Mining Bitcoin Versus Staking Others

Most people have heard about Bitcoin mining. That is the process where people use their computer equipment to solve problems, earning Bitcoin for correct answers. Every Bitcoin block has been mined in this manner. The Bitcoin algorithm specifies that blocks are generated approximately every 10 minutes. Each new block has to be ‘solved' in order that ownership can be assigned to the miner who first determines the answer to the block.

The Bitcoin algorithm specifies that the difficulty solving blocks is variable. It depends on the number of active miners. More miners, more difficulty. In the Bitcoin beginning, there were few miners. Difficulty was very low. As the Bitcoin value increased, and more miners started working on blocks, the difficulty climbed. Where the difficulty was under 10 in early 2010, the early 2021 difficulty is 20 Trillion.

Difficulty determines how hard a block is to solve, and therefore how long it should take. It is like trying to determine common factors of a number. It is much easier to find the factors of 8, (1, 2, 4, 8) than the factors of 20, (1, 2, 4, 5, 10, 20). Imagine how long it would take to find the factors of 20,000,000,000,000.

Bitcoin mining requires computers to perform extensive calculations in order to solve a block. The miner who solves the block finds the key and is awarded ownership of the block. Computers use energy when they are running. In fact, Bitcoin mining uses an incredible amount of energy which usually comes from the electricity grid. The majority of the “work” done by the miners is wasted as there can only be 1 miner who solves the block. The use of electricity by Bitcoin miners results in heat being produced. Depending on the cost of electricity, it can take thousands of dollars to mine Bitcoin.

In addition to the electricity cost, Bitcoin mining requires extremely complicated, and expensive computer equipment. While you used to be able to mine using a laptop or desktop computer, now mining is done by equipment designed for the task. The cost to acquire such equipment is in the thousands, to hundreds of thousands of dollars.

Staking Cryptocurrency

Many cryptocurrencies have been implemented with a staking algorithm, or “Proof of Stake”. This is in comparison to Bitcoin which is a “Proof of Work” algorithm. Staking assigns ownership of cryptocurrency blocks to entities that already hold the crypto. This usually translates into a proportional distribution. That is, if a wallet holds 10% of a given cryptocurrency, that wallet is likely to be awarded 10% of the future blocks of that crypto.

Staking does not require substantial use of electricity as there are no difficult equations to solve. The assignment is a simple lottery which takes a fraction of a second.

Typically, staking requires a local wallet, with all of the security implications. Binance and some other exchanges offer staking as well.

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