As cryptocurrency keeps growing in adoption, the level of innovation also increases.
This is why the similarities between staking and mining crypto is important to know.
In the early days of cryptocurrency, if users could not trade due to fear of volatility, they had another option to still earn passive income from crypto.
This method was no other but cryptocurrency mining which still exist till today.
With the use of cryptocurrency mining, users could relieve themselves from the psychological stress from crypto trading in order to earn passive income from crypto.
But this came with another price which includes high energy usage, noise from mining machines as well as government regulations against its use in some countries.
This led to the development of better means of validating transactions on the blockchain.
This new method was no other but cryptocurrency staking.
Just like earning block rewards from mining cryptocurrency, stake rewards are also earned when you stake cryptocurrency.
In this guide, you will learn of the various similarities between staking and mining crypto.
These similarities between staking and mining crypto will be discussed under the following heading which are;
- Similarities Between Staking And Mining Crypto
- 1) Block And Stake Rewards Can Be Reinvested
- 2) Larger Pools Earn More Rewards
- 3) Crypto Mining And Staking Takes place In a Pool
- 4) Rewards Are Earned From Staking And Mining Crypto
- 5) Pool Stake And Block Rewards Fluctuate
- 6) Solution to Blockchain Task Earns Block Or Stake Rewards
- 7) Both Are Consensus Mechanism
- 8) Pool Size Determines Success Rate
- 9) Both Provide Passive Income
Similarities Between Staking And Mining Crypto
1) Block And Stake Rewards Can Be Reinvested
One of the best ways in which I always use to increase my stake rewards quantity has always been by reinvesting my stake rewards.
Some people like to just keep their cryptocurrency that are earned as stake or block rewards without using other methods to earn more from them.
Others that are more enlightened in the cryptocurrency business have always made it a regular task to earn more from their block or stake rewards by reinvesting them.
There are various ways that can be used to achieve this and any method that is chosen depends on the depth of knowledge the investor has about the method.
Some of the well known ways of reinvesting block or stake rewards are;
- Staking block rewards earned from cryptocurrency mining
- Trading block or stake rewards on the futures market
- Trading block or stake rewards on the options market
- Trading block or stake rewards on the margin market
When the rewards earned from mining or staking crypto is reinvested, it generates more passive income when done well.
2) Larger Pools Earn More Rewards
The larger pool has a better chance of validating or mining a block as far as earning block or stake rewards is concerned.
Some people like asking why binance staking pools have high returns on staking as compared to other staking pools that are around.
What they forget to check most times is the size of binance staking pool as compared to the size of other staking pools.
When the number of active stakers in a particular staking pool is high, it also increases the stake power or authority of the staking pool.
Due to this higher stake authority that the staking pool has, it makes it easy for the staking pool to easily validate a lot of transactions.
The more the transactions verified, the more the stake reward the staking pool generates.
This in turn generates a higher return from stake rewards for the validators in the staking pool.
Other staking pools with fewer cryptocurrencies that are staked will only be able to validate few transactions on the blockchain due to their size.
When this happens, they generate few stake rewards as compared to other staking pools with higher quantity of staked crypto.
Just like the case of how the quantity of staked crypto affects the quantity of stake rewards earned, this is also the same with a mining pool.
This is why some people who choose to solo mine cryptocurrencies with high difficulty rate like bitcoin barely make any money.
This is because they have very low mining power and before they even get a chance to verify a block, a bigger mining pool has already done the task.
To increases the chances of earning passive income from crypto mining, its always optimal to join staking pools with higher mining power.
This increases your chances of making steady passive income from crypto staking and mining cryptocurrency.
3) Crypto Mining And Staking Takes place In a Pool
Both crypto staking or mining make use of pools to mine or stake crypto.
Mining or staking cryptocurrency is a task that is done in a very orderly way.
When it comes to staking or mining any cryptocurrency, the task is carried out through a pool.
In the case of mining crypto, some people with a very high level of sophisticated machines like the ASIC minersgo into mining for rewards.
During the course of taking this action, some might want to do it on their own due to how large the number of their crypto mining machines are.
Some due to limited number of mining machines as compared to the mining difficulty simply join a pool.
When they join a pool, they combine their resources to make the pool more powerful.
This inturn increases their chances of easily mining the next block.
This is also the same thing that takes place when someone or a group of individuals want to stake a particular cryptocurrency.
Some that have a high quantity of a particular crypto can easily stake on their own and earn steady stake rewards.
For others who have limited quantity of crypto assets, the best chance is to join a strong and reputable staking pool.
Some of such reputable staking pools is binance crypto staking pool where users with small crypto amount can join and still earn high stake rewards.
So a staking or mining pool is very important for mining or staking rewards to be earned.
This is one of the big similarities between staking and mining crypto.
4) Rewards Are Earned From Staking And Mining Crypto
When you stake or mine cryptocurrency, you earn rewards for validating transaction on the blockchain.
The crypto mining or crypto staking are both rewarding when you participate in it.
Who would want to heat his or her house with so much noise from the machines and still pay high electricity bills without a reward?
I guess nobody would like to do that.
So when you see people mining cryptocurrencies, they have some good rewards that they make out from the crypto mining process.
Each time a transaction is verified, a block is mined as a reward for the pool that solved the blockchain puzzle correctly.
This is how new cryptocurrencies that use the proof of work come into circulation.
They come into circulation as block rewards that are paid to those who successfully mine the block.
Just like how miners make money when they mine cryptocurrencies, those who validate transactions are not left out.
This is another similarities between staking and mining crypto as both participants earn rewards.
The same way a miner is paid block rewards for verifying a transaction, a user who engages in staking is also paid stake rewards when they validate a transaction on the blockchain.
So you see how rewarding the both consensus mechanisms are.
While a miner enjoys block rewards, a person who stakes his or her crypto assets also enjoys stake rewards.
This is another great simmilarity between staking and mining crypto.
5) Pool Stake And Block Rewards Fluctuate
In the process of mining cryptocurrency, the miners that are active in a particular crypto mining pool are being rewarded for the hard work.
The stake rewards or block rewards that is being paid out to stakers or miners that are active in the staking is not always stable.
This is due to the fluctuating mining or staking power that a particular mining or staking pool has,
When more members join the staking or mining pool, this increases the power of the pool and this gives the pool an advantage in verifying the next block.
This makes the mining or staking pool reap more mining or staking rewards ,thereby increasing the profit of its members.
When some members of the staking or mining pool are offline, this affects the performance of the pool because the power of the pool will decrease.
When the power of the pool decreases, the chances of the pool verifying the next block or validating the next chances gets slim as compared to pools with higher power.
This reduces the amount of stake rewards that the staking pool earns negatively and leads to a reduced amount of pool rewards for the pool members.
6) Solution to Blockchain Task Earns Block Or Stake Rewards
When it comes to successfully earning block or stake rewards, algorithmic solutions must be provided for new blocks to be awarded.
For a miner to receive block rewards or for a user staking crypto assets to receive stake rewards, a particular condition that the consensus mechanism uses must be achieved.
In the case of a proof of work consensus mechanism, a miner must successfully solve the mathematical puzzle in order to verify a transaction.
Any miner that gets the chance to be the first to successfully solve the puzzle automatically gets awarded with block rewards.
Staking crypto shares this similarity just like mining cryptocurrency.
For a staking pool to be awarded with stake rewards, it must successfully pass the criteria on the proof of stake consensus method.
This has to do with conditions like having a large amount of staked crypto assets in order to stand a chance of successfully validation the transaction on the blockchain.
When the validation is successful, a stake reward is awarded to the successful staking pool as it also happens in crypto mining.
7) Both Are Consensus Mechanism
Another similarity between staking and mining cryptocurrency is that they are both a consensus mechanisms.
They may have differences like the medium they use to actualize the consensus mechanism but they perform the same function.
In one of our guides, we discussed about the Differences Between Staking And Mining Crypto that exist.
You can check it out if you are yet to.
The function of consensus mechanism is no other than verifying transactions on the blockchain to avoid situations like double spending and other worse case scenarios.
Like in the case of cryptocurrency mining which is a proof of work consensus mechanism, the blockchain is programmed to function in a certain way.
Before a transaction is verified for a block to be mined, a mathematical puzzle is produced for the miners to solve.
The chances of a particular miner or mining pool solving that puzzle depends on factors like the power of the mining pool.
All the pools and miners that are active combat to solve this puzzle first depending on the power they horn or the collective power that the mining pool has.
When a miner or mining pool successfully solves that puzzle, a block is mined and rewarded to the miner who successfully solved the puzzle.
A new block gets mined leading to the addition of a new quantity of that crypto asset into the current circulation.
The miner is the person that will claim this new crypto asset as a block reward for being powerful enough to solve and verify the blockchain transaction.
This is another similarities between staking and mining crypto as the same thing also happens when staking crypto.
The same thing happens while staking crypto which is a proof of stake consensus mechanism unlike the crypto mining which is a proof of work consensus mechanism.
The proof of stake does not rely on having crypto mining machines with high end technology like the ASIC miners.
This is clearly shown in one of our guides on staking cardano to earn passive income.
The proof of stake consensus mechanism is much more simplified and easy to implement.
This is because you just need to HODL your crypto assets for a period of time in a staking pool and earn stake rewards.
To earn stake rewards, the validator or a staking pool which is combined of validators have to validate transactions on the blockchain in order to earn stake rewards.
Just like the mining pool in which a mining pool that has a higher power has a better chance of verifying the next transaction to earn block rewards, the same occurs in a staking pool.
The chance to validate a transaction on the blockchain is higher when the staking pool has a large amount of crypto assets that are staked.
When a staking pool successfully validates the transaction, a stake reward is awarded to the staking pool for the job well done.
This helps in keeping the blockchain safe and free from casualties like double spending.
8) Pool Size Determines Success Rate
Anothersimilarities between staking and mining crypto is how pool size impacts on pool success.
Pool success of a staking or mining pool is dependent on the size of the pool.
When it comes to the chances of a staking pool or mining pool succeeding, this depends on a lot of conditions.
The dominant condition of all has to do with the size of the staking or mining pool.
The success that a particular mining or staking pool enjoys largely depends on how large it is in terms of mining power or amount of crypto assets staked.
This size directly influences the chances of that mining or staking pool validating or mining the next block.
This is why it is always advisable for solo miners or solo stakers who have a low mining power or a low quantity of staked cryptocurrency to join a mining or staking pool.
This is because mining with low mining power makes it hard to compete with larger pools with high mining power.
This directly influences the block rewards that you earn as they will be very few as compared to the large mining pools.
This is the same thing that also happens in the staking pool as pools with large quantity of staked crypto always earn more stake rewards.
9) Both Provide Passive Income
No one would want to heat his or her house with so much noise from crypto mining machines for nothing.
This heat and noise from the crypto mining machines is also accompanied with a high rate of electricity bills due to the high power the crypto mining equipments consume.
Crypto miners overlook all these and continue mining because of the benefits that comes along.
During mining, the miners are awarded with block rewards and this has been a steady source of passive income for a whole lot of people.
Some people have taken the crypto mining business to a higher level thereby making the crypto mining a full time income generating stream for them.
Just like the case of generating passive income through cryptocurrency mining, users who stake their cryptocurrency do not go unrewarded.
They are well rewarded for staking their cryptocurrency assets
crypto staking and mining has provided users with the opportunity to easily earn passive income while they HODL their crypto assets like in the case of crypto staking.
This has been a really nice and sustainable way of earning passive income from cryptocurrency which I also participate actively in.
Mining and staking cryptocurrency has grown over the years to become one of the best ways of earning passive income from crypto.
Due to this, some have chosen to use crypto mining to earn block rewards.
Others crypto users have also used crypto staking to make good returns from stake rewards.
This guide on similarities between staking and mining crypto has really taken time to show the things crypto staking and mining have in common.
I hope you had something to learn from it.
If you have a question about similarities between staking and mining crypto, you can let us know by leaving a comment.