There has been some discussion of late about the ways you can gain cryptocurrency. There is simply trading coins, much as you would expect, much like traditional stocks, but there are also ways to “work” to gain crypto. There are two established ways to gain cryptocurrency without buying it – if you were a Binance user, one way to take advantage of the healthy Binance USD price would be to mine, whereas if you were an Ethereum enthusiast, you are encouraged to stake. There are benefits and drawbacks to each of them, which we will delve into. If you’re interested in obtaining cryptocurrency without trading, take a look at the details of the two methods to determine how you should proceed.

What is mining?

The purpose of both of these methods of work is to gain a reward for validating transactions and adding blocks to the blockchain. This allows cryptocurrency to maintain a self-fulfilled system that doesn’t go through a centralized bank.

Mining, or proof-of-work, is the original mechanism that allows workers or “miners” to “mine” for cryptocurrency. The concept uses specialised computer hardware to solve complex math puzzles, which validates the transactions coming in and adds new blocks to the blockchain. The transaction fees and block rewards are your reward for doing the work.

What is staking?

Staking, or proof-of-stake is a newer form of this system, repurposed to be more efficient and use less hardware. Rather than solving complex data, you keep some of your own crypto coins locked in an e-wallet to secure your network, and they are then used to validate transactions and add blocks to the blockchain. You are rewarded for a successful transaction with cryptocurrency which typically amounts to a fixed percentage of your staked coins.

What are the differences between staking and mining?

The differences in the process start with the core concept. The main difference between staking and mining is the basics of the method. Staking switches the concept from providing computing power to process transactions to holding coins to process transactions in order to earn rewards. Mining takes more power in solving cryptographic puzzles with dedicated hardware like ASICs, GPUs, etc.

Mining is a much more involved process, which is why it has been updated to staking and embraced by Ethereum and other coins, however, there are reasons that Bitcoin, for example, hasn’t taken it up.

The cons of mining include:

–          The high upfront costs due to the specialized hardware such as high-powered GPUs or ASIC miners which can be expensive. This creates a high barrier to entry for average users.

–          The energy consumption is a particular stickler as the activism to save the planet continues. Crypto mining uses large amounts of electricity to power energy-intensive computer systems. Not only does this harm the planet, but it incurs high energy bills for miners, eating into their profits.

–          The high amounts of power mining rigs needed generate a lot of heat and require proper cooling systems. Equipment is therefore easy to wear out or break down over time requiring repair and replacement costs.

–          Not only is energy consumption a problem but noise pollution. The fans and machines used in mining create a lot of noise pollution which may be disruptive for residential miners.

–          Revenues depend heavily on crypto prices which are highly volatile. Declining prices can wipe out profits or make mining unviable if costs exceed revenue.

The cons of staking include:

–          You take more risk since staking with third parties means less control of your coins. This opens the door to risks like hacks, theft, or loss of assets. You also have coins locked up for a set time period before they can be spent or sold.

–          Some proof-of-stake networks punish validators by slashing a portion of their stake for things like going offline, double staking etc.

–          Staking isn’t without its hardware requirements, which are less than mining but still substantial. They also need to be regularly maintained and cause pollution, but at a lower level.

–          Staking rewards are often fixed percentage returns, while successful mining can provide outsized rewards at times.

However, the pros of staking far outweigh the cons. For one thing, the process is entirely simpler with greater returns. Staking only takes an e-wallet, while mining involves maintaining a lot of complex and power-consumptive hardware rigs. This, in turn, makes for a lower barrier for entry, wherein you can start staking even with a small number of crypto coins. Mining also takes expertise that isn’t necessary with staking.

Without all that hardware, the impact on the planet and your profits is lessened, which was the primary reason reported that Ethereum chose to switch to staking rather than mining.

Additionally, staking allows more users to participate in validating transactions, rather than concentrating power in a few large mining pools, which improves decentralisation. With decentralisation as the main selling point of cryptocurrency, this is an important point in the discussion about what makes the better model.

Conclusion

The differences between mining and staking are that staking is a more updated and simplified version of mining. It doesn’t quite erase, but it definitely lessens some of the issues brought forward by people about mining when cryptocurrency was really becoming mainstream.