Crypto Mining Vs Staking: What They Are and How They Work

With the Ethereum 2.0 release date approaching and eventually moving the network to Ethereum staking, the competition between crypto mining and staking is more relevant than ever.

Ethereum’s merger date is closer than ever for investors to speculate on the dramatic impact on the functioning of Ethereum as a whole and how Ethereum’s betting mechanism will work under PoS consent.

Now it is important to discuss the difference between crypto mining and staking and their impact on a large scale.

Mining and staking are the two most common methods of validating transactions and securing the blockchain, but what separates the two?

Crypto Mining vs Staking

When it comes to mining vs staking, the differences come from the algorithms used to add new blocks.

Cryptocurrency mining stems from its proof-of-work mechanism. In this decentralized system, the “work” is mining. Miners will compete to solve a complex hash puzzle, which changes depending on the difficulty of the network. This helps protect the network and prevent attackers from hijacking the network, as well as reaching consensus for the decentralized network.

Crypto staking has similar goals to mining in terms of validating transactions and reaching consensus. Its proof-of-stake mechanism was first used as an alternative to proof-of-work.

The difference comes from the means for these ends.

Miners will use hash power in their attempt to successfully mine a block, using an Intel Bitcoin mining GPU or ASIC to do so. They can also use NVIDIA RTX 40 series GPUs to conduct free Bitcoin mining.

In contrast, staking requires cryptocurrency holders to “bet” their coins. Users will lock their coins for a fixed period where they cannot withdraw their goods, making them illiquid. For example, when starting staking, users will have to lock their cryptocurrency with the exchange to earn interest on it for the prescribed duration.

The network will then choose the validators for each block, depending on the size and time of a node. Compared to cryptocurrency mining, this requires a significantly smaller amount of energy.

Both extraction and staking also have various advantages and disadvantages. Mining remains a reliable method for successful cryptocurrencies, given its use in Ethereum and bitcoin for many years. However, hardware requirements are often expensive and energy inefficient.

Staking makes it easier for owners to earn returns on their assets, without picking up criticism for its environmental impact. Many cryptocurrency exchanges, such as Binance or Coinbase, even allow users to bet directly from their platforms. Some holders, however, may feel uncomfortable locking their assets into staking for a fixed period, especially in times of volatility.

Crypto Mining vs Staking Profits and Rewards

Given the plethora of variables between cryptocurrencies using proof-of-work and proof-of-stake, stating that one of mining or staking is more profitable is quite difficult.

This is especially true given the prevalence of pooling in both systems. Miners and stakers can contribute hash power or assets to their respective “pools,” to earn smaller, but more consistent, proportions of block rewards.

As for variables, mining can have higher rewards, but this can be offset by the start-up costs of the hardware and the electricity needed for the process. Betting rewards will also vary depending on how long you “lock” your assets, with high volatility potentially affecting these profits.

Both mining and staking reward their users with the network’s native cryptocurrency. The rewards of the block depend on the cryptocurrency and its tokenomics.

Crypto Mining Coins vs Staking Coins

Most of the total cryptocurrency market is dominated by mining coins, largely due to the dominance of bitcoin and Ethereum. These two coins make up 41.89% and 17.05% of the total market capitalization, respectively. Dogecoin also uses cryptocurrency mining.

However, Ethereum will soon move to a proof-of-stake system with Ethereum 2.0. Ethereum co-founder Vitalik Buterin also recently suggested that Dogecoin should also move to proof-of-stake. The merger date has already been announced with users anticipating changes in ethereum gas prices after the merger.

The likes of BNB, Solana, Cardano and Polkadot are also among the biggest cryptocurrencies using staking to protect their networks.

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