Creating a cryptocurrency
From barter to bitcoins, exchanging an agreed-upon token in order to validate a transaction, whether physical or virtual, has been nearly a 3,000-year-old process. Before currency, if you had more sheep than you needed, and your neighbor was cattle-rich, the two of you could agree on some mutually acceptable sheep-to-cattle trade ratio that made you both happy.
As you can imagine, this bartering system meant wild variances in perceived value. In an attempt to solve this problem, and create a revenue stream for his kingdom, King Alyattes created the first currency for the citizens of Lydia around 600 BC. This development of currency in what is now the Western Turkish province of Manisa reminds us that there are not too many new ideas. Alyattes created a currency “out of the blue,” and anyone can do the same with cryptocurrencies these days. Taking Financial Regulation Away from a Centralized Authority
The savings and loan crisis in the 1980s and 1990s in the United States saw the failure of more than one-third of all the federally recognized Savings and Loan Associations in the United States. The mortgage crisis of 2008 in the US caused global monetary damage. In both cases, the people tasked with regulating financial transactions by the government manipulated the system for personal gain, and millions of individuals and organizations in the United States and around the world paid an unfortunate price.
This is the inherent problem which can arise when a single regulating body has all the issuing, managing and verifying powers in a particular monetary system.
You can keep this from happening by creating your own cryptocurrency. Instead of a centralized government bank or some other group handling transactions and updating ledgers, this takes place via an unbreakable blockchain verification process. Every individual who participates in your cryptocurrency marketplace shares a public ledger which is constantly updated and verified. Through this process, goods and services can be traded safely, and you can even trade cryptocurrencies themselves.
The process of creating and dispersing a new cryptocurrency is often called an initial coin offering, or ICO.
Today, the average smartphone has more than 100 times the computing power of all the computers the United States government used to put a man on the moon. This means, because of the prevalence of powerful computing technology and the World Wide Web, you can create a cryptocurrency literally in just a few minutes. While some enjoy developing cryptocurrencies for clubs and membership groups, it is more common to use ICOs to raise capital for launching a new business or product or expanding an existing business.
You first need a community which agrees to use your virtual currency to perform a function, finance a transaction or perform some other type of service. You also need to code your coin or token. The Bitcoin open source software is often used by cryptocurrency creators, since it is freely and legally accessible, and requires just a bit of coding experience to get your new cryptocurrency up and running. An accomplished code writer can have your new virtual money up and running and available for use in your community in less than an hour.
Why ICOs are preferred over venture capital (VC) angels to fund a product launch
In the past, the traditional method of raising capital to finance the release of a new product usually took one of two forms:
- Venture Capital Funding
- Stock Release
In the first method, VC “angels” give a business owner the required capital to successfully launch and market a new product or service. In many cases, this is just one or a small number of investors. This can be scary to a business owner, as a limited number of people can have a large amount of influence and control over the product launch.
In a stock release, often through an initial public offering (IPO), a company offers shares in their business. With this method, hundreds, thousands or even millions of people each contribute a small amount of money, and the business owner retains most of the control over the product or service being developed and marketed.
In the 21st century, there is a third way to raise capital which is extremely attractive to business owners both small and large.
This is the creation of a cryptocurrency which is sold to a marketplace to get the capital needed for a product launch. These virtual currencies can be created literally in just a few minutes, more and more individuals in our computer age are beginning to view cryptocurrencies as valid money, and in some cases, a great deal of money can be raised in an extremely short period.
As opposed to a venture-capital scenario, this is preferred for a few reasons.
When money is raised through one or more VC angels, that money is regulated by some central authority. This means that all the money in the world could be worthless to a business owner if that currency is destabilized. The issuance of stock shares through an IPO or penny stock exchange can be expensive. Not only that, but the business owner attempting to raise capital in this way is competing with literally thousands of other offerings.
In the case of cryptocurrency capital procurement, the cost is extremely low. If a business owner is a talented computer code writer, he can handle the creation and release of an entirely brand-new cryptocurrency in less than an hour, with little to no funding. However, VCs will often spend substantial money marketing the product launch. In the case of a cryptocurrency used to fund a product launch, all the marketing and development of trust and belief in the marketplace falls on the shoulders of the product launcher.