Staking is how you earn rewards by locking your cryptocurrency into a blockchain network
Staking means holding cryptocurrency in a wallet and letting the blockchain network use it to validate transactions. In return, the network pays you rewards — usually in the form of more of that same cryptocurrency. You do not sell the coin, trade it, or give up ownership. You straightforward keep it in a designated wallet while the network borrows its computing power to process blocks and find the chain.
Think of it like a savings account that pays interest, except the interest comes from the network's need to verify transactions rather than from a bank's lending activity. The cryptocurrency stays yours the entire time. You can unstake it and move it whenever you want, though some networks require a waiting period before you can withdraw.
Not all cryptocurrencies support staking. Bitcoin, for example, uses a different system called proof of work that requires specialized mining hardware instead. Ethereum, Cardano, Solana, and many others use proof of stake, which is the system that allows staking.
Key Takeaways
- Staking means holding cryptocurrency in a wallet so the network can use it to validate transactions, and you receive rewards in return.
- Only cryptocurrencies that use proof-of-stake systems support staking; proof-of-work cryptocurrencies like Bitcoin do not.
- Staking rewards vary by network and change over time based on how much total cryptocurrency is being staked.
- You can lose money through staking if the cryptocurrency's price falls, even though you are earning rewards.
- Some platforms let you stake through them rather than running your own validator, though they take a cut of your rewards.
How staking rewards are calculated and paid
Staking rewards depend on three things: how much cryptocurrency you stake, how long you stake it, and the network's current reward rate. The reward rate is not fixed. It changes based on how much total cryptocurrency the entire network is staking at any given moment. If many people are staking, the reward rate usually drops because the rewards are split among more participants. If fewer people are staking, the rate typically rises.
Most networks pay rewards in regular intervals — daily, weekly, or monthly — directly into your staking wallet. The exact schedule depends on the blockchain. Ethereum, for example, pays rewards roughly every 12 seconds as new blocks are validated. Other networks batch rewards and pay them less frequently.
The rewards are usually paid in the same cryptocurrency you are staking. If you stake Ethereum, you earn more Ethereum. If you stake Cardano, you earn more Cardano. Some platforms offer rewards in a different token, but that is less common and usually means you are using a third-party service rather than staking directly on the network.
The difference between solo staking and staking through a platform
You can stake in two ways: run your own validator node, or stake through a platform that runs validators for you.
Solo staking means you set up the technical infrastructure yourself. You read the blockchain software, run it on your computer or server, deposit your cryptocurrency into a validator wallet, and the network recognizes you as a validator. You earn the full reward rate. The downside is that you need technical knowledge, your computer must run 24/7, and most networks require a minimum deposit — Ethereum requires 32 ETH, which costs tens of thousands of dollars depending on the price.
Staking through a platform means you send your cryptocurrency to a service like Lido, Coinbase, Kraken, or Staking Rewards. The platform pools your money with other users' deposits, runs the validators, and distributes rewards to you minus a fee. The fee typically ranges from 5 to 15 percent of your rewards, though it varies by platform. The advantage is that you need no technical setup and no minimum deposit — you can often stake as little as a few dollars. The disadvantage is that you earn less because of the fee, and you are trusting the platform to find your funds.
Risks that can reduce or eliminate your staking returns
Staking is not risk-free, even though the cryptocurrency itself stays in your wallet. The main risk is that the price of the cryptocurrency falls. If you stake Ethereum at $2,000 per coin and it drops to $1,000, you have lost 50 percent of your money even though you earned staking rewards the whole time. The rewards do not offset a major price decline.
A second risk is slashing, which happens on some networks if your validator behaves incorrectly — for example, if it goes offline for too long or tries to validate conflicting transactions. The network automatically removes a portion of your staked cryptocurrency as a penalty. Slashing is rare on well-run networks, but it is possible. Solo stakers face higher slashing risk than platform users because they are responsible for keeping their validator running correctly.
A third risk is platform risk. If you stake through a service and that service is hacked, goes bankrupt, or disappears, your funds may be lost. This happened to some users when the FTX exchange collapsed in 2022. Staking through a major, regulated exchange like Coinbase or Kraken is generally safer than using a smaller or newer platform, but no platform is risk-free.
Tax treatment of staking rewards
In the United States, staking rewards are treated as ordinary income by the IRS. When you receive a reward, its fair market value at the time you received it counts as taxable income for that year. If you staked Ethereum and received 0.5 ETH as a reward when Ethereum was worth $2,000, you owe income tax on $1,000 of income.
If you later sell that staked cryptocurrency or the rewards you earned, you may also owe capital gains tax. The tax treatment depends on how long you held it. If you held it for less than a year, it is short-term capital gains (taxed as ordinary income). If you held it for more than a year, it is long-term capital gains (usually taxed at a lower rate).
Tax rules vary by country. Some countries do not tax staking rewards, while others tax them differently than the United States does. You should consult a tax professional who understands cryptocurrency if you are staking significant amounts.
Comparing staking to other ways to earn from cryptocurrency
Staking is one of several ways to earn returns on cryptocurrency holdings. Lending means depositing your cryptocurrency into a platform that lends it to borrowers and pays you interest. Lending usually pays higher rates than staking — sometimes 5 to 20 percent annually — but it carries higher risk because you are trusting the platform to manage the loans and return your funds. Several lending platforms have failed in recent years.
Yield farming means depositing cryptocurrency into a decentralized finance (DeFi) protocol that uses it to facilitate trades or loans. Yield farming can pay very high rates, sometimes 50 percent or more annually, but it is complex, carries smart contract risk (the code could have bugs), and the rates are often unsustainable and drop quickly.
Staking is generally considered the simplest and most stable of these options because the rewards come directly from the blockchain network rather than from a third party or a complex financial arrangement. The trade-off is that staking rewards are usually lower than lending or yield farming.
How to start staking if you own a supported cryptocurrency
If you own Ethereum, Cardano, Solana, or another proof-of-stake cryptocurrency, you can start staking through a platform in minutes. Open an account on an exchange or staking service, deposit your cryptocurrency, and select the staking option. The platform will show you the current reward rate and any fees. Once you confirm, your cryptocurrency is locked into staking and you begin earning rewards.
If you want to solo stake, the process is more involved. You will need to read the blockchain client software, sync the entire blockchain (which can take hours or days), create a validator wallet, deposit the minimum required amount, and configure your computer to run the validator continuously. Most people who solo stake have technical experience or hire someone to set it up for them.
Before you stake, check whether the cryptocurrency you own supports staking by searching its official website or documentation. Not all cryptocurrencies do. Also research the current reward rate and any fees, because both change over time. A rate that is attractive today may be much lower in six months.
Frequently Asked Questions
Can I lose my cryptocurrency by staking it?
You cannot lose the cryptocurrency itself unless the platform you are staking through is hacked or fails. However, you can lose money if the price falls while you are staking. You can also lose a small amount through slashing if your validator misbehaves, though this is rare on major networks.
How long does it take to unstake my cryptocurrency?
If you are staking through a platform, you can usually unstake and withdraw within hours or a few days. If you are solo staking on Ethereum, there is currently a queue, and unstaking can take weeks or months depending on how many other people are unstaking. Check the specific network's rules before you stake.
What is the minimum amount I need to stake?
If you solo stake on Ethereum, you need 32 ETH. If you stake through a platform, the minimum is usually much lower — often $1 to $10 — though some platforms have no minimum. Check the platform's terms before you deposit.
Do I have to pay taxes on staking rewards?
In the United States, yes. Staking rewards count as ordinary income when you receive them, based on their fair market value at that moment. You may also owe capital gains tax if you sell the rewards or the staked cryptocurrency later. Other countries have different rules.
What happens if the network I am staking on fails?
If the blockchain network itself fails or is abandoned, your staked cryptocurrency may become worthless. This is a long-term risk for smaller or newer networks. Major networks like Ethereum and Cardano are unlikely to fail, but no network is may provide to succeed forever.