Crypto market

What’s the Difference Between Staking, Mining, and Splitting? Everything You Need to Know

14 June 2024

Staking, mining, and splitting are the primary methods of cryptocurrency extraction. Each has its own characteristics, advantages, and disadvantages. The Ultima team suggests finding out the differences between them and what you need to know about each method.

Mining is the process of creating new blocks in the blockchain by performing complex computational tasks. Miners use special computers to solve mathematical problems, for which they receive cryptocurrency rewards. However, mining requires substantial computational power and energy consumption, making it a costly and not always efficient method of cryptocurrency extraction.

Staking is participating in the blockchain system to validate transactions and ensure network security. Instead of using computational power to perform tasks, staking participants hold a certain amount of cryptocurrency in their wallets, which grants them the right to receive rewards for their activity. Staking requires less energy and is more economically efficient than mining. For more details on how staking works, read the Forbes article.

Splitting is a method that allows participation in staking without the need to freeze large amounts of cryptocurrency. The basis of splitting is a liquidity pool — a closed and self-sustaining decentralized system. Essentially, a liquidity pool is a large cryptocurrency wallet. It contains cryptocurrencies that are frozen for decades. This wallet is decentralized — it has no owner. It belongs only to the blockchain, and only the blockchain can manage the tokens stored on the balance. The blockchain issues rewards from the pool according to the clear rules of a smart contract.

It is important to note that each of these methods has its own nuances and requirements. For example, mining requires investments in computational resources, staking involves holding a certain amount of cryptocurrency in a wallet and being willing to freeze it, and splitting requires understanding the rules and mechanisms of this method.

When choosing a method for earning cryptocurrency, it is essential to consider your goals, capabilities, and risks. It’s critical to be prepared for the fact that not every method is suitable for everyone and may require certain expenditures.

With the development of blockchain technologies, new methods of cryptocurrency extraction are emerging, leading to changes in user preferences in the crypto market. Staking, mining, and splitting technologies have become the main methods of obtaining cryptocurrency, and we can already see which of these methods are gaining popularity and which are waning in importance.

Mining, which was initially the most popular way to extract cryptocurrency, is significantly declining in popularity because it requires substantial investments in equipment and electricity, making it unprofitable for regular users. Additionally, mining negatively impacts the environment due to its high energy consumption. As a result, more users are abandoning mining in favor of more efficient methods.

Staking technology, on the other hand, is becoming increasingly popular among cryptocurrency holders as it is considered more energy-efficient and environmentally friendly compared to mining. This makes staking attractive to users concerned about preserving the environment. It is important to note that many cryptocurrency holders see this technology as a way to make their assets work for them, generating rewards. Additionally, staking is an excellent way to contribute to the security and efficiency of blockchain projects. By staking part of their crypto assets, users make the blockchain more resilient to attacks and enhance its ability to process transactions.

Keeping track of the evolution of staking is quite challenging because the development of new technologies impresses with the pace, scale, and involvement of professionals in these processes. For more details on the development of staking, see the article on Bitcompare.

Splitting is a relatively new technology that is also gaining popularity due to its very low entry threshold and the constant emergence of new pools that users can join. Splitting allows network participants to use cryptocurrency for microtransactions, investing, and decentralized financial activities. The most attractive factor of splitting is that users can participate in the cryptocurrency economy even with small amounts, which positively affects its growing popularity.

Overall, it can be said that staking and splitting are becoming increasingly popular methods of cryptocurrency extraction, while traditional mining is losing its popularity due to high costs and negative environmental impact. The future of cryptocurrencies belongs to more efficient and environmentally friendly methods that democratize access to cryptocurrency resources and make them more sustainable.