ViaBTC: PoW-based Mining VS PoS-based Staking, Which One Is Better?
The past half month has witnessed an overall fall in the encryption market due to policies. Some cryptos have even plummeted by as much as 60%, with the loss outweighing the gain for the past half year.
Amid the volatile market, assets have shrunk, and the future becomes ever more uncertain. Most of the short-term arbitrageurs who are negative toward this industry have cleared their positions, while the far-sighted investors have already pondered over ways to seize the next bull market. Among the many investment methods they favor, PoW-based mining and PoS-based staking have been most widely discussed, and opinions vary on the comparison between the two. In this article, we will talk about their pros and cons.
In the case of PoW-based mining, we choose the RX588 8GPU mining machine that mines ETH. The parameters are as follows:
Power consumption: 1,400W
Mining machine cost: 20,000 yuan
Current average daily income: 0.00002409 ETH/M
ETH price: 17,000 yuan
Note: The electricity fee is 0.4 yuan/kWh.
Theoretically, daily static output = 0.00002409 * 240 = 0.0057816 ETH
Daily electricity fee: 0.4 * 1.4 * 24 = 13.44 yuan, or about 0.000791 ETH, accounting for 14% of daily income.
Daily net income: 0.0057816 * (1–0.14) = 0.0049721 ETH
Theoretically, to cover costs, the total income is required to reach: 20000/17500≈1.14ETH, which takes 1.14/0.0049721≈230 days
Factoring in the maintenance and hosting cost of the mining machine, we could roughly figure out the payback period of 260 days.
Generally, a mining machine can work for three years, so the static total output for the three years:
0.0049721 * 365 * 3=5.45ETH
With costs deducted: 5.45–1.14=4.31ETH,
The theoretical 3-year static ROI is: 4.31/1.14=378.07%
All the abovementioned is based on the assumption that the ETH 2.0 upgrade would not happen within three years, which is possible given the technical difficulty involved.
But if ETH 2.0 could be completed by the end of 2022, the physical mining machine in the above example of ETH mining could run for 18 months only:
The corresponding theoretical static income: 0.0049721 * 30 * 18=2.684934 ETH
With costs deducted: 2.684934 -1.14=1.54 ETH,
The theoretical static ROI is: 1.54 /1.14=87.72%
Therefore, assuming the ETH 2.0 upgrade could succeed by the end of 2022, the ROI of physical mining machines is about 87.72%.
But still, we can use GPU mining machines to mine other cryptos such as ETC and CFX. Calculation of corresponding profits is omitted here.
Next is PoS-based staking. Take popular DOT as an example:
Similarly, the mining machine costs 20,000 yuan, and DOT price is 150 yuan, then:
Initial total staking: 20,000/150=125 DOT
Theoretically, with 1,000 DOTs staked for a valid nomination and verification, the output is 0.32 DOT, and given that the coins are generally produced twice a day:
The theoretical initial output: 0.32/1,000 * 125 * 2=0.08 DOT
However, considering the coins produced every day will be re-staked and produce even more coins, the income is subject to the calculation diagram as below:
As can be seen from the diagram, assuming that the daily output is re-staked for the next day and coins are produced twice a day on average, after three years, with costs deducted, the yield rate is only 101.36%. On-chain transaction fees are negligible and thus can be ignored.
Based on the above analysis, we can draw conclusions as below:
- With the same cost, theoretically, the static income of PoW-based Ethereum mining in the first year is lower than that of PoS-based staking on Polkadot. That is because all the income in the first year needs to cover the costs of ETH mining, while staking on Polkadot generates income at the very beginning (assuming the crypto price does not fall). However, in the second year, the income of the former method will catch up and eventually far outrun the latter: in theory, the three-year yield rate of ETH mining will hit a staggering 378.07%, compared with only 101.36% in DOT staking on the precondition that the current ETH does not upgrade to ETH 2.0 in three years. But should the upgrade take place by the end of 2022, the figure would be reduced to only 87.72%, all costs deducted.
2. The coins mined by ETH mining machines are not restricted by a lock-up period. The turnover is even more flexible if we mine in ViaBTC Pool where the mining income can be automatically withdrawn without any transaction fees. All the mining income can be automatically, once in an hour, converted into USDT and BTC on the automatic exchange page to avoid losses from volatility. Miners can also manually exchange the mining income according to their needs to store coins. By comparison, staking on Polkadot requires a lock-up period of as long as 28 days without any yields. It is thus clear that with mining machines, we can flexibly set the portfolio of coins and adjust investment methods in response to market conditions. In this sense, staking on Polkadot seems to be more passive.
3. Investment cycle and capital threshold: Mining machines entail a longer investment cycle and a higher capital threshold; yet in the case of stake mining which requires less start-up capital, the longer the investment cycle, the lower the capital utilization rate.
In general, if you prefer a long-term investment with a higher ROI, mining machines would be a better choice. But if you want to make profits, more or less, within the medium or short term, you may consider staking. Despite the uncertainty of the ETH 2.0 upgrade, mining through mining machines can still generate considerable income, close to that of staking on Polkadot.
There have long been extensive discussions on the pros and cons of PoW and PoS, so I’m not going into details in this article. Different dimensions and criteria, selected to compare investment methods based on two consensus mechanisms under extreme market conditions, could lead to various conclusions. The analysis method abovementioned is for reference only, and I appreciate it if we can seek common ground while shelving differences.