In fiat currency, minting is the creation of new coins, making them legal tender, and injecting them into circulation. Mining is the extraction of precious minerals or other geological elements from the Earth, most commonly from an ore body. Mined ores such as silver and gold can be used to mint coins. You will learn the difference between minting and mining in the context of cryptocurrency in this article.
What Does Minting Crypto Mean?
What is minting? Minting is the creation of new cryptocurrency coins as a reward for validators when they confirm blocks of transactions, authenticate data, and record it on the blockchain. Minting is done following the Proof-of-Stake (PoS) blockchain protocol. Staking is used by Proof of Stake consensus to coordinate the verification of transaction data and the validation of transaction blocks. Minting cryptocurrency requires validators, as mining cryptocurrency requires miners.
For a user to be a validator, the user must stake the blockchain's native coin to be eligible. The Proof-of-Stake consensus chooses validators at random using an automated process. Users who have staked more coins are more likely to be selected as validators to verify transactions on the blockchain. A validator's primary responsibility is to record and confirm each transaction made on the blockchain network.
In crypto minting, any validator that violates the protocol involved in validating blocks of transaction loses the staked cryptocurrency. Validator rewards in minting come from transaction fees users pay when they perform transactions on the blockchain.
The cryptocurrency ecosystem also mints other assets as tokens, like Non-Fungible Tokens (NFTs). It's important to note that minting coins are different from minting tokens. NFTs are tokenized digital creations that range from art, digital assets, certifications, digital collectibles, trading cards, etc. Minting NFTs to the blockchain isn't restricted to validators; anyone can save any digital creation or document as tokens on the blockchain. In NFTs, minting is rendering digital assets on the blockchain.
What is Crypto Mining?
Cryptocurrency mining is the process by which blockchain network users, known as miners, verify blocks of transactions to uphold network security and receive rewards (crypto) for their work. Mining generates cryptocurrency, and miners are rewarded for keeping the network.
In a nutshell, mining is validating transactions on the blockchain ledger by employing hardware processing power and software to solve a complex algorithm and earn cryptocurrency as a reward for validating transaction blocks.
Crypto mining necessitates using high-performance specialized hardware devices to conduct complex computations to validate and record each new transaction and ensure the blockchain's security. Every piece of hardware or software involved in the process is referred to as a network node.
These nodes compete to predict the transaction hash, a hexadecimal integer, correctly. The blockchain ledger is updated with the newly confirmed transaction by the computer, which obtains the transaction hash the fastest and rewards it with newly created cryptocurrency.
Crypto miners voluntarily provide the massive amount of processing power needed for mining. Since the miner's computer saves thousands of transaction ledgers locally, mining demands a lot of data and isn't profitable for individual miners. These days, mining farms purchase expensive, highly effective mining equipment and pay for the electricity required to keep it operating.
Sometimes these farms don't generate enough mining power, thus mining farms join their computing power together to form mining pools. A mining pool shares the rewards according to the power each mining farm generates.
Difference between Mining and Minting
Minting and mining are two different ways of creating new cryptocurrencies. The fundamental consensus and the process by which new cryptocurrencies are created as rewards distinguish minting from mining. Proof-of-Stake consensus is needed for cryptocurrency minting, whereas Proof-of-Work consensus is needed for cryptocurrency mining. At the end of both processes, cryptocurrency coins, are minted, but PoW mining and PoS minting differ in the process used to achieve the same goal.
The blockchain must be secured in order to distribute newly created tokens in a decentralized manner, which is the same objective shared by the minting and mining operations. Mining includes minting as a subset, in the Bitcoin network, the first time a new block is hashed results in the creation of new coins.
Mining:
- Earn cryptocurrency as a reward for solving mathematical computations (hash) and protecting the network
- Requires hardware processing power and software to solve a complex algorithm
- Proof-of-Work (PoW) consensus
- Blockchain generates new tokens as a reward to miners alongside the transaction fee
- Require high computational power that produces high energy to solve complex computations
Minting:
- Earn cryptocurrency as a reward for validating transactions and adding new blocks
- Requires a user to stake the native cryptocurrency of the blockchain and validate transactions
- Proof-of-Stake (PoS) consensus
- Validator rewards are gotten from transaction fees
- Energy efficient
Minting vs Mining vs Staking
Crypto minting differs from crypto mining but is similar in the processes involved in crypto staking. These basic terminologies in cryptocurrency are often misconstrued for another by cryptocurrency newbies. As the points above explain, crypto minting is how new coins are added into circulation in a Proof-of-Stake consensus. In minting crypto, transactions are validated by validators.
Validators are nodes that secure the network by staking the native cryptocurrency of the blockchain. The responsibility of the validators is to confirm transactions made on the network, and they are rewarded with transaction fees for this task. Minting is also the process of rendering digital assets on the blockchain, these assets are known as Non-fungible tokens (NFTs).
Similarities: Crypto Mining & Minting & Staking
Crypto mining and minting are similar because there aim to achieve the same result but with different approaches. Cryptocurrency mining works with Proof-of-Work consensus, while crypto staking works with Proof-of-Stake consensus. In mining, blocks of transactions are validated with nodes performing mathematical computations. In minting, blocks of transactions are validated with validators staking the native cryptocurrency of the blockchain.
Differences between Staking and Mining & Minting
Cryptocurrency staking fundamentally differs from cryptocurrency mining and minting, but staking is one of the processes validators require in crypto minting. The purpose of crypto mining and minting is to maintain blockchain security and validate transactions on the blockchain.
Staking cryptocurrencies is a means to generate passive income without trading. Staking gives cryptocurrency investors a way to use their cryptocurrency and generate passive income without selling or exchanging them. Cryptocurrency staking is used to provide liquidity in decentralized exchanges (DEX). Users earn profits by providing liquidity to decentralized exchanges for some time. This is also called DeFi staking or DeFi farming, and the users that stake their cryptocurrencies to provide liquidity in the decentralized exchange are called liquidity providers (LP).
Staking cryptocurrencies is analogous to making high-interest savings account investments. When you put money into a high-yield savings account, your bank typically invests or lends that money to others. You get a percentage of the interest from lending in exchange for keeping that money in the bank for a certain period. Similarly, when you stake your cryptocurrency, you lock up the coins to provide liquidity and enable swift trading. Profits from crypto staking are calculated as percentage yields. Yields are calculated from the transaction fees users pay when trading. These returns are higher than any bank interest rate.
