What Is Crypto Staking?

Staking means locking up coins to help secure a proof-of-stake blockchain, and receiving rewards for doing so. It is often compared to earning interest, but the mechanics are quite different and so are the risks.

How proof of stake works

Instead of miners competing with electricity, validators put coins at risk as collateral. The network picks validators to propose and confirm blocks. Behave honestly and you earn rewards. Go offline or try to cheat and part of your stake can be taken away, a penalty known as slashing. Ethereum switched to this model in 2022, which is why it no longer uses mining like Bitcoin.

Where the rewards come from

Two sources: newly issued coins and a share of transaction fees. This matters, because rewards paid mostly from new issuance dilute everyone who is not staking. A ten percent yield in a network inflating at nine percent is not what it appears to be. Always check the real yield, not the advertised one.

Three ways to stake

• Solo staking. You run your own validator. Maximum control and full rewards, but it requires a large deposit, technical skill and reliable uptime.
• Pooled or exchange staking. The simplest option. You deposit and someone else runs the infrastructure for a cut. You are trusting that operator.
• Liquid staking. You stake and receive a token representing your staked position, which you can still use elsewhere. Convenient, but adds smart contract risk on top. See our DeFi sector page for the main providers.

Risks to weigh

Your coins may be locked for a period and you cannot sell during a crash. Slashing can reduce your balance. Providers can fail or be hacked. And the reward is paid in the same asset you are exposed to, so a nine percent yield means little if the token falls by half. Staking is a way to earn more of an asset you already want to own, not a way to make a volatile asset safe.