Mining and staking!
Dear users, these two consensus mechanisms offer a unique way to earn passive income and rewards by using your crypto assets.
In these mechanisms, both miners (involved in mining) and validators (involved in staking):
- Participate in a blockchain network.
- Validate cryptocurrency transactions.
- Package these transactions into new blocks.
- Earn rewards for their participation.
Although both mechanisms serve the same purpose (securing the blockchain network and earning rewards), they significantly differ and operate on different principles.
Wanna know these key differences between mining vs staking? Wanna know which one is better and a profitable option? If yes! There is no better option than this content guide.
Read it from start to end comprehensively.
What Is Mining – Overview, Pros, And Cons
Mining (proof-of-work) is a consensus mechanism in which miners have to solve complex mathematical puzzles to validate transactions and add new blocks to earn rewards.
Miners, who have to solve these puzzles, use powerful hardware, such as ASICs or GPUs, and rely on computational power. Below, we have listed its key pros and cons.
| Pros | Cons |
|---|---|
| A substantial amount of cryptocurrencies as a reward. | Requires a significant amount of energy, leading to environmental issues. |
| Miners can sell their rewards on exchanges to provide liquidity. | Highly competitive process, and even the first puzzle solver is rewarded. |
| Keep crypto decentralized, as a few nodes can participate in a network. | |
| Crypto is validated in a safe environment. |
What Is Staking – Overview, Pros, And Cons
Now, as the name suggests, staking (proof-of-stake) is a mechanism in which transaction validation is done by locking up or staking the coins in a blockchain network.
Here, there’s a crowd of nodes who want to be validators. However, only the participants who stake more coins than others are eligible for transaction validation and adding new blocks.
For example, there are two nodes, named Dawid and Smith. If Dawid has locked his 100 Ethereum and Smith has locked 80, then Dawid will be selected as a validator.
Shortly, we can say: The amount of crypto coins is directly proportional to the chances of being a validator.
| Pros | Cons |
| Energy consumption is lower than mining. | It’s impossible to use staked coins before the end of the lock-up period. |
| Despite buying hardware, a validator can use a computer for work. | The price of the staked coins can fluctuate at any time. It affects overall returns. |
| Enhances the network’s security. | If a validator violates the network’s rules, their staked coins are slashed. |
| No environmental issues due to less energy required. |
Mining vs Staking – Choose the Best
Hoping! By now, you would have gained at least some understanding. Let’s take a detailed look at the differences between mining vs staking.
Energy Consumption
First of all, we will compare both these mechanisms concerning the “Energy Consumption” factor.
- Mining: If you glance back at the previous section, we have already hinted that the proof-of-stake mechanism requires a significant amount of energy. This is because miners have to solve complex puzzles using powerful hardware that consumes a huge amount of electricity.
- Staking: On the contrary, this mechanism is free of such hardware or mathematical puzzles to be solved. Here, validators only have to stake their coins without requiring high computational power, making it a more energy-efficient process.
Verdict: When it comes to energy consumption, proof-of-stake is the best option for you.
Liquidity
Liquidity refers to how easily a coin can be converted into cash without its market price. Now, we have to find out which mechanism is more profitable when it comes to liquidity.
- Mining: Readers! Miners can easily sell or exchange their earned rewards( usually in the form of new Bitcoin and Ethereum). This facility ensures higher liquidity, as they can use their rewarded currencies to buy fiat currencies without waiting for any lock-up period.
- Staking: When stakers stake their coins, they are restricted from using them before a specific long lock-up period ends. During this period, they can’t withdraw and trade their funds, reducing overall liquidity.
Verdict: This time, mining is a more flexible and liquid option as compared to staking.
Cost
Cost is one of the most notable factors when deciding whether you should be a miner or a validator. Let’s break down which mechanism is the best option.
- Mining: In the proof-of-work, miners use specified and highly powerful hardware to solve the mathematical puzzles( discussed previously). Such hardware, such as ASICs or GPUs, requires you to have a huge amount of money to invest. There must be at least $5k-$30k( for ASICs) and $1700-$2000( for GPUs) in your pocket to buy them.
- Staking: As compared to mining, staking is a cost-effective and more economical option, as validators can easily perform their duty by only using a computer. No technical setup or powerful hardware is required to add new blocks.
Verdict: Once again, the winner is the proof-of-stake mechanism, as it doesn’t require you to break your bank.
Environmental Impacts
Now, we will shed light on which mechanism affects the environment the most and which one is environment-friendly.
- Mining: Hardware used by miners requires more electricity to be consumed. This high energy demand comes with “Carbon and other gas emissions”. These gases heavily affect the environment.
- Staking: Now, we know that validators don’t use any type of hardware for validating transactions. We can shortly say: No hardware, no electricity, no carbon emission, making it an environmentally friendly mechanism.
Verdict: In the race of environmental sustainability, staking clearly makes a lead over proof-of-work.
Potential Rewards
As we know, both mechanisms offer nodes rewards. However, which one returns better will be decided in the section below.
- Mining: Miners earn higher rewards than validators, especially when the price of a coin goes up. This reward depends on several factors: Electricity cost, mining difficulty, and even crypto prices.
- Staking: On the other hand, the profit in the proof-of-stake mechanism is moderate and depends on the stake duration and the amount of coins any validator stakes. More coins, higher profit.
Verdict: If anyone wants a higher profit, but with higher electricity costs, then mining is the best option. However, if a node prefers a low-risk and steady passive income, the proof-of-stake makes a lead.
Mining vs Staking – It’s Your Own Choice
Crypto lovers! There are some factors where mining takes the lead, and others where staking stands out. This means whether you want to become a miner or a validator, it’s completely your own choice.
- If you want to participate in a blockchain network without breaking your bank and affecting the environment, then simply become a validator.
- However, if you want to be a blockchain member only for higher rewards and liquidity, proof-of-work would be the best option.
So, once again, we will say: It’s your own choice
Mining vs Staking – All in All
Mining and staking serve as effective mechanisms to generate passive income and earn rewards through cryptocurrency assets.
However, despite serving the same purpose, both of these mechanisms significantly differ, concerning liquidity, energy consumption, cost, and even environmental impacts. To explore the same thing in detail, I have curated this comparison article.
This article consists of two main sections;
- Mining and staking with their pros and cons.
- Mining vs staking: key differences
After discussing these differences, we left all crypto users to make their own choice. Whether they decide to navigate to the proof-of-work or move towards proof-of-stake.
