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How I created my own bitcoin-like currency

When I first heard of bitcoin, I thought it was a scam — maybe even a scheme — and definitely the mother of all bubbles.

In fact, you can even find a tape of me on "Fast Money" calling it Tulipmania 2.0, a reference to the Dutch Tulip bubble of the 1600's. I was convinced that a string of numbers backed by nothing could never serve as a viable currency. Like many others, my "aha" moment came when I started thinking about bitcoin as a payment system. Viewing bitcoin as more than a currency allowed me to see that it has all the hallmarks of a revolutionary technology — it is strong, fast and efficient.

How can you understand bitcoin? If you’re Brian Kelly, you create your own digital currency.
How can you understand bitcoin? If you’re Brian Kelly, you create your own digital currency.

Bitcoin's strength is the lack of a single point of failure. When hackers attacked Target, they had it easy — all they had to do was find an open door into the single database that contained all the customers' personal information. Bitcoin does not require personal information and the database is distributed across an infinite amount of computers. While hackers have been able to find a way into some computers, none of the attacks hobbled the entire organization. Even the failure of Mt. Gox, formerly the largest bitcoin exchange, hardly caused a hiccup. Imagine if a major stock exchange closed without warning — our financial system would be in shambles!

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Bitcoin is fast because it reinvents the middleman. Think about what it takes to transfer money from one person to another: First, we both have to open a bank account which is accompanied by a mountain of paperwork to verify identities. Then, I need to instruct my bank to withdraw money from my account by writing a check, sending a wire or using an electronic debit. Once it arrives, the payment needs to be verified, cleared and delivered. Numerous points of friction exist, racking up fees along the way.

Bitcoin is efficient because the middleman is compensated by the technology. The bitcoin software pays the middleman (aka miners) a predetermined amount of money. Paying the miners bitcoins is also the channel by which the money supply steadily develops. The miners compete to be the first to solve a mathematical equation which processes the transaction and ensures the bitcoins are not counterfeit. The first to solve the problem receives freshly minted bitcoins. It is this innovation that makes it impractical to strip the currency from the technology. The currency is an integral part, similar to how without the "@"sign, email would not work.

Arguing about whether it is a currency misses the point of the technology. Bitcoin is a tool that securely verifies, clears and conveys financial transactions. In short, it redefines the role of the middleman in the financial-services industry. Email enabled us to send a better message, faster and more efficiently than the 'snail mail' through the post office. Bitcoin does the same thing for money.

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The currency component of bitcoin holds the potential to create a new, investable asset class. The next generation of bitcoin is the appcoin, or coins designed to solve specific problems. Developers are hard at work finding niche markets and creating coins to serve them. These coins, or more accurately crypto-equity, can be used to efficiently raise funds for charitable organizations or provide venture financing.

I was bitten by the bitcoin bug almost a year ago and have absorbed as much about the technology as my brain will allow. Then, in January, I read about a way to create my very own digital currency using a website called Coigen (www.coingen.io). I tried my hand at the technology and created the "BKoin." Within an hour, Coingen created the BKoin and I downloaded the software. I was ready and eager to challenge bitcoin, but there was a problem ... nobody knew the BKoin existed! What's more, digital currencies need a network of computers to work and my lonely laptop needed some friends. The challenge then became to raise awareness and create a market for my coin.

Creating a market for my coin intrigued me, so I dusted off my Econ 101 book. Buried in one chapter was a reference to Friedrich Hayek's book, "The Denationalization of Money," in which he advocated for the creation of privately-issued currencies. Hayek theorized that people would gravitate to the most stable currency and, in a flash of brilliance or insanity, I had my answer — create my very own central bank! If I could create the currency, I would be able to sell it on a digital-currency exchange and use the proceeds to place buy orders for the coin. I thought that by creating buy orders and slowly selling coins, I could establish a stable growth pattern. Through stability, I thought I would attract users just as Hayek surmised.

I went back to Coigen and created another coin called Nautiluscoin (www.nautiluscoin.com), so named because a nautilus grows at a steady, stable rate. The next step was listing on an exchange where I could sell my newly-minted coins and place my buy orders. I contacted Austin Global Exchange (www.agx.io) and within days, Nautiluscoin was ready to begin trading.

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However, since my last foray with BKoin, the mining technology had far outpaced the software and my new coin was vulnerable. During the due diligence process, the team at AGX found a flaw in my coin which would allow miners with powerful computers to hoard all my coins. After contacting a coin developer, I found out that fixing my coin would require a significant investment of time and money. Since the project began as a way to learn, I decided that the best use of Nautiluscoin was education.

Nautiluscoin, like bitcoin, isn't a solo endeavor; it's a network that requires a supportive community. So, feel free to try it. If you are like me, comfort comes from experience.

Bitcoin and other digital currencies shouldn't be viewed as a threat. In the same way that email made communications better, created countless jobs and germinated new businesses, this asset class will also create opportunity. Email fortified the financial industry—and so will digital currencies.

Brian Kelly is founder and managing member of Brian Kelly Capital LLC, a global macro investment firm catering to high net worth individuals, family offices and institutions. He is also the creator of the BKCM Indexes, benchmarks for multi-asset money managers. Kelly, a CNBC contributor, often appears on "Fast Money." Follow him on Twitter @BrianKellyBK.