How Is Crypto Created?

Central Banks around the world print money and introduce it to the available supply. In cryptocurrency, creating new coins is determined by a set of rules determined by the developers.

Usually, coins are created through a process called mining. Mining is what secures the blockchain (see basics of crypto security). In order to get people around the world to mine their cryptocurrency, there has to be an incentive to do so. The incentive is a reward of newly minted cryptocurrency.

This process was first introduced by Bitcoin, which is the first blockchain and has been so successful it has been implemented by many other cryptocurrencies. As cryptocurrency evolved, new implementations of this concept have emerged. The two concepts are proof-of-work and proof-of-stake.

In proof-of-work, new cryptocurrency is created when miners perform complex math puzzles that secure the blockchain by validating transactions are accurate and are rewarded for the effort with new coins. 

In proof-of-stake, instead of having miners perform complex math puzzles, an algorithm randomly selects a ‘staker’ to validate the transactions are accurate. In order to be a staker, you have to lock up a specified amount of that cryptocurrency in an escrow-type account – this is to prevent bad actors. 

Proof-of-work and proof-of-stake is one part of the puzzle, but there is still more to the story. Every cryptocurrency has different characteristics, and as blockchains evolve new variations of these concepts will emerge.

Some coins have a fixed maximum supply, and some coins have an unlimited total supply of coins. The community at large is always debating about what the best approach is to provide for a stable cryptocurrency value. If you have any interest in monetary theory or want to learn about it, this is a great topic to dive into.

Views and opinions expressed are solely those of the author and not of The DeChained or any affiliated party. Views or opinions expressed in this article (or any article on the website) are not financial advice. Articles are for informational purposes only. The author and The DeChained may hold positions in assets discussed in this or other articles.
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