Cryptocurrencies are built on blockchain technology and have gained immense popularity. Case in point — the combined market capitalization of all cryptocurrencies peaked at $2.89 trillion last year.
While cryptocurrency enthusiasts can buy cryptos from crypto exchanges with their fiat currencies like US Dollars and Euros, you don’t necessarily have to wait for the crypto to be listed in exchanges.
In fact, cryptocurrencies are often released through a process called mining. But along with mining, there’s also a process called validation.
So, let’s try to understand what they are and how they’re different from each other.
What is Validating?
Cryptocurrency validation is the process through which transactions and blocks on a blockchain are verified and authenticated by a validator. This validator looks into each transaction to verify its legitimacy.
They get notified whenever new transactions are made and then they work to authenticate them. This process also includes checking the legality of the transaction and cross-checking if double-spending has happened.
Once the transaction is authenticated, the validator joins it with other validated transactions to form a block[1].
This is where crypto mining and consensus algorithms[2] take over.
What is Mining?
Cryptocurrency mining is the process where you use consensus algorithms to check the validator’s blocks and add them to the blockchain. These consensus algorithms are determined by the particular crypto’s blockchain.
There are two main consensus algorithms that are widely used now — Proof of Work and Proof of Stake.
The Proof of Work algorithm involves miners competing to solve complex mathematical problems. The first miner node[3] to solve the problem gets chosen to add the block to the blockchain. And for this, the miner is rewarded. This algorithm is used by Bitcoin and is very power-intensive.
Proof of Stake, on the other hand, involves stakers (cryptocurrency holders) who stake some of their coins to get a chance at adding the block to the blockchain.
The staker with the maximum staked coins gets to add the block to the blockchain and gets rewarded for it. To increase chances, several stakers combine to form a staking pool and distribute the rewards among themselves. This method is used by Binance Smart Chain and Solana on which many gamefi projects are built.
Staking is also used by many projects, especially in the gamefi space, to reward token holders and maintain steady tokenomics. For instance, when you stake your coins in the NFT game Wizardia, you get up to 114% APY and also stand a chance to win exclusive NFTs that you can then use to battle in the game.
So, how do mining and validating differ from each other?
[1] Block: It’s a bunch of transactions that have been validated and need to be added to the blockchain. A series of joined blocks makes up a blockchain.
[2] Consensus Algorithms: These are algorithms through which all the nodes (users) in the blockchain network come to an agreement about the data being added to the blockchain.
[3] Node: Every stakeholder and their computer is considered a node in a blockchain network.
Mining vs. Validating: The Key Differences
Costing
Typically, the cost of mining is extremely high when it comes to the Proof of Work consensus algorithm. This is due to the high computing power requirement which leads to greater electricity usage.
On the other hand, the validation process requires little power compared to the mining process. This is because the computational power would only be needed for authenticating the transactions.
Rewards
While the validators may have finished their end of work, they don’t get rewarded until the block they’ve created gets added to the blockchain after going through the consensus algorithms.
As for miners, they only get rewarded when they’re the first ones to solve the mathematical problem (Proof of Work) or they’ve been chosen to add the block based on their stake (Proof of Stake). All the other miners who tried to add the block won’t be rewarded for their efforts.
Complexity
Validation only involves checking the details of each transaction that’s done using the cryptocurrency. This process isn’t very complex as it’s more like verification.
On the other hand, the mining process is a lot more complicated and lengthy as miners would be competing with each other to become the first ones to add the block to the blockchain. The requirement of high computing power makes the process even time-consuming.
Goals
The goals for both mining and validation are starkly different. The validation process is done to cut scamming and ensure that there’s no double-spending. It’s also done for creating the block that would be added to the chain.
However, the goal of mining is to take incoming blocks and add them to the blockchain. This helps ensure the continuity of the blockchain and sustains the cryptocurrency. The end product here would be a block added to the chain and new coins received by the miner as rewards.
Mining vs. Validating: What’s Common?
While there are certain differences between the two, they have a lot in common. In fact, one can’t happen without the other.
Let’s see the similarities between the two when it comes to the different consensus algorithms.
Proof of Work
In Proof of Work, the validation process happens first and then the mining process comes into the picture. There are no similarities between the two here.
Proof of Stake
Here, the validators are miners too. They use their master node[1] to stake their crypto and then are selected to validate the transactions based on their stake. This makes validating and mining pretty much the same thing in Proof of Stake.
In Conclusion
Mining and validating are two parts of the same process through which new cryptocurrencies are introduced. They also ensure the continuity of the blockchain and help maintain its integrity.
However, there are certain differences between both, especially when it comes to Proof of Work. But there’s a large overlap between them in Proof of Stake. But not all staking programmes work toward Proof of Stake – crypto games often use staking to reward early-adopting token holders.
The key to understanding their differences lies in knowing their goals — validation is all about authenticating transactions while mining works to ensure the continuity of the blockchain.
[1] Master Node: This is a major node that’s used for sustaining the infrastructure of a cryptocurrency. It’s different from other nodes and doesn’t add any blocks to the blockchain. Instead, it verifies new blocks and helps govern the blockchain.
