Mining vs staking these two are the most common methods of validating transactions and securing the blockchain, but there are some things that actually differentiate between these two. We are going to go over mining, staking, proof of work and proof of stake, and what the difference are between them. If you are new to cryptocurrency or have some experience already Mining and staking are two terms you may have already heard of.
Mining vs Staking
The two most popular techniques for validating transactions and protecting the blockchain are mining and staking, but there are some key differences between the two. The major difference is that mining uses what we call proof of work and staking uses what we call proof of stake. To achieve validation the end game for people who participate in any of these is to secure the network and get rewards.
To make it simple mining is the word a miner puts into the system so that he can be the first to create the next block and ultimately be rewarded. This uses the proof-of-work mechanism. This work involves solving complex mathematical problems with Italian supercomputers and power. Verify and validate transactions on the blockchain which helps prevent hijacking, and fraud and ultimately secure the network.
Staking
Staking, on the other hand, has the same objectives as mining but here cryptocurrency holders take a portion of the coins they hold put them in a wallet, and lock them up for a particular period of time to then receive rewards for doing so. It could last for hours, days, months, or even years. However, these coins cannot be accessed by the users until the lockup period is reached, depending on the time of stake the amount staked, and a random selection procedure. A validator among these users will be selected to carry out validation.
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Here users don’t have to solve any complex mathematical problems. To fully understand Crypto Mining vs staking we first need to understand what proof of fork and proof of stake is.
Proof of work
So the main point about blockchain is that it is decentralized and has to be kept that way, which means no one person or government can decide what happened to the network or the transactions on the network. I explained this in this Blockchain article.
Crypto Mining vs Staking: With proof of work, miners compete with others to be the next to write the new blocks of transactions by solving complex mathematical equations called a hash. Just understand that as the network keeps growing so does the complexity in the equations which results in more hash power needed to solve these equations. However when the user is the first to solve these complex equations they are eligible for two things.
The first is the completion to write the next block on the blockchain and the second is being rewarded with coins that the user can either hold, sell or trade in the crypto Market. If you are the first to get the answer right it doesn’t matter if you guessed it or worked it out you’ll get rewarded. The answer you provided to the equation is the proof that you actually did the work and then ultimately you’re rewarded. This can be time and energy-consuming.
The amount of electricity used here is enormous and you need a very high-end supercomputer to come to this level. It can become very expensive inefficient and sometimes not even worth it. What if there was a better way of validating these transactions without having to use so much computing power and electricity that’s where proof of stay comes in.
Proof of stake
Crypto Mining vs Staking: Proof of stake on the other hand does things in a completely different way compared to proof of work. With proof of work it’s a big composition between the most powerful supercomputers and Mining power to be able to come at first before the competition, but with proof of stake coin holders can easily contest to be the next validator without wasting any energy or solving complex mathematical problems. All that is needed is for you to purchase the required amount of crypto coins and lock them to stake, in order to participate in writing the next block on the blockchain. Anyone who Stakes their coin can win and this is decided by a few things. Such as how long your coins have been staked, for how many coins you state, and an added random selection function just to make things fair for all.
When you get picked if you mind correctly you get what Skoda is taking reward which is basically crypto coins and if you mine incorrectly you actually get penalized and You let go of a portion of the coin you initially locked up. So there is a monetary incentive for people to stake their coins versus mining.
Another cool concept about proof of stake is that everyone who sticks their coin has to keep the network in good order because if they don’t they can lose their stake. As a result, maintaining a healthy network is really much less expensive because less processing power is being used to solve equations that are no longer relevant.
Examples of Proof of work and proof of stake
Crypto Mining vs Staking, An example to give you a clear understanding of proof of work and proof of stake. So picture this in your head, there are five people competing to get an award the task is to carry 10 heavyweights from the starting line to the finish line, and the first person to do so gets the award. So after five minutes, we have a winner that person was the first to carry the 10 heavyweights to the finish line. Now although the remaining four people eventually carry their heavyweights to the Finish Line they don’t win the award only the first person does. The worst is they don’t even get anything from the work that they put in. Hence wasting time, energy, and resources. This is one major difference between proof of work and proof of stake which is the mechanisms taking and Mining operate on.
How to do staking?
Platforms like Binance and Coinbase have made it very easy for users to stake their coins. They do all the back-end stuff and hence making staking simple and straightforward to do. What we actually do while staking on platforms like Binance is simply joining a staking pool. We just join together with others to stake our coins and Binance gets a fraction or percentage of the overall rewards for doing all the heavy lifting.
Differences between Mining and Staking
Crypto Mining vs Staking, Mining requires the use of supercomputers, electricity, and time, which ultimately has an impact on the environment and incurs a lot of costs and lost resources.
Staking on the other hand does not. It is cheaper and does have a smaller impact on the environment compared to mining. Miners usually get more rewards when compared to Stakers, but after looking at the costs of running a mine cause of electricity and computers staking seems to be a better option.
Related:How does Crypto Mining work? | Cryptocurrency Mining Guide
Staking Risks
Crypto Mining vs Staking, Staking also has its own risks too. The first is the lockup State since you need to lock up your coins for your specified period of time without access. It means that even by Chance the coin you stake seems to be dropping in value, or increasing due to some events you won’t be able to liquidate your coins as you cannot withdraw them until the lockup period is over, or if they have the option to end the stake early you can get penalized the percentage of the coins that are staked with though earlier. Otherwise, you just sit there and watch the value of your coins fluctuate.
The other is the reward duration. So depending on the network that you choose it could take minutes, days, and sometimes even weeks to see the payouts of your staking position. This is why it’s crucial to see the network’s reward payout time. If it’s if it takes a longer time for your rewards to come to you then that’s another thing that you should consider.
