What Does Minted Mean in Crypto for NFTs and Tokens

In the world of cryptocurrencies, the term “minted” is often used to refer to the process of creating or issuing new coins or tokens. Minting plays a crucial role in the functioning of the blockchain ecosystem, as it impacts both the creation and distribution of cryptocurrency tokens and NFTs. By the end of this article, you will have a good grasp of how minting works in crypto and what the implications are.

Table of Contents

1. Where does the term minting originate from?
2. Four ways to mint digital assets in crypto
3. Burning: the opposite of minting
4. Pros and cons of Minting Digital Currencies
5. Example usage of the term “minted” in crypto
6. FAQs

Where does the term minting originate from?

While the term is used in crypto it originates from the non-crypto world and refers to the process of printing new bills and coins.

The verb ‘to mint’ originates from the Latin word for coins, ‘moneta’ (literally: singular” and the noun mint refers to the place where money is minted.

For example, below is the Royal Mint of London, the official maker of British coins.

So what has all this got to do with crypto?

Like many terms, the crypto community appropriated the term in order to refer to how blockchains and protocols manage their token supply.

Four ways to mint digital assets in crypto

#1. Mining

The first is crypto mining which is how proof-of-work blockchains make new coins available.

The most famous proof of work system is the Bitcoin Network.

Bitcoin is a decentralized blockchain which means that anyone can participate in validating transactions and adding new blocks of data to the chain.

To be eligible you need to invest in cryptocurrency mining machines that use electricity to solve difficult cryptographic puzzles.

Crypto miners who solve the puzzle are rewarded in transaction fees plus newly created bitcoin.

The release of new bitcoin is predetermined by Bitcoin’s algorithm and the supply is halved every 4 years until Bitcoin reaches a maximum supply of 21 million Bitcoin after which no more will be created.

Special note: Most people avoid the word “minting” when referring to proof-of-work blockchains and say “mining” instead. The main reason for this is that the supply of the largest proof of work blockchains such as Bitcoin is fixed. Hence, the word minting is not a good analogy because mints can print money indefinitely.

The word minting in crypto circles started with the advent of proof-of-stake blockchains. Let’s take a closer look at those below.

#2. Minting on Proof-of-Stake blockchains

In a proof-of-stake blockchain, validators check transactions and add new blocks to the chain.

In order to participate in the validation process you need to put up a minimum amount of the blockchain’s native cryptocurrency as collateral.

For example, if you want to become a validator for the Ethereum blockchain you would need to put up 32 ETH.

Now if you try to do anything weird you will get punished and you lose your ETH i.e. your ETH is at stake so to speak. For more on this check my related post on What Is Slashing in Crypto.

This mechanism ensures that validators are aligned to always tell the truth.

Now pay attention.

Here is how the minting process works on PoS blockchains

The validator who adds a new block is selected by chance.

The more you stake the more likely you will be selected.

If you do get selected then you are rewarded in newly minted coins plus gas fees for adding the new block.

In the case of Ethereum for example you would receive 2 newly minted ETH. If you were mining Monero you would get 0.6 XMR per block.

The issuance of new coins is programmed in an algorithm called a smart contract that most PoS blockchains have.

In contrast to Bitcoin, Ethereum and many other PoS blockchains do not have a fixed supply.

ETH for example inflates at 0.52% per year.

Therefore the word mint is a better analogy as it is reminiscent of a mint or a central bank that prints money to expand the monetary base of an economy.

But crypto minting is not only used in the context of the native coins issued to validators via a proof-of-stake mechanism.

It is also used to describe the issuance of tokens by the large number of protocols that have been built on top of these blockchains.

#3. Minting tokens on a DeFi dApp

After Bitcoin, many blockchains evolved to allow you to create your own tokens.

For example, on Ethereum, you can issue ERC-20 tokens.

In addition, you can also build apps to allow people to do stuff with those tokens.

For instance, MakerDAO is an app that allows you to borrow its ERC-20 token called DAI in exchange for other crypto as collateral.

If you send MakerDAO some crypto it will automatically mint (create) new DAI to lend to you.

That’s just how its smart contracts are programmed. You can find out more about MakerDAO here.

There are four main ways to issue new tokens on a DeFi protocol

1. The first is to issue tokens according to rules like how MakerDAO is programmed to issue DAI when it receives collateral from a wallet.
2. The second is to issue tokens according to a bonding curve. A bonding curve is a preset pattern of issuance at specific prices. It usually starts off by issuing tokens cheaply and then slowly increases the price. To really get to grips with bonding curves read my tutorial on Curve Finance.
3. The third way is to issue tokens based on governance. This means that Governance token holders can vote on changes to the supply of a token. For example, Dogecoin inflates at 5.26Bn per year but DOGE holders could vote to change that if they wanted to.
4. The fourth way is to issue coins all in one go during an initial coin offering (ICO). ICOs were very popular in 2017 when teams of developers would put together a promising idea, describe it on a flashy website, and raise capital directly by issuing and selling tokens to buyers. This allowed anyone to participate in the project. Unfortunately, a large proportion of these projects were just a lot of hype and not much more.

#4. NFT Minting

NFTs (Non-Fungible Tokens) are unique blockchain tokens that can represent anything from art to unique IDs.

For most people, NFTs are recognized as digital artwork such as the collection of Crypto Punks or Bored Ape Yacht Club apes.

When you create a new NFT the process is called minting.

For example, you can say “I minted an NFT today”.

The process of minting an NFT is fairly straightforward. All you need is a crypto wallet and a platform like Open Sea.

How to mint an NFT

To mint an NFT follow these simple steps:

1. Set up a cryptocurrency wallet such as MetaMask, Coinbase Wallet, Trust Wallet, etc. using a Chrome extension.
2. On your desktop visit any of the large NFT platforms such as Open Sea, Rarible, and Atomic Hub.
3. Connect your digital wallet to the marketplace.
4. Follow the instructions to name your NFT and connect your social media profiles.
5. Select the blockchain you want your NFT project to be on. The most common one is Ethereum.
6. Upload the digital file with your art.
7. The platform will mint your art into an NFT. This means that your art is uniquely represented by the NFT you have minted.
8. Set the royalties you are willing to receive. 5-10% is the standard.
9. You are all set. You have minted your new asset and now all you need to do is wait for the buyers to roll in and buy your beautiful art.

Burning: the opposite of minting

The opposite of minting a coin is to burn it.

Again here the analogy is to receiving a dollar bill and burning it.

In crypto, a coin is sent to a smart contract from where it can never be moved.

So it’s equivalent to it not existing since it has lost its utility in anyone being able to use it.

For example, when you pay back your DAI on MakerDAO to get your collateral back that DAI is burnt.

This is because MakerDAO only issues DAI if it is backed by collateral.

Pros and cons of Minting Digital Currencies

Benefits:

• Liquidity: Minting new cryptocurrency coins allows for the expansion of the cryptocurrency’s overall supply, providing liquidity within the ecosystem, and accommodating growing demand.
• Security: Minting contributes to the security and integrity of the blockchain network, especially in PoS-based blockchains where validators play a crucial role in securing the network. If you can’t reward validators with new coins then they won’t have the incentive to do their job. This is a core argument of DOGE holders and why Dogecoin supply won’t ever be capped.

Drawbacks:

• Inflationary Pressure: The core argument against minting new coins is that it brings inflation. This is why Bitcoin supporters call other coins shitcoins for example. In some instances, minting can be counterbalanced by staking. For example, Ethereum inflates at 0.52% but current staking rewards are at 3.8% APY. Read What Does It Mean to Stake Ethereum for more on staking.
• Concentration of Power: In some PoS-based networks, validators with a large stake may have more influence and control over the minting process, potentially leading to centralization concerns.

Example usage of the term “minted” in crypto

Here are some examples of how you could use the term in your day-to-day conversations

1. “After the successful ICO, the project developers minted a total of one million tokens, ready for distribution.”
2. “Investors eagerly awaited the minting of the new NFT collection”
3. “To create a stablecoin, the blockchain network must mint an equivalent amount of tokens and hold them in reserve.”
4. “This Dapp allows users to mint synthetic assets, such as tokenized stocks and commodities.”
5. “Smart contracts can automatically mint new tokens when certain conditions are met, like reaching a specific date or price.”
6. “The cryptocurrency project decided to burn a portion of its minted tokens to reduce inflation.”
7. “NFT creators can choose to mint their digital art as limited editions, specifying the exact number of copies to be created.”
8. “The minting fee on the Ethereum network has surged due to high demand for NFTs and DeFi tokens.”
9. “Investors can stake their crypto assets to earn rewards and receive newly minted tokens as a form of passive income.”

FAQs

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