What Are Non-Mineable and Mineable Coins in Cryptocurrency?

Whether you’re an investor, developer, or crypto enthusiast, it’s crucial to understand the nuances of the multifaceted world of cryptocurrency. Among the endless assortment of terms and concepts you should know about this decentralized universe, “mineable coins” and “non-mineable coins” are some of the most important ones.

Knowing all the distinctions between these two types of coins can help you make strategic decisions in both the investment and development fields.

Why are some coins mineable and others aren’t? What are the advantages and disadvantages of each of these categories? Is a newer proof-of-stake consensus mechanism better than the original proof-of-work?

You’ll find answers to all these questions and more as we demystify what mineable and non-mineable coins are and how they fit in the cryptocurrency landscape.

What is a Mineable Coin?

Simply put, a mineable coin refers to a cryptocurrency that can be mined. The term “mining” comes from the actual mining of rare earth minerals like gold. It is a process where value is obtained through the extraction of resources.

In cryptocurrency, that process is known as proof-of-work (PoW).

The most famous mineable coin is the one that started the whole movement of decentralized finance—Bitcoin. Satoshi Nakamoto programmed Bitcoin to be mined using computer processing power. The process involves validating transactions and adding new blocks to the blockchain. For doing that, miners are rewarded with a certain amount of BTC.

The Bitcoin network was programmed to produce 21 million coins, resulting in a finite supply of coins. After all the last coins have been mined (the current estimate for that to happen is around the year 2140), miners will earn revenue solely based on transaction fees.

Mineable coins were designed that way to ensure the security of the network. The mining process involves solving complex mathematical problems, which requires immense computational power.

As a result, it’s nearly impossible for one party to have 50% of the required power, which they need if they want to manipulate the network.

In addition to Bitcoin, a long list of mineable coins includes Dogecoin (and its mineable token, DOGE), Litecoin, Bitcoin Cash, and Monero (one of the best mineable coins to mine with a CPU).

Ethereum, the most popular altcoin, used to be mineable, but it switched to using a proof-of-stake mechanism in 2022. More on this concept later on.

How Does Coin Mining Work?

As we previously mentioned, cryptocurrency mining refers to the process of using specialized hardware to solve complex mathematical problems. This process is known as proof-of-work, since the only way to solve those problems is to make a lot of attempts.

By finally solving a problem, the miner proves the work has been done.

The mathematical problems are, naturally, of a cryptographic nature, and they are difficult to solve by design. On the other hand, once the solution is found, it’s easy to verify it with other participants in the network.

The purpose of mining is two-fold:

• Coin mining is used to verify transactions on the network. A number of transactions are grouped into blocks and put on the blockchain. Once validated and placed on the blockchain, these blocks become impossible to change or delete. Mining also ensures no double-spending, which is a big problem in digital transactions.
• Mining creates new coins and adds them to the network.

Miners have an incentive to participate in the network, and that incentive comes in the form of rewards. First up, there’s a block reward. Each block added to the blockchain rewards the miner with a predetermined amount of mineable coins.

For instance, the initial Bitcoin block reward was 50 BTC. Every four years, Bitcoin halving reducesthis reward by half.

The second part of the reward comes from transactional fees. There's a cost associated with sending or receiving crypto, and it’s there to compensate miners for their efforts and to incentivize them to continue mining.

Coin mining is a fundamental aspect of cryptocurrencies. It’s what gives crypto security and enables its decentralized nature. However, mining is not without flaws, one of which is the fact that it can be energy-intensive, which is where non-mineable coins and proof-of-stake come into play.

What is a Non-Mineable Coin?

Simply put, non-mineable coins can’t be mined using computer power. Since it’s impossible to mine these coins, they are also known as pre-mined coins, and they represent a fundamentally different approach to cryptocurrencies from mineable coins.

Oftentimes, all non-mineable coins are created at once when the network is set up. As a result, they are distributed in a completely different manner from mineable coins. Some cryptocurrencies perform ICOs, or initial coin offerings, where they sell the initial amount to investors.

Other non-mineable coins are given away for free in the form of airdrops. It’s also not uncommon for developers to hold a certain amount of pre-mined coins and use them to fund the project.

Ultimately, the distribution of non-mineable coins can vary greatly and depends on the project’s team goals and strategies.

XRP is one of the most popular non-mineable coins. Its maximum supply is 100 billion XRP, and most of it was created before a public launch. The founders kept a portion of that, stating that it was necessary to fund the project's operations.

However, the most popular non-mineable coin is Ethereum. Ethereum was released on July 15, 2015, as a proof-of-work cryptocurrency. For around seven years, it was essentially a coin mineable with a GPU.

That changed on September 15, 2022, with an update called “The Merge.” Ethereum transitioned to using a proof-of-stake consensus mechanism, effectively reducing the network’s energy consumption by approximately 99.95%.

What is Proof-of-Stake?

Proof-of-stake (PoS) is a consensus mechanism created as an alternative to the proof-of-work model. While their purpose is pretty much the same, the two mechanisms operate in vastly different ways.

First off, there are no miners in the PoS-based networks. Instead, there are validators who use a certain amount of cryptocurrency that they lock up as collateral or a stake. Basically, instead of needing powerful hardware to solve complex problems, PoS validators invest their coins for a chance to validate transactions and earn rewards.

In general, the more coins a validator stakes, the higher the chance they end up being the ones to create a new block and obtain the reward. Similarly to miners in PoW-based blockchains, validators also receive block rewards and transactional fees.

Locked-up coins serve as a guarantee that validators will perform their duties diligently. Any attempts to manipulate the system or alter transactions will likely result in the loss of staked crypto.

The reason why the proof-of-stake consensus mechanism was invented and implemented in the first place was due to the high computational costs associated with proof-of-work networks. For instance, ASIC miners created to mine Bitcoin can cost upwards of $10,000. Plus, they use a lot of electricity.

While they aren’t without flaws, PoS blockchains are much more energy efficient and are seen as an eco-friendly alternative.

Furthermore, as mining hardware becomes more expensive, there’s an increased concern about centralization. With staking, there’s no need for costly equipment, as anyone with cryptocurrency in their wallet can become a participant.

Mineable vs. Non-Mineable Coin: Major Differences

Let’s examine some of the biggest differences between mineable and non-mineable coins.

First up, there’s the way the coins are created:

• Mineable coins are mined using powerful computer hardware to solve cryptographic puzzles. That adds new blocks to the blockchain and rewards miners with mineable coins.
• Non-mineable coins are usually pre-mined or created when the network is launched. Sometimes, a maximum supply of coins will be created on launch, and as a result, there’s no mining process.

Then there’s the question of distribution:

• Mineable coins are distributed in a decentralized manner, where miners compete against each other while contributing to the security of the network.
• Non-mineable coins are distributed through various means, including airdrops, initial coin offerings, and staking. Developers can also distribute a portion of non-mineable coins to themselves prior to launch.

Another difference between these two types of coins is in energy usage:

• Mining requires a lot of computational power, which can be extremely energy-intensive. Bitcoin mining alone is estimated to consume more electrical power than certain countries.
• Non-mineable coins require much less energy to obtain and transfer, making them an environmentally friendly alternative to mineable coins.

When it comes to hardware requirements:

• Some of the best coins to mine, like Bitcoin, require specialized hardware, which can be rather expensive and inaccessible for some users.
• There’s usually no hardware requirement for non-mineable coins. Since there’s no mining process, it’s often enough to have your crypto stored in a wallet.

Regarding network security:

• Every new miner that joins the network contributes to its security by increasing decentralization. A malicious actor would have to gain control of more than 50% of the network’s computational power to hack the blockchain, which becomes increasingly difficult as more participants join.
• Non-mineable coin security depends on the network’s programming, offering varying degrees of security.

Mineable Coin: Advantages and Disadvantages

Let’s start with the advantages of mineable coins:

• The mining process fosters the decentralized nature of the blockchain. Anyone in the world with access to the required hardware can join the mining process, contribute to decentralization, and earn rewards.
• The PoW model used to mine coins contributes to the security of the network. Miners don’t just compete to solve problems and create blocks; they also verify each other's solutions, making it extremely difficult for malicious actors to manipulate the blockchain.
• Mineable coins have a controlled supply. With Bitcoin, for example, there’s a fixed amount of BTC rewarded for each mined block and a finite supply. That programming ensures a steady increase in coins, prevents extreme inflation, and leads to scarcity, which can increase their value.

Now let’s see the disadvantages of mineable coins:

• The biggest downside of mineable coins by far is the amount of energythat mining requires. For instance, Bitcoin consumes more energy than Norway. That’s not only costly for miners, but it also contributes to environmental pollution.
• The risk of centralization, while low, is slowly increasing. Demand for expensive, specialized hardware needed to mine many coins led to the industrialization of the process, concentrating large amounts of mining equipment in specific areas.
• On the topic of specialized hardware, as it becomes more powerful and expensive, it becomes less available to the broader public.
• Due to energy costs, mining isn’t always profitable. The crypto market is highly volatile, and a drop in the price of a specific mineable coin can make it worth less than the amount of energy spent to mine it.

Non-Mineable Coin: Advantages and Disadvantages

Here are some of the biggest advantages of non-mineable coins:

• Energy efficiency is the biggest advantage of non-mineable coins over mineable coins. Since they don’t require mining, there’s no need for large amounts of energy to obtain these coins.
• There’s no need for specialized hardware to participate in PoS networks. Combined with low energy costs, non-mineable coins come with a lower cost and increased accessibility compared to mineable coins.
• PoS networks can process much larger quantities of transactions much quicker than PoW networks, making it faster to send and receive non-mineable coins.

The most notable disadvantages of non-mineable coins include the following:

• The risk of centralization exists with non-mineable coins just as it does with mineable coins, but the concept is different. If one validator has a large portion of the total supply, its influence on the network can increase.
• A proof-of-stake consensus mechanism is generally considered less secure than proof-of-work mechanism since it’s newer and less tested.
• The initial distribution of non-mineable coins is generally considered less fair compared to mining. The creators of cryptocurrency can set aside a large portion of it for themselves or send it to people of their choosing.
• Since there’s no decentralized mining process as the foundation of coin distribution, network participants have to trust its creators. That means there’s an increased risk of malicious activities such as scams and rug pulls.

Key Takeaways

As you can see, mineable and non-mineable coins represent two facets of cryptocurrency. While similar in nature, these two types have a vast range of differences that go from the method of creation and distribution to energy usage and network security.

Mineable coins, like Bitcoin, are renowned for their security and decentralization. On the other hand, there’s the question of high energy usage and its potential impact on the environment.

Non-mineable coins, like Ethereum, are created as energy-efficient alternatives that offer much faster transactions. However, these coins face challenges regarding initial distributions and trust.

Whether you’re an investor or a cryptocurrency enthusiast, you can only benefit from knowing the difference between these two types of tokens. Understanding the underlying technology and the impact it has on the decentralization and security of cryptocurrencies can help you make better financial decisions and understand more complex concepts in the world of crypto.