What are the differences between crypto staking and crypto mining? Crypto mining and staking are completely different terms though both these phenomena are related to adding more coins to the crypto portfolio.
If you have no idea about these differences, here in this article you will find some of the major ones that will make you more educated and informed about cryptocurrencies.
Crypto mining typically is a process where a person mines or creates new coins. This is ideally done by solving some complex mathematical equations and sharing computational resources. In return, these users receive a small number of crypto coins as rewards for their contributions.
In comparison, crypto staking is the process where a user typically becomes a validator by staking the coins. One who has staked the highest number of crypto coins typically becomes a validator.
However, there is more to it apart from the basic literal differences between these two terms. Check out Differences Between Crypto Jacking and Crypto Mining.
6 Differences Between Crypto Staking and Crypto Mining
Ideally, in the crypto world, most of the people involved in it are aware of crypto mining as well as its requirements.
However, most people fail to understand the benefits crypto staking has to offer.
Both these options of making more crypto coins, crypto staking and crypto mining, just like everything else that exists in this world, come with their significant vices and virtues.
This article will talk about the good and bad things along with the differences between crypto staking and mining in the crypto industry. Here they are.
When you consider the advantages of crypto mining, the most significant benefit of it is that the users have the liberty to freeze their resources which gives them an unlimited power over their speculation constantly.
Also, cryptocurrencies work on complex and advanced technology which does not leave anything to chance for data fraud with which users can fake currencies.
The expenses related to it are also quite low. Based on complex blockchain, it is also quite impossible for anyone to access the RFID data of the miners. Most importantly, making settlements and closing an arrangement are both made quickly.
In comparison, the advantage of crypto staking is that you do not need to make a huge investment as you would need to make on mining rigs and electricity costs.
The return on investment is also notably higher than crypto mining considering the costs, effort, and time involved. The number of coins will increase if everything goes well and the speculations are made perfectly.
Most importantly, you do not need to have a large number of crypto coins in your wallet to stake, depending on the requirements of the specific crypto exchange you choose.
And, the most significant benefit of crypto staking is that you do not need to have exceptional technological and hardware knowledge for it as you would need for crypto mining.
Just as anything else, crypto mining also comes with a few specific disadvantages that are different from the demerits of crypto staking. Not all types of crypto coins will provide the same kind of return on your investment.
With some specific crypto coins you may have to encounter a few specific deficiencies that may not allow you to speculate correctly and know how exactly you can mine cryptographic money. The cost of buying your mining rig and electricity is also high which you should also consider.
On the other hand, in crypto staking there is quite a high chance of losing all your money if your trading strategy is not correct and you do not know about the risks involved and how exactly you can overcome those.
However, the most significant disadvantage of crypto staking is that you will have to lock your crypto coins up for a specific period of time. This means that, you will not be able to sell it even if you want to do it badly within that time period and wait till the lock-in time expires.
In crypto staking, you will need to use PoS or the Proof of Stake algorithm. This is the basic requirement for staking most of the new crypto coins. The entire process involves purchasing the crypto coins and holding them in your digital wallet.
It will be locked for a particular period of time which is almost like a fixed deposit made with a traditional bank on which you earn interest at a predetermined rate at the end of the time period of the deposit or at its maturity.
In crypto staking, Proof of Stake is the algorithm that rewards you with extra crypto coins because you have supported the network by holding your coins in the digital wallet. The number of coins offered as a reward will however depend on the time period you hold the coins in your digital wallet.
As for crypto mining, it requires a fair bit of technical knowledge. This is in addition to huge computational power. Both are required to solve the complex mathematical equations and algorithmic puzzles that are typically associated with blockchain technology on which the network works. However, there is the possibility of mining solo or joining a pool to make mining easier and more effective.
4. Use of Algorithm
In the mining process you ideally create new coins and then release them into the public ledger or the blockchain. All the rewards you get from mining and contributing to the computational power of the network are in the form of either new coins or in transaction fees. Here, the Proof of Work or PoW algorithm is used almost for all types of crypto coins you wish to mine and create new blocks.
On the other hand, crypto staking is quite a different process that uses the newer and perhaps the better, Proof of Stake or PoS algorithm. With this mechanism used for almost all types of crypto coins now, crypto staking could become the mining of the future.
5. The safety aspect
Crypto mining is less vulnerable to attacks. This is due to the Proof of Work mechanism ideally that makes the users expand energy while solving the cryptographic puzzles. The first one that does so get to broadcast it to the other users involved in the network.
Since everything happens within the blockchain and the work is validated in it, it prevents the malicious users from spending their time and effort in solving these puzzles and broadcasting the malicious content. This is because all these make the entire system just too expensive to attack.
On the other hand, crypto staking is also less prone to attacks but not as low as crypto mining. The Proof of Stake algorithm also makes the system quite expensive but it solves this issue in a completely different way.
In this process, the users who want to take part in it usually have to put up some of the crypto coins they hold in their wallet as collateral for a certain period of time. This proves that they are good actors.
The larger the collateral put up, the more opportunity the user gets to broadcast the information to others. This also makes them less likely to spread malicious content because when done and if caught, their collateral is taken away from them which makes attacking the system quite expensive.
6. Initial Costs
In crypto mining, the initial costs involved are huge. As said earlier, you will have to spend a lot of money to buy a CPU or GPU intensive computer or one of those specialized ASIC supercomputers that are designed for crypto mining. Apart from that, you will also need to spend a lot of money on powerful and efficient cooling systems and electricity.
Crypto staking, on the other hand, also needs some upfront cost but that is minuscule in comparison to the investment cost of crypto mining. This money is required to buy crypto coins you wish to hold or stake, if you do not have some already in your wallet.
You will also have to pay some fees and, depending on the trading policy of the platform, you may also have to make a minimum deposit for staking some specific types of crypto coins.
Which is Better – Crypto Staking or Mining?
There are three ways in which you can get crypto coins: either you buy them, or you mine them, or you stake them, unless of course someone who is very kind gives you a few coins from his or her share!
When it comes to choosing between crypto mining and staking, the concept and debate between old versus new always play and has played a significant role since time immemorial.
Few people favor sticking to the origins, being loyal to it, while others try out something new every day.
With cryptocurrencies being more than a decade old, it is quite natural that you will see such disputes among the users.
Though it largely depends on your preference, a few interesting facts may influence your decision as to which among crypto staking or crypto mining should you go for to earn some more crypto coins.
Since everything is about money, the reward rates play a significant role in your choice between crypto staking and crypto mining. Ideally, the reward rate of crypto mining is considerably low in terms of the huge investment it needs.
However, the rates of crypto staking rewards are quite higher. In fact, the reward rate in crypto staking is actually calculated on the basis of the duration you hold or lock the crypto coins in your wallet.
This mechanism remains the same irrespective of the different rules and rates each crypto coin may have.
This means that the rewards on crypto staking, as said earlier, will be higher if you hold the coins in your wallet for a longer period of time.
Your income will increase considerably while crypto coins mining as you continue solving complex mathematical problems and validating blockchain transactions.
This is because you will be rewarded for it every time you do so and find the right combination. And, these rewards are safe because crypto mining hardware and computers are not vulnerable to attacks and access to your account due to their more computational power and high cost involved.
However, if you are okay with the high cost involved in mining cryptocurrencies and if you live in a region where electric supply is abundant, if not cheap, you can go for crypto mining.
Moreover, you should also be ready to face a lot of competition because there are large crypto mining farms out there.
Also, more and more people will be taking part in crypto mining in the future which will reduce the return rate of it, which is already low in comparison to crypto staking.
On the other hand, if you are concerned about global pollution and electricity consumption that is resulting in a significant and drastic climate change, crypto mining is not for you.
In such a situation, it is best to go for crypto staking where all you have to do is lock your crypto coins for a specific time period.
The profit is more than crypto mining and will be even further if you hold your coin in the wallet for a longer period of time.
Crypto staking is cheap and easy and is quite favored among the users because you do not have to wait for a long period to get the returns as you need to in crypto mining.
In fact, rewards in crypto staking are distributed every day. It is also quite safe because a malicious actor will have to own at least 51% of the total amount of crypto coins staked in order to hack your account.
Crypto staking is also quite environmentally friendly since it does not use a lot of electrical energy for the process.
The entire process is limited to your computer and therefore it is pretty much similar to any other online activity.
Apart from that, there are lots of digital wallets available online and on mobile that reduce the consumption of energy further.
A lot of people also favor crypto staking because the rewards offered largely depend on the total amount of crypto coins you stake in the pool.
This means that the more the users, the better it is. Especially, the new generations flock to the crypto staking platforms since they prefer more convenient and eco-friendly solutions.
However, if you are okay with the fact that the value of the coins may decrease within the time you lock your coins up due to the bearish move in the market, crypto staking is quite good and a rewarding option.
Also, you should be ready to pay some fees to the platform. Therefore, crypto staking is quite risky but that is what dealing with volatile currencies is all about.
Therefore, you are the one who can say which among crypto mining and crypto staking wins. Ideally, you should choose one depending on your expectations and desires, your financial ability, risk tolerance and patience.
Ideally, crypto mining is good for those who have enough money, hardware and electrical resources, and crypto staking is good for those people who have a huge reserve of crypto coins in their wallets.
Just make sure that the operating cost of mining does not exceed the anticipated profits.
In simple words, both these two protocols validate crypto transactions and add new blocks to the blockchain but in different ways.
Both these options are profitable and it is simply a matter of choosing one that is most feasible for you.
Now, you can always go for both crypto mining as well as crypto staking since there are no rules to hold you back.
In fact, the amount of money that you will save and earn in crypto staking due to the more effective PoS strategy can be spent for buying mining hardware if you do not want to invest some more money by purchasing some high stake crypto coins from a crypto exchange.
You can choose to stake or mine crypto coins according to your preference and the benefits these investments offer. However, to have a prosperous future knowing the difference between the two is vital, which is what this article is for.