What is chainlink mining?
You’ve probably already heard the expression “mining” in connection to cryptocurrency. Mining refers to the activity in a blockchain, where new coins or tokens are produced. “Mining” refers to digging for something - and crypto mining can be understood as digging for new coins or tokens.
Table of contents:
- What is chainlink mining?
- How chainlink (LINK) is “mined”
- How are transactions on chainlink’s blockchain validated?
- How new validators are selected in a proof-of-stake blockchain
- How are new chainlink tokens issued?
- Indirect chainlink mining
- Buy chainlink
The expression is a reference to the times where our economies were tied up to gold, and where the only way to grow those economies was to dig for more gold.
That’s also how it works with cryptocurrency - or some cryptocurrencies at least.
Cryptocurrencies such as bitcoin or ethereum work just like that. But for a cryptocurrency like chainlink, it doesn’t work like that. Actually, it’s not even possible to mine chainlink.
It depends on the method that the cryptocurrency’s blockchain uses to validate transactions.
Bitcoin and ethereum both use the method proof-of-work. When a new transaction is added to bitcoin’s or ethereum’s blockchain, it happens through proof-of-work.
In short, it demands large amounts of computing power to add transactions through proof-of-work, and as compensation for using all that computing power, the “miner” receives a brand new coin, which has just been issued.
Like that, the addition of new transactions to the blockchain is the same as digging for new coins. That’s how proof-of-work systems work.
Tip: Read more about proof-of-work in the posts “bitcoin mining ” or “ethereum mining ”.
Chainlink on the other hand uses the method proof-of-stake, and this method doesn’t involve “mining”.
How chainlink (LINK) is “mined”
“Mining” refers to two different activities: the issuing of new coins/tokens and validating new transactions.
The two activities are two sides of the same coin for cryptocurrencies that use proof-of-work.
For proof-of-stake, and thus chainlink, the two activities can be separated. That leaves us with the questions.
- How are new transactions on chainlink’s blockchain validated?
- How are new chainlink tokens issued?
How are transactions on chainlink’s blockchain validated?
In proof-of-stake blockchains, such as chainlink’s, transactions are validated by so-called validators. The validation happens by checking whether the transactions live up to the current rules in place for the blockchain.
The validation process itself is complicated data science, and you can see how it actually works via chainlink’s internal documentation .
When a transaction is validated and added to the blockchain, it triggers a financial reward for the person who completed the validation.
That’s why the interesting question is how you would get selected to be a validator.
How validators are selected in a proof-of-stake blockchain
“Stake” means to bet on something.
Practically, this means that people in the chainlink network can stake their tokens in a draw on being selected to validate transactions.
If you for example stake 10 chainlink tokens, and there are 10,000 tokens in total, you would have a 1% chance of winning the draw.
In reality, it’s a bit more complicated. It’s actually very few people who own enough tokens to have an actual chance of being selected. That’s why so-called stake pools - a gathering of several people’s stakes - have been created, so they have a higher probability of being selected as a group.
When a stake pool is then selected to validate the next block in the blockchain, all participants of the stake pool will be rewarded in accordance with the amount of tokens they’ve put in the pool.
A stake pool has a validator connected to it, which will then do the actual work of validating transactions. The validator will receive a special fee for doing so.
How are new chainlink tokens issued?
New chainlink tokens will not be issued. When chainlink was created in 2017, 1,000,000,000 tokens (LINK) were issued, which is also the maximum cap on the total amount of chainlink tokens.
According to an analysis by Coinbase Institutional , the 1,000,000,000 tokens were distributed like so:
- 35% were sold to the public by ICO (Initial Coin Offering; Cryptocurrency’s answer to public stock listings)
These are the tokens you can buy today , among others.
- 30% were given to chainlink’s parent company, SmartContracts.com.
The creators behind chainlink kept some of the cryptocurrency themselves, which they use on hiring, salaries, and general development, among other things. According to the analysis from Coinbase Institutional, SmartContracts.com has around 180 million tokens as of March 2022 - around 18%.
- 35% were hidden away in chainlink’s reserves.
350,000,000 tokens are hidden in chainlink’s own reserves, which are being used for ‘validation-compensation’, among other things - which is the payment a validator will receive as a reward for their work.
When a validator validates a transaction, they will receive a certain amount of chainlink tokens as a thank-you for their work. That’s why there’s a lot of interest in being a validator.
Indirect chainlink mining
Even though chainlink cannot be mined directly, there are services that facilitates indirect mining.
An example of such a service is unMineable . Here, you can use your computer to mine a different cryptocurrency, such as bitcoin , which will then be converted into chainlink.
Buy chainlink with Lunar Block
Do you want to buy chainlink directly? You can do so via Lunar Block . We’re a Danish platform without incomprehensible technical terms, and where it doesn’t take expert-level knowledge to get started.
Once you’ve downloaded the Lunar app and signed up to Lunar Block, you can trade chainlink and other cryptocurrencies right away - without a wallet. Remember, all crypto trading involves a great risk.
Download the Lunar app and get started with chainlink today
Cryptocurrencies can rise and fall
When you trade cryptocurrencies, you need to be aware that it carries a large risk. The value of your cryptocurrency can both rise and fall, and you can risk losing the entire amount you’ve invested in cryptocurrencies.
Cryptocurrency trading is done through Lunar Block. Lunar Block is not regulated by the Danish Financial Supervisory Authority (Finanstilsynet). That means you won’t have the same protection as when trading e.g. stocks or other regulated assets.
We do not counsel
We do not advise on currencies and do not make recommendations for either buying or selling. We can provide factual information about the different currencies, but past price developments are not an indication of future developments.
No information from Lunar Block should therefore be considered as recommendations and all decisions are up to you alone.
You might also like...
Where can I pay with solana?
Cryptocurrency is becoming so widespread and acknowledged abroad that you can use the currency just like regular payment methods on some...
How do you buy solana as regular stocks?
Because solana (SOL) is a currency, and not a business, you can’t actually invest directly in solana like it’s a stock.
Are cryptocurrencies a good investment?
Cryptocurrencies can be a great addition to your portfolio - if you’re willing to run the risk. Cryptocurrencies are “high risk - high...