[gear54rus]

> If so, why does it make sense that people can "generate" cash by proving some amount of work done?

Because you need an incentive for 'miners' to participate in transaction processing.

Main functionality is transactions which are not controlled by any single entity (like the government).

Most of it is speculation unfortunately, which gives it a bad name, drowning out real usecases.

[ourmandave]

So now I'm wondering, why wouldn't they just charge a transaction fee in Monero?

Why mine at all?

If you want to scale up to Mastercard levels.

[dale_glass]

A transaction fee of what? To take a fee from a transaction there has to be a transaction to take a fee from, which needs some sort of "coin" that came from somewhere. Somebody has to create a money supply and distribute it somehow. When the network first comes into existence, nobody has any money, so where does it come into being from?

Mining is what generates the coins. And you need mining because otherwise you need some other issuing organism. Without decentralized mining you get a central issuer, and that's untrustworthy and possible to shut down.

[latchkey]

It is subtle, but PoW mining itself doesn't generate coins. It isn't like someone is digging a hole in the ground and extracting gold.

PoW miners are rewarded for correctly validating transactions, with newly minted coins.

The whole proof of work thing is that you proved that you validated a transaction by expending energy, and the network pays you for that security service.

Miners then need to sell those coins on the open market in order to pay for their capex/opex, which creates the market.

The open question is that if you have a fixed supply of coins that eventually runs out, what will carry the miners?

It'll be increased fees or the network will switch to another solution.

[dale_glass]

I believe transactions are quite optional though? A miner could choose to mine empty blocks if they truly wanted, which transactions to include if any is up to them.

[latchkey]

Correct, one can mine empty blocks, but in practice, dumb idea. Most people mine with a pool. The pool decides what goes into a block. Even at scale. The point is that it smoothes out the reward cycle. For ETH, we mined with a pool that dual mined ETH+ZIL, which increased our overall rewards.

[AureliusMA]

Agreed with your explanation.

I would add a different way to make sense of it.

Proof of work allows for what Keynes called "Bancor". BTC is succesful because unlike fiat central banks, the money supply isn't dictated by interest rates (and thus loans) but by the effort of participants. The price of BTC is almost irrelevant, BTC itself is a paradigm shift.

Regarding the fixed supply, it's only fixed because participants agree to the consensus algorithm that fixes it. Many cryptocurrencies have different tokenomics, such as ETH's rules under PoS. BTC miners could vote onchain for a hard fork to change the 21M cap - or another solution.

[latchkey]

Full disclosure, I was a bitcoin, and 5MW litecoin miner, and 150,000 GPU ETH miner, so I was pretty deeply involved in it for many years.

Correct on the rest, but I just want to say that I was intentionally avoiding discussing specific tokens or the politics due to HN's stance on crypto.

[donaldjbiden]

The money supply of BTC has a fixed schedule. It has nothing to do with the effort of participants.