In Cryptocurrency, Minting typically refers to the process of creating new units of a particular Cryptocurrency such as Bitcoin, Ethereum etc. It involves generating and adding new coins or tokens to the circulating supply. Non-Fungible Tokens (NFTs) can also be minted.
Minting Mechanisms
Cryptocurrencies can be minted via Proof-of-Work, Proof-of-Stake and other consesus algorithsms. The difference between these mechanisms is in the procedure but the outcome is the same.
Proof-of-Work (PoW)
PoW mechanism involves a network of blockchain participants competing to solve a complex cryprographic problem. High power computers are used in PoW and the process is also known as mining. The participant that solves the problem gets to validate the next block and earn rewards. The rewards are new coins or tokens that adds to the circulating supply.
Proof-of-Stake (PoS)
In PoS mechanism, individuals known as validators stake their pre-existing Crypto assets to participate in validating blockchain transactions. The more the staked amount, the more likely you can be chosen to validate the next block and earn new coins that add to the circulating supply. If validators are caught breaching the rules, they risk losing their entire staked amount.
Staking vs Mining
Both PoW and PoS leads to new coins being minted. The term minting is primarily used to refer to staking to distinguish between PoS and PoW.
Cryptocurrency Minting
The minting process of Cryptocurrency involves validating and recording transactions to be added as a new block on a blockchain network. Blockchain users validates the authenticiy of on-chain data through PoS or PoW.
The rewards earned through PoS or PoW contribute to the circulating supply of that particular coin or token which can be traded on exchanges such as Binance.
Stablecoin Minting
Stablecoin minting involves collateralisation to ensure stability of the coin's value. A user who wants to mint the coin deposit a certain amount of collateral into a smart contract. The smart contract verifies if the amount of collateral meets the required ratio. Upon successful, it mints and ssues the corresponding amount of stablecoins.
Market Impact of Minting
Supply and Demand
Minting introduces new tokens into circulating supply. An increase in supply without a corresponding increase in demand can lead to downward pressure of the token's price.
Inflation
Minting can lead to inflationary pressure within the Cryptocurrency ecosystem. If the rate of minting is high, it may dilute the value of existing tokens.
Market Sentiment
Execution of minting if unexpected or in large quantities, can influence market sentiment. Traders may react based on perception of how the increased supply would affect the token's price
How to Mint NFTs
To mint an NFT, users need a Crypto wallet with coins in itsuch as ETH or BNB. Then they sign up using their wallet to an NFT market place and create their NFT by uploading their desired file and paying for the minting fee.
Closing Thoughts
Learn more about minting, consensus mechanisms and all things Crypto on Binance Academy. And always remember to Do Your Own Research.
