Bitcoin may have plunged from its mind-boggling price, but demand is high for cryptocurrencies.
A quick search on TokenList shows Hundreds of new coins are trying or planning to raise funds using a new method called Initial Coin Offering.
How difficult is it to create your own cryptocurrency?
It turns out the process can be a complicated and time-consuming legal juggernaut with a high failure rate for investors and creators alike.
A recent report revealed that nearly half of last year’s ICOs failed to raise enough funds or have ceased operations after their launch.
We decided to take the process for a little test of how it all works by creating a hypothetical token called DIY Coin.
Most new cryptocurrencies are utility coins and are not designed to replace traditional forms of money.
Unlike a stock, which entitles you to a piece of ownership in a company, utility tokens allow buyers access to the products or services that the company hopes to offer.
“The analogy is that they’re kind of like frequent flyer miles and you can use them in a certain way,” said Jeff Bandman, founder of Bandman Advisors and former fintech adviser to the Commodity Futures Trading Commission.
“The difference is that there is no open and transferable market.”
For our purposes, DIY coins give owners knowledge or access to the ICO process, each token gives you access to CNBC’s collection of research on the subject.
The idea is that the value of the DIY piece will increase as the demand for this knowledge increases.
Upcoming coins must clearly communicate their purpose to potential investors as well as the Securities and Exchange Commission, which is becoming increasingly involved in ICOs.
“They’re going to treat it like any security. You’re going to have to have a prospectus, you’re going to have to upload that information, and people will see the risks associated with it,” O’Leary said. of O’Shares ETF and “Shark Tank”.
To get a coin off the ground, you need a team of experienced marketing advisors, high profile investors to lend credibility to the project, as well as cryptocurrency industry insiders.
We turned to O’Leary as well as Andy Bromberg, CEO of CoinList, a website that handles token sales, for pointers.
“Launching an ICO is a deeply technical process, but at a high level the process is very much like starting a startup,” Bromberg said.
Many coin offerings use white papers to communicate the token’s goals to potential investors.
According to Bromberg, the content of this white paper can range from explaining high-level problems and solutions to very complex technical details that describe the blockchain code designed to support the coin.
Because we are not planning to list the coin, we have chosen to use another route that is becoming popular in the ICO process: a pitch deck. This higher level presentation contained an explanation of DIY Coin and its purpose and listed our advisors.
Getting the interest and support of the crypto community is important, but it won’t get you far if the token doesn’t work.
“In order to have a robust platform, which can really support a good project, you need four important elements: you need speed, you need security, you need scalability and simplicity “said Monica Quaintance, Senior Technology Developer for Kadena.
Even though most use existing platforms like Etherum, each new coin needs its own supporting code that allows it to live and transact on the blockchain.
This is a task best left to professionals, and the good news is that the field of developers with cryptocurrency experience is growing rapidly.
“The investment market and the emissions market need to be warned right now, regulators are watching,” Bandman said.
As the cryptocurrency industry matures and grows, regulators are slowly intervening in an effort to protect potential investors from fraud.
Which means being prepared to answer specific questions about DIY Coin, including the business model and how the coins would be used once issued.
Bromberg says this relatively new monitoring is being welcomed by the cryptocommunity.
“Last year we saw a lot of poor quality deals, and I think we’re going to see less and less,” he said.
“At the same time, more people [are] looking at the space in both the investor and the issuer inside, and that’s going to result in an explosion of new tokens that are really high quality, that have deep technical merit, have reasons to exist.”
Disclosure: CNBC has exclusive off-network cable rights to “Shark Tank.”