It was created by Satoshi Nakamoto as an open source software in 2008 and began use in 2009. The determining factor comes down to the owners assessment of future supply and demand of the coin they possess.īitcoin is largest cryptocurrency by market capitalization traded on public exchanges. There are really only two choices, one either chooses to sell their coins or not. Crypto Economics BitcoinĮach cryptocurrency has its own supply and demand side characteristics which play an important role in how crypto miners dispose of their coins. For some cryptocurrencies, collecting transaction fees can also be considered a worthwhile incentive. The block reward is the primary incentive for mining crypto.
For winning the race, the crypto miner gets a prize known as a " block reward". Mining crypto is a race to see which miner successfully validates the next block first. Currently, the two most widely adopted consensus mechanism to secure the blockchain are proof-of-stake (PoS) and proof-of-work (PoW). Incentives for Mining Crypto Block Rewards & Transaction FeesĮarning a block reward is the primary incentive for crypto miners to continue investing resources in maintaining and validating the blockchain network. For all the computational effort required to validate the blockchain network, a crypto miner will receive a " block reward". It takes "physical" effort to mine for gold whereas it takes "computational" effort to mine crypto. The term "mining" was adopted as a metaphor because the process for creating bitcoin is a lot like mining for gold. What is Crypto Mining?Ĭrypto mining (cryptocurrency mining), is a process used to validate that a transaction between two wallets are authentic. Our goal here is, at a high level, to understand the basics of crypto's blockchain technology and to learn just enough to spark a curiosity to explore this new frontier of innovation further.