> Blog > Staking vs. Mining Crypto

Published September 20, 2022

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The crypto world is an ever-evolving ecosystem full of risks and rewards. For many newcomers to the space, however, there’s a lot of terminology which can cause confusion. Terms like mining and staking can seem perplexing, but thankfully, neither concept is beyond comprehension. When comparing staking vs. mining, it’s clear that both offer unique opportunities for cryptocurrency investors to make a profit. However, how that profit is made in completely different ways.   

What is Staking? 

digital representation of the process of staking from beginning with tokens to verifying transactions to receiving rewards

Staking is an investment strategy that involves putting your cryptocurrency up as collateral for a period of time, in return for a future reward payout. In other words, you lock your crypto (or “stake” it) on a blockchain network for rewards. The more crypto you stake and the longer you keep them locked, the higher reward you receive. 

Blockchains that offer staking use a proof-of-stake (PoS) consensus mechanism for validating blocks on the blockchain. This means that stakeholders act as validators for the network to verify and process transactions. Doing so gives stakers a chance to be selected (and rewarded) to add the next new block to the blockchain. This is why the amount you stake and the time you stake it for is so important: the more crypto you have staked, and the longer it’s staked for, the more chances you have of being chosen and rewarded. 

Solana (SOL), Cardano (ADA), and Avalanche (AVAX) are some examples of the most popular proof-of-stake blockchains on the market.

What is Mining? 

digital representation of the mining process from the miner beginning to generating new blocks to getting tokens

Unlike staking, blockchains that mine crypto utilize a proof-of-work (PoW) consensus mechanism to achieve consensus on the blockchain. Miners compete with each other to solve complicated equations to verify transactions on the blockchain. The first miner to succeed gets to add the new block and is rewarded for it in freshly mined crypto. Bitcoin, the first and most popular cryptocurrency in the world, uses miners to verify transactions. 

Whereas stakers rely on staking amounts and time, miners rely on computational power. The equations miners must solve for each block must be inherently difficult and costly to solve, otherwise it would be easy for hackers to manipulate or breach the network. While it does make the blockchain secure, it also requires significant amounts of energy to run. The energy costs are usually enough to make the process not worthwhile for smaller players looking to mine at home. However, though many miners still rely on traditional fossil fuels to power their operation, miners are increasingly gravitating towards more renewable energy sources, like solar panels, hydroelectric dams, and even volcanoes, as this technology becomes cheaper and more accessible. 

Pros and Cons of Mining vs. Staking Crypto 

There is no doubt that mining offers a larger reward for successful transactions. Bitcoin miners can earn 6.25 BTC for successfully verifying a block – however, that amount is cut in half every four years as part of Bitcoin’s supply issuance schedule. So, in 2024, only 3.125 BTC will be rewarded for successful block verification. While this reward is significantly higher for mining vs. staking, the odds of solving a block are infinitesimal for solo miners with limited rigs.  

However, despite the rewards for mining, this comes at the cost of a much more expensive and energy-consuming process. 

Staking instead of mining, on the other hand, is much cheaper and cost-efficient. It uses much less energy consumption to confirm transactions with proof-of-stake because there are no complex equations to solve. 

Not only are the energy costs lower, but so is the financial barrier to get started. While Proof of Work requires a fleet of high processing computers and expensive application-specific integrated circuits (ASICs), while all you need with staking is a connection to the internet and ownership of the coin you wish to stake. That’s it! 

While staking has numerous advantages over mining, it is not free of its own risks. Most notably, because of the cheaper and less resource-intensive requirements for staking, this places more security risk on the blockchain. The cheaper a blockchain is to attack, the more incentive there is to do so. While larger proof-of-stake blockchains have grown robust enough to avoid attacks, smaller networks operating on proof-of-stake consensus mechanisms have had countless problems with hacks, resulting in the loss of user funds. 

Another major risk when staking is that staked coins are subject to volatility. If your coins are staked and the market drops, you may see losses in the value of your staked coins that negate the rewards you have received. This is because you cannot simply sell your staked coins when the going gets rough: they are locked for the period you agreed to.  

Which Option is Best for You? 

While each option has their own tradeoffs, it’s up to your own goals and resources to determine which option is a better fit for you. Mining can offer much greater rewards, but the cost to entry is also much higher. On the other hand, staking doesn’t offer the same potential for reward, but it’s easier and more accessible to be a part of for the average trader.  

It’s also important to consider the network that you want to uphold. Some may prefer to mine crypto as a means of verifying and securing a specific proof-of-work network that they like, whereas others may want to support a proof-of-stake network through staking. 

Mining and Staking in Crypto 

Whether you’re a new trader or a seasoned investment pro, knowing how mining and staking works can help you make the most out of your crypto investments.   

If you are looking for a place to trade your crypto, then FTX might be the perfect choice. Not only does it have low fees and quick trades but also offers many other perks like free withdrawals for those that stake the FTT token! 

Additionally, a percentage of the trading fee from each trade on FTX is contributed to investments in humanitarian-focused projects as part of the exchange’s mission of effective altruism. To support FTX’s initiative, consider joining the FTT DAO

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