What is solana mining?
Within cryptocurrency circles, mining refers to the activity that creates new coins. This is how new bitcoins and ethereum coins are being issued among others.
But the same doesn’t go for a cryptocurrency like solana , because it depends on the blockchain the cryptocurrency uses.
Bitcoin and ethereum has the fact that they both use the validation method proof-of-work in common. A validation method is also called a consensus mechanism in layman terms.
In other words, mining depends on which validation method the cryptocurrency’s blockchain is based on.
In this connection, there are three important methods you need to know:
Cryptocurrencies based on proof-of-work: bitcoin , ethereum , dogecoin .
The validation method, or consensus mechanism, proof-of-work is made to ensure that the information on the blockchain is credible.
For example: If it says on the blockchain that you transferred 1,000 bitcoins to Hanna - how can we actually trust that, that is true?
We can trust that, because bitcoin uses proof-of-work. Basically, proof-of-work means that a computer is running advanced programs to find a specific code, which makes it possible to add the transaction between you and Hanna to the blockchain in a secure way.
Tip: Get to know more about proof-of-work in our blogpost: “bitcoin mining ”.
Once the code has been found, a reward is triggered to the person who ran the computer program. The reward is cryptocurrency - such as a bitcoin or an ethereum coin.
It works like a compensation for all the resources it took to run the computer program - it costs a lot in terms of hardware and electricity to mine cryptocurrency.
With proof-of-work you need to run computer programs to find the correct codes, and that triggers a reward in the form of cryptocurrency. The cryptocurrency is then ‘created’ when the necessary code is found.
That’s why it’s called “mining”. You’re ‘digging’ for new cryptocurrency, and that’s how new coins are being issued. Just like with gold and gold diggers.
Remember, this only works for cryptocurrencies based on proof-of-work. Solana isn’t based on proof-of-work, but is instead based on a combination of proof-of-stake and proof-of-history.
Cryptocurrencies based on proof-of-stake: solana , cardano , polygon , chainlink , terra .
A blockchain based on proof-of-stake adds transactions in a different way. Here, a random person in the blockchain network is selected as responsible for validating the transactions.
Such a person is also called a validator. The person being selected to be the validator also receives a reward - but it’s not a newly minted coin, which is the case with proof-of-work, but instead of a fee, it comes from a pool of coins that already exists.
The validation work in proof-of-stake is then also compensation. The difference is just that the compensation isn’t always the issuing of new coins, which is the case with bitcoin, ethereum and dogecoin.
Let’s say you’d like to be selected as a validator.
The selection is a drawing of lots, where one lot equals one coin. Your coins aren’t automatically in the draw, and you will only enter the draw if you stake your coins.
For example, if you have 500 coins, you’re staking 300 of them in the draw to become a validator. Let’s also say that there’s 10,000 coins in total in the network.
You then have a 300/10,000th chance of being selected - or a 0,3% chance.
The work as a validator is a demanding piece of work. You need to know a lot of advanced programs and codes - that’s why it’s not anyone who can handle this job.
That’s why you can pool your coins together with a competent validator and increase your chances of being selected together in a proof-of-stake blockchain. Such a pool is also called a stake pool.
Helena works as a validator on solana’s blockchain.
She has 500 coins herself which she stakes in the draw. She then has a 0,5% chance of being selected on her own.
You know Helena is a competent developer, and you trust her validation. That’s why you’d like to support her in being selected, which is why you chose to stake some of your coins in Helena’s name.
You’re staking 300 coins - so now, Helena has 800 coins to her name, and has increased her chances to 0,8%.
When Helena gets selected, she completes the work, and is then rewarded with an amount of coins. The reward is also spread out over the pool of people who have staked coins in Helena’s name.
In this way, both Helena and the people who supported her, receives economic compensation.
Tip: You can read more about how big the reward for staking solana coins is on StakingRewards.com .
So, what if Helena tries to trick the network?
If Helena makes a fraudulent validation - such as tricking the network out of money - her 500 coins are confiscated. But your 300 coins which you staked in Helena’s name also risk being confiscated.
This is where your trust in the validation plays a part. Do you trust Helena enough to stake your coins in her name?
Cryptocurrencies based on proof-of-history: solana .
It’s the developers behind solana who invented proof-of-history.
For solana, proof-of-history is an extra layer of technology combined with proof-of-stake. The whole idea with proof-of-history is that transactions are automatically given a time stamp, so that the sequence of transactions is always known in the validator network.
With this, the network doesn’t need to use time and resources agreeing on the sequence of transactions, which is the case with proof-of-stake.
Proof-of-history actually doesn’t have anything to do with mining. It’s a technology, which makes it faster to validate transactions in a proof-of-stake blockchain.
Buy solana with Lunar Block.
Instead of using time learning to validate transactions, you could buy and sell solana coins directly via Lunar Block . Here, you’re trading on a Danish, transparent platform without pointless fees or complicated technical language.
Download the Lunar app for free today, sign up to Lunar Block, and begin trading solana and other cryptocurrencies in a matter of minutes.
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.
Last updated April 18, 2023. We’ve collected general information. Please note, that there may be specific circumstances that you and your business need to be aware of.
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