How is money generated on the blockchain?

More and more blockchain based tools, apps and websites are coming into existence that allow users to get financially incentivised.

Many of them do this in an effort to push mainstream adoption of crypto, but the first very sceptical and understandable question "the mainstream" has, of course, is "Where does the money come from?"

In this post, we're going to look at three different examples.

Bitcoin

Bitcoin is not only the most known cryptocurrency - it was also the first one and basically how this whole decentralised money thing was invented.

Maybe you've heard of Bitcoin Miners. Miners as in gold mining. They're not really miners, they're actually book keepers, because all they do all day is verify and validate transactions. They are also not people, but computers, owned by people.

Besides validating transactions, they also build the actual blocks on the blockchain. So they do actual work and keep things save and running.

For this work, they are being rewarded. (This method is called "Proof of Work".) They are being paid transaction fees for every transaction they process, and they receive a certain amount of brand new Bitcoins as a reward for every block they create.

The creator of Bitcoin - Satoshi Nakamoto - coded into the Bitcoin blockchain how many Bitcoins will ever be available: 21 million to be exact. It was also written into the blockchain, in which amounts and intervals they will be made available: right now it's 12.5 Bitcoins per block.

Blocks are created every 10min, so every 10min the blockchain spits out 12.5 Bitcoins and awards it to the miner who created the last block.

This is how Bitcoins are "generated" and enter the circulating supply.

Dash

Dash is another cryptocurrency and works very similar to Bitcoin, however the Dash miners only receive 45% of the block reward.

Another 45% go to so called masternodes, which also do important work for the Dash network, but they do not mine. In order to run a masternode, one must prove ownership of 1,000 Dash and "lock them up". (This method is called "Proof-of-Stake".)

Together, this makes 90% of the block reward.

This leaves 10%, which go into a virtual pot - also called "the treasury" - from which all sorts of activities and initiatives are paid - whether it's blockchain developers, marketing campaigns or anyone who wants to contribute in some way to the growth of the Dash network.

Steem

Here on Steemit, a social media platform on the blockchain, users reward each other financially through "upvotes". However the money that goes to a content creator doesn't come out of your own pocket. Just like on the Bitcoin blockchain, it is being mined.

And just like on the Dash blockchain, the new coins do NOT go 100% to the miners, but they are distributed in a very specific way:

• 10% go to the witnesses (the equivalent to miners, who basically power the Steem blockchain)
• 75% of the new tokens go to the reward pool, from which authors and curators (upvoters) are paid
• 15% are awarded to holders of Steem Power

So when you, as a Steem user, upvote someone else's content, you're basically saying to the reward pool "give some Steem to this person". How much Steem this will be, depends on your Voting power, which is related to your Steem Power.

The more Steem Power you have (= the more Steem tokens you hold), the higher your voting power. When you first start, your voting power will be close to zero, since you don't have any Steem Power yet. You can either earn Steem by engaging on the platform, or you can buy Steem as an investment and to accelerate things.

In addition to a higher voting power, you are also receiving "interest" on your Steem power - see the 15% above.

So this is how money is being generated on different blockchains.

There are many different methods besides Proof-of-Work and Proof-of-Stake, but I hope this answers your most important question "Where does the money come from?"

As a crypto beginner, I recommend joining platforms that allow you to earn cryptocurrency, until you're confident and have enough understanding to invest your own money. I have listed a number of them here.

Publish0x and Steemit are two easy options, since they are social media platforms, and social media is very likely something that you're already quite familiar with :)

While Publish0x itself doesn't run on a blockchain, it will allow you to earn several different tokens and coins, while on Steemit, you will earn the native currencies Steem and Steem Dollars.

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Another version of this article was previously published on Publish0x.

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About the author:

Anja Schuetz is a cryptocurrency mentor for absolute beginners, with specific focus on women and non-digital natives. She also consults as a Customer Communication & Operations Manager for blockchain start-ups.

Anja offers a Free Bitcoin Beginner's Course when you sign up to her Conscious Crypto Museletter here: http://anjaschuetz.net and has also written a Beginner's Guide to Steemit