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In this article we’ll discuss what is crypto mining, its differences with crypto staking, as well as the pros and cons of each.
Blockchains are powered by sets of rules for how the blockchain works, aka consensus mechanisms. The consensus mechanism determines if the blockchain will use mining, aka PoW, to secure the blockchain or staking, aka PoS, to secure the blockchain. Let’s dive into what is mining and staking now.
Bitcoin uses Proof of Work (PoW) as its consensus mechanism. This is how the network validates and secures transactions. It was popularized by Bitcoin but is also used in other cryptocurrencies, as well as with other applications of the PoW consensus mechanism like NameCoin and PrimeCoin.
In a PoW system, participants, known as miners, compete to solve complex mathematical puzzles. The goal of solving these puzzles is to find a hash value that meets certain criteria or has a specific pattern. This requires significant computational power and energy consumption.
Because there is a juicy BTC reward for whoever proposes a block to the network. This has been known as crypto mining, however time and human greed have transformed this activity intended to run democratically in CPUs with a fun lottery every 10 minutes, into an industrial race between companies and dominant pools, far from the vision of it being accessible to anybody that runs a node.
Crypto mining is inefficient and not sustainable long term for most blockchains. Bitcoin and a few other blockchains are rare exceptions that continue to choose PoW mining over PoS for the economic trade-offs with their tokenomics model and communities’ interests.
Staking crypto means locking up coins to maintain the security of a blockchain network and earning rewards in return.
In a Proof-of-Stake (PoS) blockchain like Ethereum, participants who stake their funds in the chain’s native token are chosen to create new blocks and validate transactions in the network based on a deterministic algorithm.
<aside> 💡 What is Staking Article
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Staking is only possible on blockchains based on a proof-of-stake (PoS) consensus mechanism.