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18 March 2020

How cryptocurrencies are launched




There are currently over 1500 different cryptocurrencies in existence and many more will doubtless be launched over the coming months. Some are more successful than others and not every cryptocurrency or digital token launched will last the course. An interesting question, however, is how do cryptocurrencies come into being in the first place?

Unlike regular currencies, cryptocurrencies are not backed by a government or a major financial institution. They do not need to exist as the everyday currency of a particular nation state. Indeed they operate as a more flexible alternative to such fiat currency. But there still needs to be a good reason for a new cryptocurrency to be created.

An initial idea

Most cryptocurrencies start with an initial idea. This generally involves a way to solve an existing problem by using the blockchain technology that cryptocurrencies utilise for transactions. The currency itself is issued in order to fund this problem-solving project. By buying the currency, investors are showing their support for the project. They have faith in the idea and believe that it will succeed. This, in turn, will give value to the currency, hopefully guaranteeing them a good return on their investment.

A business plan

The project and the cryptocurrency should be backed by a thorough business plan that needs to be explained in a whitepaper, the publication of which is generally the next stage in the launching process. At this stage, the founder(s) should also exercise all due diligence by ensuring that every stage of the project conforms to applicable laws and regulations. Although the cryptocurrency market is minimally regulated, initial coin offerings (ICO) are quite tightly controlled in an effort to prevent scams. Legal bodies use the latest technology in order to monitor online providers for compliance.

Different types of token

At this stage it’s worth mentioning that cryptocurrencies are just one variety of digital token, all of which can be launched with an ICO. A security or asset token is one that functions much like stocks or bonds, in that it is directly linked to the issuing company’s fortunes and performance. A utility token is one that provides access to goods or services, either now or in the future.

A payment token, or cryptocurrency proper, has an inherent value of its own and can be traded on an exchange. For some of the most popular examples, see here. Finally, there may also be SAFT (Simple Agreement for Future Tokens) tokens, which are essentially an early version of any of the above, privately distributed to raise interest and funding prior to an ICO being developed.

Website launch

Following the publication of the whitepaper, the next step is the creation of a website which aims to attract investors. This will introduce the team behind the project, outline the project’s aim, and will also detail the measures that will be undertaken to protect investors’ interests. Ideally, it should also include a roadmap, showing the project’s journey so far and its future goals, with a timeline showing when these will be achieved.

It goes without saying that the website should have excellent security and hosting, to protect it from hackers and to also ensure that it doesn’t crash if too many people try to access it at once. At the same time, the currency’s creators will have chosen a blockchain platform to host their cryptocurrency. Over 80% are hosted on the Ethereum platform, with the remainder using their own custom platforms. A smart contract for investors will also be prepared and presented.

ICO listing

Different cryptocurrencies will have different distribution plans, but almost all will centre around an Initial Coin Offering where the bulk of funding is raised. This may be preceded by a private sale among initial team members and backers and also perhaps a pre-sale for early or VIP subscribers. Following the ICO, the cryptocurrency will go on general public sale.

An ICO will generally run for 1-2 months and can conceivably raise millions of dollars. The currency’s creators will have a financial target they aim to reach or exceed. To this end, the offering will be listed on major ICO calendars.

Promotion and marketing

Assuming the ICO is a success then the currency will go on general sale and the creators will attempt to get it listed on at least one cryptocurrency exchange. These exchanges review all applications to be listed, looking for products that offer something unique, worthwhile and innovative. At this point, the promotion and marketing swings into action, utilising direct mailouts, advertising and social media sites, as well as engaging with the wider cryptocurrency community.

A new cryptocurrency will look to capture the imagination of potential backers as well as winning their trust. Although the ICO is often regarded as an end in itself, in fact it is only the beginning. A cryptocurrency has to stay in demand and perform well over time in order to prove its long-term worth.

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