2021 has witnessed an extended and parabolic increase in curiosity and interest in cryptocurrencies. As discussions around the concept keep growing, there has naturally also been confusion. With Bitcoin being the biggest cryptocurrency and Ethereum, the second-largest, hyped around its upgrade to Ethereum 2.0, much of this confusion has centered around the ideas of crypto minting versus crypto mining.
Before we look at a deeper explanation, it's essential to understand that crypto mining is not the same as gold mining, and crypto minting is not the same as real-life coin minting. So what exactly are they? Let's find out.
What is cryptocurrency mining?
In essence, crypto mining is the process of earning cryptocurrencies by recording and confirming transactions on a public digital record of transactions known as a blockchain, and this is accomplished through the use of computers to solve cryptographic equations. In return for the complex mathematical problems that they solve, miners are rewarded in cryptocurrencies.
Although crypto mining has only been around for a little more than a decade, ever since Bitcoin was initially mined in 2009, it has become a sensation amongst miners, speculators, and hackers alike.
Is crypto mining legal?
Generally speaking, crypto mining is legal. However, depending on one's geographic location and whether or not they are mining legally, mining could be considered criminal.
How does crypto mining work?
To put it simply, crypto miners verify the legitimacy of transactions in order to reap the rewards of their work in the form of cryptocurrencies. In order to fully comprehend it, it's crucial to take a closer look at the process.
1. First, the nodes verify the legitimacy of transactions.
A cryptocurrency blockchain is constructed on the bedrock of transactions. Consider the following scenario.
Assume you're a cryptocurrency miner, and your friend A borrows $10,000 from another friend B to purchase a product. To repay him, your friend A might send your friend B a fraction of a Bitcoin unit. The transaction, however, must go through a verification process before it can be completed.
2. Next, separate transactions are added to a list of other transactions to form a block.
After the verification process is completed, all transactions are bundled into a list, which is then appended to a new, unconfirmed block of data.
Let's proceed with the example of A and B. A payment from A to B is essentially a transaction. By adding their transaction to the blockchain, "double spending" on the public record is prevented while maintaining a permanent, immutable record.
3. A hash plus other data are added to the unconfirmed block.
Once the block has a sufficient number of transactions, some more data is added, such as the header data and hash from the previous block in the chain, as well as a new hash for the new block. The new hash is created by combining the header of the most recent block plus a nonce. This hash is added to the unconfirmed block, which must then be confirmed by a miner node.
4. Then, miners verify the block’s hash to ensure the legitimacy of the block.
In this step, other miners in the network check the hash of the unconfirmed block to ensure its integrity.
5. Finally, once the block is confirmed, the block gets published in the blockchain
The Proof-of-Work (PoW) is completed once the hash is solved, and it is proven to others that the solving is done in a genuine manner that they can verify.
This implies that A's Bitcoin transfer to B has been confirmed and will be included in the block's blockchain. Because blockchain ledgers are chronological in nature and build upon previously published data, the new block will be added at the end of the blockchain as the most recently confirmed block.
Now, let us look at what cryptocurrency minting is.
What is cryptocurrency minting?
Minting, in essence, is the act of authenticating data, creating a new block, and storing that data onto the blockchain via the Proof-of-Stake method. The minting method for how blocks are formed and data is added to a block is known as Proof-of-Stake.
Coins are minted through staking rather than mining under the Proof-of-Stake process. Proof-of-Stake doesn't have miners; instead, it has validators, and it doesn't allow individuals to mine new blocks; instead, they can mint or fake them.
Here’s how proof of stake happens:
- Users must deposit and risk a considerable amount of cryptocurrency in order to participate in Proof-of-stake, and this is known as a “stake.”
- People who put down a stake are then chosen at random to record and verify data on the blockchain.
- Forgers, or participants in a stake, are unable to spend or relocate their stake. If they are found recording incorrect information or breaking the regulations, they risk losing everything they have invested.
- The larger one stakes, the better their chances of being chosen to record and validate the blockchain.
- Typically, forgers are usually ready to put up with the costs and hazards of staking in exchange for the potential to profit from transaction fees paid by system users.
Minting is a fairly straightforward and decentralized process that allows anyone to create a new token rather than requiring central authorities to do so. In addition, the crypto ecosystem provides a wide variety of tokens, including coins and non-fungible tokens (NFTs). Both sorts of tokens can be created in a variety of blockchain ecosystems, but only a few of these inventions have a strong core value proposition.
Given that there are thousands of different cryptocurrencies and that thousands more are created every month, a variety of fascinating approaches to maintain the blockchain are regularly innovated on.
Minting is a critical component of both traditional finance and the crypto ecosystem. Despite the fact that different protocols have diverse approaches to generating new tokens and securing blockchain networks, it is undeniably determining the future of finance.
Crypto Mining vs Crypto Minting: Conclusion
The key distinction between how cryptocurrencies are created is that one requires Proof-of-Work, which is accomplished through mining, while the other requires Proof-of-Stake, which is achieved by staking. The final result is the coins being minted, but the means to that end distinguish PoW from PoS minting. Despite this, both procedures have the same goal: to secure the blockchain and distribute freshly produced tokens in a decentralized manner, but in different ways.