5 Reasons Why Staking Is Better Than Mining- Start Staking Now
The Price of a single bitcoin is currently above $9000, but did you know that in 2015, seven years after Bitcoin was developed, 10,000 BTC were only worth about two large pizzas? That might seem impossible to imagine right now, but it happened during a time when Bitcoin mining was easier, and the rewards were high.
While Bitcoin is the face of decentralized finance, mining bitcoins is increasingly becoming expensive, due to the ever-rising cost of mining rigs, high electricity consumption, and mining difficulty. Similarly, developers found limitations with scalability and interoperability while trying to use the fundamentals of the Bitcoin network to sustain expanded adoption and other uses cases.
Proof-of-Stake, which involves staking, has helped developers to expand use cases of the blockchain technology with efficiency. Staking is now slowly replacing the Proof-of-Work (PoW) Bitcoin protocol (mining), while also being perceived as the future of blockchain technology.
This article will explain the basics of mining and staking as well as why more people are finding staking to be a more profitable and sustainable form of cryptocurrency investments.
Mining and Staking
What Is Mining?
Mining is the process of adding blocks to a PoW network by solving a complex mathematical puzzle to find a unique signature for a block of valid transactions. The signature is unique to every block and relates the block to all past blocks as well as all other future blocks on the chain.
In the case of Bitcoin, as miners continued to join the network to mine bitcoins and process transactions, issues such as mining costs, scalability, and interoperability started to plague both miners and developers. This is due to the high costs of electricity and hardware incurred by miners, to compete for new bitcoins on the network, on the basis of first come first served. Bitcoin mining equipment is expensive, mining difficulty has increased, and the reward keeps reducing. It’s becoming more and more difficult for miners to offset their mining costs with their mining rewards.
Developers started to explore new ways of making the mining process more sustainable as well as improve scalability and interoperability. This led to the exploration of the Proof-of-Stake protocol, which eliminates mining and replaces it with staking.
Staking
Staking involves buying and holding pre-mined crypto coins in a wallet to help a blockchain network process transactions and secure the network, and in return, earn an interest. Instead of competing, miners can be chosen depending on how many crypto coins they have staked. The higher the number of your coins, the higher your earnings will be in the form of new coins.
Additionally, PoS networks have implemented variations to the network to keep the selection process decentralize through various ways of random selection. Various blockchain projects are coming up with different ways of implementing the PoS using smart contracts, but the underlying principle is decentralized governance through ownership of a stake.
Advantages of Staking Over Mining
Staking is more efficient than mining, with pros for both the staking investors and developers.
- Staking Is Easier, And Cheaper
Staking doesn’t require the investor to be tech-savvy to know how to code or to solve complex mathematical puzzles in order to earn new coins like in mining. In staking, all you have to do is own a wallet, deposit a number of crypto coins, lock them, and wait to earn rewards. There are also extra costs incurred in buying mining rigs or paying for high electricity costs.
Whereas mining rigs need to be updated regularly as the mining difficulty increases with time, in staking, you don’t even have to have any hardware components. A hot wallet, especially one developed or recommended by the staking network, is safe enough for a beginner investor.
- Staking Rewards and Compound Rates
Staking guarantees you a reward once you commit to staking your coins. In mining, however, only the first miner to solve the block puzzle earns the transaction fees and the block reward.
The staking reward is also compounded such that you can earn up to 100% of your investment in a year. If you stake more coins and for longer periods of time, you will earn more rewards, which makes staking outgrow “hodling” as a form of long term crypto investment.
- Staking Is a Key Factor Is Price Stabilization of Crypto Assets
Staking is increasingly becoming more popular with blockchain projects to the extent of the rise of third-party staking services providers, including exchanges. It is better than lending because it rewards people for keeping their coins, which reduces selling pressure and, therefore, contributing to the price stability of coins.
- Staking Is More Sustainable
Authorities have had trouble in the past with miners trying to illegally tap into electrical grids and mine bitcoin without incurring power costs. Staking is energy-efficient and passive. Desktop or mobile wallets are enough to keep track of your investment.
The staking rewards are also dispensed to your wallet, daily, weekly, or monthly depending on the blockchain’s design or the customer Service level agreement contract.
- Multiple Staking
Miners have to be experts in coding to increase their chances of mining more bitcoins and participate actively in each network. In contrast to mining, stakers only need to increase the number of their staking coins and hold them for longer, to earn more rewards.
Additionally, stakers can decide to stake multiple coins, and passively earn rewards from all of them simultaneously.
Final Thoughts
Staking is for everyone, and it is saving the blockchain and cryptocurrency millions, which will be directed into other avenues, including the stakers’ wallets as interest. If you haven’t started staking yet, not sure where to start, or looking to increase your staking portfolio, top-rated third-party staking services like MyCointainer will be an excellent place to start.