Learn more on the different types of cryptocurrencies and the nature of how they are mined or created
Cryptocurrencies are revolutionizing the way online transactions are carried out and the way digital “money” is created.
The core value proposition that sets cryptocurrencies apart from traditional fiat money is decentralization.
Because there is no central governing entity that controls the system, cryptocurrencies rely on a decentralized computational process called mining to maintain and secure the blockchain network, and create or “mint” new cryptocurrencies into circulation.
Mining serves two purpose in the cryptocurrency scene:
– Confirms transactions through a consensus system among all the participants, or miners, in the network
– Creates new cryptocurrencies for each block that is validated and serves as a reward to the miner who has validated transactions and performed the challenge successfully
While Bitcoin is considered the pioneering cryptocurrency in the market, there are many other types of cryptocurrencies available online.
The nature of how these cryptocurrencies are mined or created delineates them from one another.
To date, there are three types of cryptocurrencies:
Here, we’ll touch briefly on each type of cryptocurrency and talk about what makes each one different from the others.
Mineable cryptocurrencies, as the term suggests, are those that are essentially acquired from the process of mining.
These types of coins are those that are given as an incentive to the miner who manages to solve a complex algorithm and, in turn, validates the transaction and adds the newly created block into the blockchain.
Examples of mineable cryptocurrencies include Bitcoin, Ethereum, and Litecoin.
Motley Fool Returns
Basically, cryptocurrencies that require a Proof of Work (PoW) and Proof of Stake (PoS) are ones that can be mined.
Non-mineable cryptocurrencies are those that are bought through wallets instead of being mined. In other words, these are the coins that are already in circulation and is commonly stored in cryptocurrency wallets.
Because no mining is involved, verification of transactions happens through a consensus system by a selected number of trusted validators. The process does not incentivize participants with coin rewards and no proof of stake is required.
Most of these types of coins already have a circulating supply.
With non-mineable cryptocurrencies, you get to earn interest by holding the cryptocurrencies in your wallet; the more coins you hold in your wallet, the better chances you have in getting a higher interest rate. Additionally, non-mineable cryptocurrencies are typically considered as pre-mined, meaning that they’ve already been mined even before it was made available for purchase.
Examples of non-mineable cryptocurrencies include IOTA, Ripple, and Cardano.
These cryptocurrencies follow a Proof of Stake (POS) to verify transactions.
Pre-mined cryptocurrencies are those that were mined ahead of time by developers before they are made available for trading to the open market. What happens here is that a blockchain developer allocates a certain amount of credit to an address or wallet before launching the source code later on to other miners.
A pre-mine typically happens if the developer needs to pay for certain features during development, or during an Initial Coin Offering (ICO) where the coins bought at pre-sale are later on mined as part of the genesis block.
Bitcoin and cryptocurrency mining explained
These types of cryptocurrencies largely benefit the developers and those that were involved during the early stages of the development (i.e., ICO investors and token holders).
Most cryptocurrencies are considered pre-mines to a certain extent, including Bitcoin and Ripple.
AuroraCoin is one of the most known kind of pre-mined cryptocurrency in the market.
Summary: Mineable, Non-Mineable, and Pre-Mined Cryptocurrencies
As the popularity and worldwide adaptation of cryptocurrencies grows year by year, mining could potentially become more complicated and challenging.
While there’s no telling if non-mineable and pre-mined cryptocurrencies are the future of blockchain technology, one thing is for sure: the blockchain is constantly evolving as more and more people invest their efforts in contributing to the burgeoning blockchain industry.
– Article written by Tinny
Tags: bitcoin, blockchain network, cardano, consensus, cryptocurrencies, cryptocurrency mining, digital money, ethereum, ico, iota, litecoin, mineable, miners, mining, non-mineable, pos, pow, pre-mined, proof of stake, proof of work, ripple, token sale
Categories: Blockchain, Cryptocurrency