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 cryptocurrency and Non-Fungible Tokens (NFTs) can be minted this way.
Newly minted crypto is then added to the circulation to be traded. 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.
The minting process is decentralized, allowing anyone to create crypto without the need for a central regulatory authority. The crypto ecosystem provides a variety of coins and tokens to users at an ever-growing number. Tokens are typically in the form of non-fungible tokens (NFTs) created on various blockchain networks. Minting is an invaluable element of the crypto ecosystem and traditional finance.
Cryptocurrency trading and investment are gaining a lot of popularity and adoption as people are embracing technological change quite rapidly. The hype behind such novel technological products created a media explosion leading to swelling demand, which triggered a spike in the price of some new coins and particular tokens.
Consequently, crypto followers and enthusiasts started entertaining the idea of minting their cryptocurrency. For example, the price of Bitcoin increased by 8,362% from $13 to $1,100 in 2013 alone, even rising above $60,000 in 2021. NFTs caught the world’s attention when Christie’s Auctions sold the very first NFT artwork, a collage of images by the digital artist, Beeple, in 2021. The NFT artwork sold for a whopping $69.3 million.
Proof of Work vs. Proof of Stake
Proof of work 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.
Proof of stake 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 Proof of Stake Process
Staking refers to the process where users (known as forgers) 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.
Forgers are not allowed to spend or move their stake.
Forgers found contravening regulations or recording incorrect information risk losing their stake security.
Forgers with larger stakes have a higher chance of being selected to record and validate transactions on the blockchain.
Forgers who successfully record and validate transactions are rewarded through cryptocurrency in the form of fees paid by system users.
Coins vs. Tokens
Cryptocurrency can be grouped into two broad classes, i.e., coins (cash) or tokens. Coins have their blockchain platforms such as Bitcoin, Ethereum, and Dogecoin. Cash is used to conduct purchase and payment transactions amongst different issuers on the entire network. On the other hand, tokens are constructed on existing blockchain platforms.
Tokens are far simpler to mint than coins. To mint coins, a user must build a local blockchain platform from scratch. To add variables to a blockchain code, users normally need to have in-depth knowledge of its code. Getting new customers to a blockchain is another daunting task required in minting coins.
Minting tokens does not require extensive knowledge of code and allow users to leverage the pre-existing blockchain to draw customers. The preferred blockchain platforms for minting crypto are Ethereum and Binance.
How to Mint Crypto
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.
Minting crypto is outlined in the steps below:
1. Create a framework for crypto
Create a framework for the crypto’s role by outlining the options and roles of the cryptocurrency.
2. Outline the tokenomic parameters
Outline the tokenomic parameters such as preliminary value, distribution methodology, and complete provide. Tokenomics are parameters that govern cryptocurrencies.
3. Select a blockchain platform
The next step is to select a blockchain platform. The most extensively used platforms are Ethereum and Binance Sensible Chain (BSC).
4. Selecting a consensus protocol
Choosing a consensus protocol is very easy as minting crypto uses proof of stake consensus protocol, which is more energy-efficient.
5. Designing of nodes
The designing of nodes step defines the performance of your blockchain. A blockchain can be run as public, personal, or permission.
6. Design your blockchain inner structure
The next step is to design your blockchain inner structure which involves coming up with the core ideas that define your blockchain and the handle format the blockchain will use.
7. Interface design
Designing the Interface involves making the blockchain interface easy to navigate for users and operators.
8. Minting mechanism
The minting mechanism will depend on the defined parameters of your tokenomics.
How to Mint NFTs
The surge in the popularity of NFTs among artists, collectors, musicians, celebrities, and investors led to a rise in their demand. A select amount of NFTs has sold for astronomical amounts of up to multiple millions of dollars.
An NFT is a non-interchangeable and unique unit of data stored on a secure digital ledger called a blockchain. It is a form of a digital signature that is publicly verifiable. NFTs are associated with distinctive digital or physical assets and can be traded on several specialized online marketplaces such as OpenSea and Rarible.
Digital files commonly associated with NFTs include videos, photos, audio files, and artwork. Most NFTs are minted on the Ethereum blockchain and, as a result, several NFT marketplaces run mostly on the said platform.
The following guide explains the NFTs minting process, which is essentially turning work (art, videos, digital images, etc.) into an NFT.
1. Open a crypto wallet
The first step in minting NFTs is to open a crypto wallet and connect it to an NFT marketplace. The most popular marketplace is OpenSea, and connecting a crypto wallet to it is super easy. The instructions to connect are on the site similar to other marketplaces. It is important to complete your profile, put links to your website and social media sites, and indicate preferred cryptos you accept as payment for the NFTs.
2. Upload digital file
Upload a digital file to the marketplace and assign the NFT a name. At this stage, the user will also need to set up a royalty fee rate to indicate how much royalties they will be paid when the NFT is sold on the secondary market. Normally, secondary sales price ranges from 5%-10% for standard royalty payout. After the upload process, the NFT will be minted.
3. Fund crypto wallet
The crypto wallet will need to be funded when a user makes an NFT sale. However, to complete a sale, a user will need to purchase some ether or Ethereum crypto and deposit it into the wallet. Some marketplaces allow direct transfer of crypto from wallet to the NFT marketplace account. Transactions will incur some charges known as “gas fees” and will need to be met.
4. Sell the NFT
As soon as the NFT is minted, it can be sold on the marketplace. The marketplace will disclose the gas fees applicable to a cryptocurrency network and the relevant service fees. Participants can mint new NFTs and build a collection of their artwork. They can also trade NFTs created in one marketplace in another marketplace for a fee.
Decentralized Finance and Minting New Tokens
Decentralized finance (DeFi), an emerging concept built on the Ethereum blockchain, has introduced decentralized protocols to mint new tokens depending on the underlying contract code. Flexible DeFi environments are creating opportunities for forgers to mint advanced tokens that include crypto assets that replicate complex financial instruments, e.g., derivatives.
Benefits of Minting Crypto
Minting provides a source of income for crypto users who record and validate transactions.
Minting NFTs also provides artists and creators with an opportunity to mint their work for on-chain storage and trading.
Minting has introduced sophisticated instruments used for hedging risk.
Minting crypto proposes a significant value in the growth of cryptocurrencies as the best alternative to fiat and plastic money. Crypto may as well define the next monetary era, which is characterized by a decentralized monetary system with no central bank to regulate it.
Thank you for reading CFI’s guide to Minting Crypto. To keep learning and developing your knowledge base, please explore the additional relevant resources below: