Minting Crypto

What is Minting Crypto?

Minting crypto is the process of generating new coins by authenticating data, creating new blocks, and recording the information onto the blockchain through a “proof of stake” protocol. Both new units of a cryptocurrency and Non-Fungible Tokens (NFTs) can be minted this way.

Newly minted cryptocurrency is added to the circulation to be traded, hence the origin of the term “minting” – just as we would use it to describe a government minting new physical coins.

Proof of stake is a minting method of how blocks are formed through staking as opposed to “mining” under the “proof of work” protocol. Users are called validators (rather than miners) who mint crypto.

Proof of Work vs. Proof of Stake

Proof of work (POW) is a process of mining cryptocurrency coins. Mining refers to the practice of generating cryptocurrency by solving cryptographic equations using high-powered computer processors.

The solving mechanism involves verifying and validating data blocks and storing transaction records on a public ledger known as a blockchain. The transactions are secured through complex encryption techniques. Miners are rewarded in cryptocurrency coins, which are added to the circulation.

The most famous of the POW cryptocurrencies is Bitcoin (BTC).

Proof of stake (POS) is a method associated with minting cryptocurrency coins. It is a blockchain consensus mechanism used to validate cryptocurrency transactions. It is done through staking, which refers to owners pledging pre-existing coins to validate transactions.

The coins are locked up while the owners stake them and can be unstaked for trading. A random selection of stakeholders is made to verify transactions on the blockchain such that the more coins an individual stakes, the better their odds of being selected.

The most famous POS cryptocurrency is Ethereum network and its native token, Ether (ETH).

The Proof of Stake Process

• Staking refers to the process where users (known as validators) pledge their cryptocurrency deposits to participate in the proof of stake.
• Users who have successfully staked are randomly chosen to record and verify data on the blockchain network.  While staked, validators are not allowed to spend or move their stake and for those validators found contravening regulations or recording incorrect information, they risk losing their staked security.
• In some POS cryptocurrencies, those validators with larger stakes have a higher chance of being selected to record and validate transactions on the blockchain.  Regardless, the successful validators are rewarded through new cryptocurrency tokens that are created, as well as fees paid by system users to write data to the decentralized ledger.

How to Mint Cryptocurrencies

The minting process of crypto involves recording and validating transactions to be added as new blocks on a blockchain network. Blockchains operate through distributed ledgers, which enable users to leverage these networks to record and validate the authenticity of on-chain transactions through the proof of stake protocol.

To mint cryptocurrency on an existing blockchain does not require extensive knowledge of code, technical knowledge nor expensive computer hardware – one simply needs to stake the required amount of tokens and hope that they get selected. On the Ethereum network, for example, a prospective validator needs to only pledge 32 ETH in order to be considered for a chance to mint.

If you don’t have enough of the coins to pledge, many providers will lend you the cryptocurrency you require in return for stablecoins or other collateral.  Some sophisticated players may even stake and borrow, which coin holders to borrow assets, usually stablecoins like USD Coin (USDC), while pledging their stake tokens, such as ETH as collateral.

In some cryptocurrencies, your chances of being selected to mint increase with the amount of coins that you have, so you can also delegate your tokens to larger groups of validators in the hopes of being chosen, such as the Solana network.

How to Mint NFTs

NFTs are digital cryptographic assets that are stored on a blockchain to record an online proof of ownership and authenticity for an underlying asset.  Creating this token is also called minting.

While an NFT can represent proof of ownership over a digital asset, for instance, the actual asset is not contained on the blockchain, residing somewhere else on the internet or a hard drive.

If an NFT is sold or transferred, once it is verified by the network consensus protocol of whichever blockchain it is built on, the ownership of the asset is indisputable proof and this public record is easy for anyone to verify.

Speaking of blockchains, there are many different blockchains that support NFTs now but they started on the Ethereum blockchain. NFT platforms, which are sites or crypto exchanges, offer a one-stop shop marketplace to mint, list and sell NFTs.  Some of the most popular include OpenSea, Solanart, CNFT and Binance NFT.

Digital files commonly associated with NFTs include videos, photos, audio files, and artwork. However, NFTs can also be used to provide authenticity and proof of ownership for physical assets, credentials and even negative assets, like loans.

The following graphic provides a simplified guide to minting an NFT but we have a more detailed article here.

Learn More

Thank you for reading CFI’s guide to NFTs. To keep advancing your career, the additional CFI resources below will be useful:

• Cryptocurrency
• Altcoin Guide
• Bitcoin
• Ethereum
• See all cryptocurrency resources