Staking vs Mining - What's Best for Crypto Earnings?

Cryptocurrency has been in mainstream media’s periphery for years now, but price appreciation isn’t the only way to earn money through this investment vehicle.

Beyond trading, two popular ways crypto holders can reap additional revenue from their digital assets is by mining and staking them.

Mining crypto is the most common among the two methods, requiring computers and a lot of energy to do some extensive, money-generating number crunching (more on this later!).

On the other hand, staking is a less-intensive option wherein investors lock in their crypto assets to a special staking wallet—all while getting a bit of reward in return.

Not all cryptocurrencies can be mined or staked. However, if you make some strategic decisions, you can set up a system wherein you can earn through the crypto you already own.

Let’s touch base and understand the concept of crypto staking and crypto mining and the pros and cons of each activity.

What is Crypto Mining?

Mining cryptocurrency involves using the energy derived from a computer to validate, verify, and record transactions in a blockchain. 

To perform these actions, computers must solve challenging mathematical computations (or an algorithm) in the blockchain. More specifically, computers must generate a 64-digit hexadecimal hash from a novel hash function called the SHA-256.

Each algorithm that gets solved will become recorded transactions in a publicly distributed ledger. A reward is given to the node that has solved the computation, with the solver in this transaction receiving a newly minted cryptocurrency.

Having more computers and a more powerful processing and graphical engine increases your potential returns, but it also comes at a higher investment and running electrical cost. 

Miners typically get high-spec Application-Specific Integrated Circuits (ASICs) and graphics card to conduct their operations, with these computers running night and day for maximum profitability.

While mining can technically be done on your average computer, having dedicated hardware to support the mining process increases your returns significantly. A normal person is unlikely to match the operational efficiency of rooms stacked with high-powered computer nodes designed for mining, after all, and there are many such mining rooms in the wild.

While the gold rush for popular cryptocurrencies like Bitcoin has come and gone due to periodic halvings, Bitcoin miners collectively still generate about 330 new BTC every day in 2024—or $20 million in real-world market value. 

This makes it a fairly profitable endeavour, at least in the short-to-medium term. It’s also an important activity to support the crypto ecosystem (particularly for proof-of-work tokens like Bitcoin) as it supports the token’s decentralised nature and helps keep transactions moving and flowing smoothly.

Pros and Cons of Crypto Mining

Crypto mining is a potent way to generate passive income, especially if you have the capital and cash flow to support it. It also plays a vital role in a POW system by validating and securing transactions.

Despite the vital need for crypto miners, it’s not without its setbacks. Mining has a controversial reputation and has gained a lot of flak across multiple fronts due to its resource-intensive nature, among other factors.

Let’s take a look at the pros and cons of crypto mining:

Pros:

• Generates income: With a mining rig set up, miners can earn cryptocurrency without having to buy or trade crypto of equal value from a crypto exchange.
• Decentralised nature: No central authority figure controls the flow of transactions. Miners from all across the world, collectively, support the movement and recording of crypto transactions—making them vital for keeping the POW digital asset alive.
• Passive earnings: People who own crypto-generating rigs and leave them up and running can generate continuous rewards. If Bitcoin prices remain stable, this can lead to continuous profit without much supervision.
• Keeps the token secure: Besides recording transactions, miners also help promote the security of the token and its respective blockchain.
• Allows borderless opportunities: As long as a miner has electricity and a computer, they can benefit from crypto mining to receive token-related rewards. This can be particularly beneficial for people who live in low-cost countries with lower relative electrical bills.

Cons:

• High-energy consumption: Crypto is a massive energy user, with related activities like mining amounting to between 0.4 to 0.9% of the world’s annual energy consumption. This can lead to heavy environmental damage due to the resources of manufacturing crypto electric components (which can emit greenhouse gas)and the constant utilisation of non-renewable energy.
• Expensive to start: For people looking for a decent enough return, they’d have to invest in a lot of computers. This can bring up the initial investment costs significantly, upwards of ten thousand dollars for a respectable rig—and this is yet to include the monthly electrical costs.
• Equipment obsolescence: As you’ll be using computer components day in and day out, you’ll run through your equipment’s lifespan more quickly than its advertised shelf life. This will require you to replace components faster lest you want to continue using an inefficient piece of hardware.
• Diminishing long-term rewards: Bitcoin will continue to periodically halve its mining rewards over time, up until the very last Bitcoin in circulation is minted. This is expected to happen in 2140—with miners only being rewarded a much smaller transaction fee.
• Regulatory concerns: The environmental concerns and decentralised nature of cryptocurrency are a source of contention among many regulatory bodies. A country’s government’s decision to restrict or otherwise impede a miner’s rights can disrupt the equilibrium of the global crypto-mining industry significantly.
• Increased competition: With more miners keen to profit from the system, the BTC rewards pool becomes lesser and lesser. This can lead to a more difficult time to achieve profits from the activity. 

What is Crypto Staking?

Crypto staking involves putting a designated amount of crypto in a public staking wallet shared with other investors. When locked into this wallet, the investor will receive passive rewards in the form of a percentage of their investment.

Cryptos earn rewards through this process because staking helps verify transactions made in the blockchain.

Sounds familiar? That’s because it is! Crypto staking and crypto mining serve similar purposes, upholding a decentralised nature and helping support their underlying blockchain’s security and flow of transactions.

The only difference is how they operate. Cryptos that are “stakeable” fall under a class of tokens called proof-of-stake. This includes your Cardano, Solana, etc. Conversely, crypto that can be mined is tagged “proof-of-work”, such as Bitcoin. Some cryptos have both properties, like Ethereum.

By staking your token in specialised wallets, you have the potential to earn passive rewards. Of course, that means your investment will be inaccessible until the end of the term unless you wish to forfeit your rewards.

Pros and Cons of Crypto Staking

Here are the pros and cons of crypto staking:

Pros:

• Easy, passive income: All you have to do is put a staked amount in a crypto wallet and wait. You don’t have to manage it much more than that!
• Energy efficiency: Compared to the resource-intensive act of mining, staking won’t cost you a lot, nor will it significantly drain the earth’s nonrenewable resources.
• Retains original value: You’ll keep the principal and generate returns, no matter what.
• Supports network: Staking keeps the network secure and functional, meaning you’re doing a good thing to support your investment.
• Predictable returns: Staking wallets give you information on how much you can potentially get back as a return after a period, making it a safer investment overall.

Cons:

• Lock-up period: You won’t be able to withdraw your staked investment freely. Depending on your crypto wallet, you may be locked in or receive penalties for doing this.
• Could lose out if the network fails: Staking rewards can be lower than advertised if the network underperforms or if there’s a security breach.
• Volatility affects price independently: The converted price of the crypto you’re staking still shifts in value, and if you’re not careful, you could be holding into a losing investment.
• Lower return ceiling than mining: Staking may not give you a high return if you don’t have a lot of capital to begin with.

Which is Better: Mining or Staking? A Head-to-Head Analysis

Mining and staking present profitable opportunities for investors, and they both can and have generated profit, historically speaking. The “best” option is highly dependent on your needs, resources, circumstances, and timeline. If you want a low-risk, eco-friendly, and less technical option, we suggest you try staking cryptocurrency. It’s easy to set up, and you can start with as little as $100 to generate some passive returns for yourself.

If you want to maximise your profit potential, then crypto mining is the way to go. This will require more upfront capital, but it can reap significant rewards, especially if you live in a low-cost country and have a sizeable capital on hand already.  We wish you the best in your crypto journey!