Mining is a popular term in the cryptocurrency space, which refers to the act of bringing new coins or tokens into circulation after doing some work on the blockchain. The work involves creating new blocks on the blockchain through solving computational algorithm puzzles.
Mining Algorithms. 💻
🔸 Proof of work: The proof of work mining concept involves computational power to solve algorithm puzzles. It is popular in cryptocurrencies such as Bitcoin. Many old cryptocurrencies such as BTC, LTC and ETH still use proof of work consensus algorithms, which has deemed to be environmentally unfriendly and expensive to run and maintain.
🔸 Proof of stake: This concept involves holding onto cryptocurrencies in special wallets, and for this, you earn rewards. Proof of stake algorithms is becoming popular amidst the growing environmental concerns.
One of the very successful coins and blockchains to implement the proof of stake algorithm was Dash. To keep the Dash blockchain safe, it would encourage users to hold a specific number of DASH coins as collateral, in special master node wallets. Upon doing this, an annual percentage yield is generated and distributed daily in form of DASH.
As you can see, the concept is like proof of work, however, proof of stake mining does not require a lot of energy to run and maintain. Running a Dash master node was ones very cheap.
Staking has become popular in the world of decentralized finance, as they encourage people to provide liquidity on various applications and in return they earn the rewards. One of the best DeFI application that we can look at is Uniswap. Here users
✅ Mining helps keep the blockchain free from centralized control. It also prevents bad actors from double-entry, which may cause double-spending of digital assets.
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