Mining & Staking on Cryptocurrency
Crypto Mining Vs Staking: What’s The Difference?
What separates these consensus mechanisms?
With the Ethereum 2.0 release date drawing closer which will eventually move the network over to Ethereum staking, the contest of crypto mining vs staking is more relevant than ever.
Ethereum merge date being closer than ever has got investors speculating about the dramatic impact on Ethereum’s functioning as a whole and how the Ethereum staking mechanism will work under the PoS consensus.
It is now important to discuss the difference between crypto mining and staking and their impacts on a grand scale.
Mining and staking are the two most common methods for validating transactions and securing the blockchain, but what separates the two?
Here’s a look at the main differences between mining and staking.
Crypto Mining vs Staking Differences
When it comes to mining vs staking, the differences stem from the algorithms each use to add new blocks.
Crypto mining comes from its proof-of-work mechanism. In this decentralised system, the ‘work’ is mining. Miners will compete to solve a complex puzzle for the hash, which changes depending on the difficulty of the network. This helps secure the network and stop bad actors from hijacking the network, alongside achieving consensus for the decentralised network.
Crypto staking has similar objectives to mining in terms of validating transactions and achieving consensus. Its proof-of-stake mechanism was first used as an alternative to proof-of-work.
The difference comes from the means to these ends.
Miners will use hash power in their bid to successfully mine a block, using a GPU or Intel Bitcoin mining ASIC to do so. They can also employ NVIDIA RTX 40 Series GPUs to conduct free Bitcoin mining.
In contrast, staking requires cryptocurrency holders to ‘stake’ their coins. Users will lock their coins in for a fixed period where they cannot withdraw their assets, making them illiquid. For instance, while initiating crypto.com staking, users will have to lock their crypto with the exchange to earn interest on it for the prescribed duration.
The network will then choose validators for each block, depending on a node’s size and time staked. Compared to crypto mining, this requires a significantly lower amount of energy.
Both mining and staking have various advantages and disadvantages, too. Mining remains a reputable method for successful cryptocurrencies, given its use in Ethereum and bitcoin for many years. However, the hardware requirements are often costly and energy-inefficient.
Staking makes it easier for holders to earn returns on their assets, without garnering criticism for its environmental impact. Many cryptocurrency exchanges, such as Binance or Coinbase, even let users stake directly from their platforms. Some holders, however, may feel uneasy about locking their assets into staking for a fixed period, especially in periods of volatility.
