To better understand the difference between staking vs mining, we must first learn the origins of each, and how they came to be.
The Birth Of Crypto Mining
First there was Bitcoin, a beacon of hope in a world ravaged by financial turmoil and the 2008 market crash. And with it, appeared a brand new and exciting concept called the “Blockchain”, a seemingly magical way for parties to facilitate transactions over the internet with no middle-man.
Behind this new invention lay the heart and soul of the blockchain – the “Proof Of Work” mechanism, which allows the blockchain to operate and reach consensus.
With Proof Of Work, incentive to secure and validate the blockchain was created by rewarding computers that solve a complex computational math problems (hence “work”) with newly minted coins. This process was dubbed “Crypto Mining”.
Crypto Mining: An (Almost) Perfect Solution To The Consensus Problem
Mining crypto was working well. Actually, it was working so well that it continues to power some of the crypto market’s top assets to this day. Bitcoin, any many other popular crypto assets continue and will likely continue using the PoW method well into the foreseeable future.
It was working so well, that mining was moving away from hobbyists and into the realm of enterprise level players. “Mining Farms” were starting to pop up in locations all over the world. Some locations were so massive and had so many machines that were doing PoW mining that they rivalled the energy consumption of small towns.
The Problem With Mining: It Consumes A Sh*t Ton Of Energy
As the difficulty of solving the Proof-Of-Work equations was growing more significant, the crypto mining hardware required to achieve the same results was becoming much more expensive and less energy efficient.
And so just 3 short years after the invention of Bitcoin and the Proof-Of-Work mechanism, a new concept called ‘Proof Of Stake’ has been introduced into the world in a paper by Sunny King and Scott Nadal.
The paper suggested a way to solve the problem of Bitcoin mining’s high energy consumption. Shortly thereafter, a projected called ‘Peercoin’ demonstrated the concept with a real working PoS asset.
Crypto Staking: The “Green” Solution To Bitcoin’s Biggest Problem
With Proof Of Stake (dubbed ‘staking’), the same individuals or enterprise investors no longer needed huge farms full of powerful machines. They could simply place their crypto assets (coins) in a locked, illiquid state known as crypto staking, and by doing so, agree to their staked coins being penalized in case their validator node misbehaves.
At the end of the day, both PoW and PoS mechanisms aim to achieve the same thing: Consensus, but they’re using two different approaches (working vs. staking) to do so.
While Proof Of Stake does use significantly less energy compared to Proof Of Work, sometimes up to 98% less, there are known advantages and disadvantages to both approaches other than the green energy argument.
Proof Of Stake Pros & Cons
Popular Proof Of Stake Coins: Ethereum 2.0 (Nicknamed ETH 2.0, also just ‘ETH’ after the merge), Cardano (ADA), Solana (SOL), Polkadot (DOT)
Pros: Extremely energy efficient, faster transactions, in most cases hardware required for staking vs mining is inexpensive (in relative terms)
Cons: Large holders (also known as ‘whales’) have more influence on the network as their stake grows exponentially, some staking protocols have a high entry barrier (such as Ethereum 2.0 with 32 minimum ETH to become an independent staker), and finally – the protocol’s economics are still somewhat unproven in the long term (however, this becomes less true as time goes by).
Crypto Mining Pros & Cons
Popular Proof Of Work Coins: Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), Monero (XMR)
Pros: Generally considered to be more decentralized, energy consumption pushes innovation and outside-of-the-box thinking on lowering costs, generally considered safer due to a longer track record (hey, this is how everything started!)
Cons: Requires powerful hardware (CPU / GPU depending on which coin you are mining), not environmentally friendly due to massive amounts of energy consumed, generally slower confirmation times than staking.
So.. Staking vs Mining – Which One Is Better?
The main narrative driving the rise of Proof-Of-Stake blockchains in recent years is being the new and ‘green’ solution in a world that is waking up to climate change.
It seems like so far, that narrative has been gaining ground, despite counter arguments from PoW believers led by Bitcoin maximalists such as Michael Saylor and others.
In the upcoming years, with the launch of Ethereum 2.0, the answer to this question might become clearer if the protocol manages to perform as expected and create a stable and sustainable blockchain economy.
