Staking vs. Mining Comparison

Key Takeaways:

• Crypto staking and mining are processes that generate passive crypto rewards, however, staking differs largely because minimal capital is required to get started.
• Capital costs aside, mining crypto is generally more lucrative where staking is dependent on the number of crypto being staked and people.
• Depending on the circumstances, crypto staking can be seen as a riskier venture as there are several risks with staking to consider.

Staking and mining refer to the process of earning cryptocurrencies by contributing to the blockchain ecosystem. The benefit of staking is there is generally no up-front capital required to get started, and the entry barrier is much lower in terms of knowledge. On the other hand, mining crypto requires specific hardware to calculate complex mathematical calculations to validate transactions. The rewards vary on the cryptocurrency and depending on the hardware contribution, are distributed to the miners as rewards.

Which is better? Staking crypto is the better option for beginners to earn passive rewards compared to mining. Users can get started immediately using a crypto staking provider that does not require any technical experience, and there are zero upfront costs or ongoing expenses to maintain the mining rig. Cryptocurrency mining is geared toward experienced investors that are committed to contributing to a particular coin. Find out how to stake crypto and start mining in these articles.

What is Staking?

Staking cryptocurrencies is the process of delegating a set number of tokens to an ecosystem in return for earning rewards. These rewards can be Annual Percentage Yields (APY) or Annual Percentage Returns (APY). Different exchanges and blockchains have another mechanism for staking.

In staking, the user holds a set number of tokens to a blockchain that then leverages those staked tokens to perform operations. Developed to manage the Proof of Staking Consensus Mechanism, staking leverages the staked tokens to verify and secure all the transactions with the blockchain.

At the time of writing, there is 245 Proof of Stake cryptocurrencies with a collective market capitalization of $230.74 billion. Some of the best staking coins include Ethereum (After the Merge Upgrade), Binance Coin, Cardano, Polkadot, Avalanche, Cosmos, Toncoin, Near Protocol and Algorand.

What is Cryptocurrency Mining?

Mining is creating new cryptocurrencies by solving mathematical problems to verify crypto transactions using specific computing hardware. Crypto mining was the first mode of earning cryptocurrencies in the market that started with Bitcoin. So far, 19.512 million Bitcoins have been mined. Mining is done according to the Proof of Work (PoW) mechanism in which the individual or institution operating the node is rewarded with crypto assets for their mining contribution.

There are 312 PoW crypto assets that hold a market capitalization of $346.93 billion at the time of writing. Some of the best cryptos to mine include Bitcoin, Dogecoin, Litecoin, Ethereum Classic, Monero, Bitcoin Cash, Bitcoin SV, ZCash, and Dash.

What are the Differences Between Staking and Mining?

The major differences between staking and mining are shown in the table below.

Criteria	Staking	Mining
Easy of Use	Crypto stalking only involves holding a cryptocurrency in an exchange or in the staking pool and rewards are generated on a regular basis	Crypto mining involves running a node in the blockchain to verify the transactions and mine coins
Costs	Staking is far less costly. The cost of staking depends on the blockchain, the cryptocurrency exchange, and the crypto asset to be staked. That said, staking directly on the blockchain can be costly. Ethereum staking, for instance, requires 32ETH, which is in addition to to running and maintaining a node	Mining is extremely costly – especially for those who want to make significant gains through mining. And once the mining process initiates, the cost rises as high as $0.05 per kilowatt hour.
Fairness of rewards	Staking rewards are comparatively fair as compared to mining, The rewards depend upon the number of crypto assets staked, and people	Mining rewards depend on the quality of the mining rig, which is why many individual miners face issues since they can’t compete with institutional miners
Network security	Staking depends on a high number of tokens to secure the network	Proof of Work relies on hash rate to secure the network
Decentralization	Staking is considered much less decentralized than mining since it involves locking the assets. That is, one with the most assets locked will have the most power over the decisions made in the blockchain. It also encroaches upon the security of the POS network	Mining is more decentralized as compared to staking. It is because it requires more computers in the network to verify the transaction, as compared to POS, where the decisions can be altered based on the node with the most number of tokens staked

What are the Similarities Between Staking and Mining?

While the difference between mining and staking is more pronounced, the following factors account for similarities between the two processes.

• Earn rewards. The purpose of mining and staking is the same. That is, to earn passive rewards using some form of investment. With staking, users earn interest based on the number of cryptocurrencies staked. With mining, miners earn based on the degree of contribution performed.
• Requires a node. There are two types of staking techniques. One is a validator, and another is a delegator. A validator is responsible for staking their assets and running a blockchain node to verify the transactions and secure the network. Similarly, mining also involves running the node. In essence, both cases involve the agreement of involving nodes to validate a transaction.
• Profit depends on investment. For investors, the ultimate objective of staking and mining is to generate profits. Increased investment in both staking and mining can lead to potentially bigger profits. The number of tokens locked in staking platforms of liquidity protocols will lead to higher rewards. Similarly, using better mining equipment will solve more mathematical equations and get a bigger share of the mined crypto asset.

Staking vs. Mining Compared

Is staking or mining more profitable?

Staking is considered to be more profitable than mining since the former only involves buying and staking cryptocurrency assets. On the other hand, mining involves heavy hardware and high electricity bills that add overhead and harm the profit margins. The hardware to build an ASIC rig or GPU miner is upfront before any profit can be earned. In addition, the amount earned from staking is a lot higher initially, given how long it can take to mine 1 Bitcoin. Over the long term, assuming the mined cryptocurrency increases in value, it could potentially make a lot of profit.

Is staking or mining riskier?

In certain circumstances, staking is considered a riskier method to earn passive income. Since a certain number of crypto assets have to be locked in the PoS blockchain to generate rewards, there is always a staking risk of losing the locked assets due to technical, or regulatory issues. Moreover, when users stake their assets on centralized platforms, there is a risk of losing those assets if the exchange faces liquidity issues. For instance, FTX has $3.1 billion worth of assets locked in its ecosystem, which might not be returned to the people.

Another factor to consider is blockchain staking in which the staker runs a validator node. There are two costs an investor must pay here. One is for locking the assets, and the second is to maintain the network. The loss of value of crypto assets under this circumstance will be more profound as compared to mining.

In contrast, mining requires the use of hardware to mint crypto assets from the blockchain. Since there is no requirement for any asset to be locked, users are not at risk of dealing with additional losses.

Does staking or mining have better long term value?

The second factor to consider is the value of the token. Since cryptocurrencies are speculative assets, both mining and staking get affected by them. However, a lower market value of crypto would cause more loss in mining when the resources and other overheads are considered. With staking, users would only incur loss under bearish market conditions based on the value of tokens, not the other assets involved in the process.

Frequently Asked Questions

Conclusion

Staking and mining are both suitable ways to earn cryptocurrency. The difference lies between the expertise required, the costs involved, and the risk tolerance of the investor. Staking is easy and more inclusive. Staking on cryptocurrency exchanges only requires users to lock their assets, and in return, they earn interest. The profits made are low, but they are continuous. However, staking on a PoS blockchain that often requires running the validator node has additional hardware requirements to run that node. In these circumstances, small gains might not be enough to offset the cost.

In mining’s case, however, the only focus is on running the hardware and earning crypto. There is no requirement for locking the asset, it is more decentralized and there are Bitcoin mining pools to collate resources. However, environmental concerns are shifting people away from minting. Add to that, government regulations against standard proof of mining strategies are also becoming prevalent.