” is the slang given to the practice, such is its frequency. This is where developers promote a new cryptocurrency before “pulling the curtain” from investors and running away with the liquidity.
However, the reverse is also true. Although newly launched cryptos are scams, they can sometimes multiply before the inevitable collapse – it is these gains that often make headlines and fuel the “fear of missing out”, even if they are the exception to the rule.
It must be said that of the over 20,000 cryptocurrencies currently on the market, those that come online every now and then have staying power, albeit a minority.
But make no mistake, playing in these parts is a dangerous game.
