Is Staking more profitable than Mining?

Staking has seen an amazing growth in the last couple years, many investors look into staking their coins for the rewards. As people flock into coins that can be staked with huge APY, some prefer to invest the money into mining hardware.

Staking and Mining, both can be profitable.

As you probably know already, each blockchain transaction needs to be validated before it is added to the ledger and the miners are the ones that make it possible.

A miner invests money into building a miner, which is a supercomputer created specially for doing one single task, validating transactions and adding them to the blockchain.

While the miner configuration depends on the coin algorithm, the process is the same.

A staker, stakes its coin into a special wallet that might require a lockup period, in exchange for doing so you will be rewarded with coins. The amount of reward is predefined, the APY (annual percentage yield) , is the unit of measure for the reward, which can vary depending on the project, time and many other factors.

How much does it cost to build or buy a miner? How much can I make by staking my holdings?

For the sake of comparison, let’s look into Ethereum.
Ethereum is planning to transition from mining (PoW) to staking (PoS), both have pros and cons but which one is more profitable?

Mining Ethereum, how profitable is it?

A miner that costs around $13,000 can return approximately $20 a day, after electricity expenses. The miner will have 7 x Radeon VII GPUs which cost around $12,000 and the rest of the basic components to build it that cost another $1,000. The monthly profit would be $600 and the annual profit would be $7200, assuming the difficulty will stay the same and your miner will have 100% uptime.

Staking Ethereum, how profitable is it?

Investors flocked into staking Ethereum 2.0 for APYs that range between 5% and 9%. For this example we will go with an average APY of 6%, however it is worth mentioning that Coinbase offers 5% APY at the moment. After Ethereum will transition to a full PoS, the APY will grow and you will also have the chance to join a pool and earn more.

Now let’s assume that instead of investing $13,000 into a miner, you buy 3.5 ETH at the current price of $3000 and you stake it for the next year. The daily profit would be $2.20, monthly $65 and annually around $750.

So, is staking more profitable than mining?

No, it is not.

As you can see above, there is a huge difference in the ROI (revenue of investment) between staking $13,000 worth of ETH or mining with a $13,000 miner.

In other words, you will be worth $6,500 more if you invest the money into a miner than into buying the coins directly and stake them.

What’s the catch? Why do people still stake their coins? Why not everybody invest into a miner?

There are few reasons people still choose staking over mining.

Mining takes some computer skills, building your miner is not easy, especially if you are planning on mining ETH based coins like Monero. If you buy a factory built miner which can miner Bitcoin, Litecoin or Helium, then you can skip the building part.

Mining requires time for maintenance. Miners go offline for different reasons, computer needs updates, GPUs need dust cleaning and new coolers.

Miners can be a fire hazard. Electrical infrastructure in a regular house and apartment are not built to have a 1500 Watts consumer 24/7, plug will overheat, breakers will jump and worse, GPUs that run at 90 degrees Celsius for months or years can catch fire.

GPUs are hard to find, sometimes impossible to find. Whatever you find online is overpriced and or damaged.

Some coins offer extremely high APYs. Remember, we have talked about Ethereum only, however some coins out there can offer APYs of 1000% or even more, while the sustainability of such high APYs is close to zero, some people are lucky enough to make money out of it.

These are the reasons why people can still go with staking over mining.

Conclusion

Mining is more profitable than staking, with some exceptions, depending what are you staking and what are you mining, but if you look at it long term, mining will provide better returns but more headaches.