Crypto mining and staking are two different ways for a blockchain network to achieve consensus. They use different means to achieve a similar end. While mining uses an algorithm called proof-of-work (PoW), staking uses an algorithm called proof-of-stake (PoS).
Crypto mining and crypto staking are also ways for individuals to participate in a crypto network’s consensus. Staking involves locking up tokens for a fixed period, while mining requires running specialized hardware.
Here, we’ll define mining vs. staking, discuss the basics of each consensus method, and look at some of staking and mining’s positive and negative attributes.
Crypto Staking vs Mining: Similarities and Differences
There are both similarities and differences between crypto staking and mining. Let’s take a deeper look at both.
Both staking and mining provide a way for a network’s nodes to agree on which transactions are valid. In both cases, miners or validators have a chance to win the next block reward of newly minted coins. Users can also participate in a network’s consensus through either mining or staking.
While mining uses special hardware to solve complex computational problems, staking locks up crypto for a fixed period. PoW is energy intensive, whereas PoS requires less energy. PoW relies on a high hash rate to secure a network, whereas PoS relies on a large amount of tokens (money) — a high level of market capitalization.
|Crypto Mining vs Staking Similarities||Crypto Mining vs Staking Differences|
|Achieves consensus for a blockchain||PoW requires hardware; PoS requires crypto|
|Gives participants a chance to earn newly minted coins||PoW uses a lot of energy; PoS uses much less energy|
|Allows users to participate in the consensus process||PoW relies on hash rate for security; PoS on market cap|
Up to $100 in bitcoin2 – just for you.
With 30 coins available, our app offers a secure way to trade crypto 24/7.
Minable Coin Examples
Proof-of-work coins offer miners newly minted tokens as a reward for helping to solve the computational problems involved in processing a block of transactions. Some popular PoW cryptocurrencies include:
• Bitcoin (BTC)
• Bitcoin Cash (BCH)
• Litecoin (LTC)
• Dogecoin (DOGE)
• Monero (XMR)
• Zcash (ZEC)
Note that different PoW coins can use different mining algorithms. While Bitcoin uses SHA-256, Litecoin and Dogecoin use Scrypt, for example. Moreover, to mine a specific coin, the hardware — be it ASICs or GPUs — must be compatible with the type of algorithm used to mine that coin.
Stakeable Coin Examples
The native tokens of PoS blockchains let users lock up their tokens on the platform in exchange for a reward of newly minted tokens. Some popular PoS cryptocurrencies include:
• Solana (SOL)
• Cosmos (ATOM)
• Cronos (CRO)
• Cardano (ADA)
• Avalanche (AVAX)
• Polkadot (DOT)
Becoming a validator often requires a large sum of tokens, along with keeping a computer up and running constantly. Validators can receive a penalty for not having 24/7 uptime, and starting your own validator node can come with a hefty price tag.
Deciding Which Mining Method Is Best for You
Making a decision about crypto staking vs. mining comes down to a few important things. Those interested in participating in the mining or staking process might want to ask themselves questions like:
• How much time and money do I want to devote?
• What is my level of technical expertise with crypto and computers?
• Which network do I want to support?
• Do I want to become my own miner/validator, or have someone else do the heavy lifting?
Those with technical knowledge who want to handle things themselves could consider mining an appealing option. Or, those looking to invest less time and money might simply choose to stake some tokens on an exchange. The potential profit you can fetch from staking vs. mining varies according to how much an individual is willing to invest upfront, as well as the market price of the token involved.
Invest in Crypto With SoFi
Looking for an easy way to invest in different types of cryptocurrencies?
On SoFi Invest, investors can trade cryptocurrencies with as little as $10. New SoFi members who buy at least $50 worth of crypto in the first seven days are eligible for a bonus of up to $100 in bitcoin. See full terms at sofi.com/crypto.
Cryptocurrencies like Bitcoin, Ethereum, Dogecoin, Litecoin, and Cardano can be traded 24/7. Plus, SoFi takes security seriously and uses state-of-the-art security solutions to keep investors’ crypto holdings secure. Sign up for a SoFi Invest account today to buy crypto and start participating in the markets of your choice.
Is crypto staking more profitable than crypto mining?
The potential profit of crypto staking vs. mining profit depends on a few things. Staking could be more profitable for the average user because the only thing required is money. Mining requires special hardware, access to cheap electricity, and some technical knowledge.
The value of the coin in question is also important. Users could mine a lot of coins or have a lot of coins staked, but if the coin’s value falls against their local fiat currency, they could still realize losses.
Then there are the barriers to entry. Many exchanges allow users to stake any amount of proof-of-stake (PoS) tokens and earn a small yield. Mining, on the other hand, requires buying the necessary hardware and learning how to use it.
Is staking the same thing as cloud mining?
No. Staking involves locking up tokens on a PoS platform in exchange for a share of the network’s next block reward. Cloud mining involves purchasing a contract from a company that handles the proof-of-work (PoW) mining on behalf of a user and pays them a share of the mining rewards. These two things might look similar based on the fact that in both cases, users simply put up a certain sum of money and earn income over time. But, on the backend, they are two entirely different processes.
What are the advantages of mining vs buying cryptocurrency?
Mining cryptocurrency helps support a given cryptocurrency’s platform, provides miners with more anonymous coins, and could be profitable if the coin’s price rises in the future. Because mined coins aren’t purchased on an exchange, they could be held more anonymously than usual.
Every PoW network needs miners to survive, so being involved in mining aids the network of a miner’s choice. And if done at the correct time, mining coins while they are cheap and the difficulty is low could be profitable if miners hold onto their coins and prices rise. Electricity and hardware costs still must be taken into account, however.
Photo credit: iStock/nortonrsx
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.
First Trade Amount