What is staking in crypto and how does it work?

What is staking?

Staking involves locking up your cryptocurrency to help maintain a blockchain network’s integrity and validate transactions. You generally earn financial rewards in return; typically paid out in the same cryptocurrency you staked.

It’s a core feature of Proof-of-Stake (PoS) and similar consensus mechanisms, which are an alternative to the energy-intensive mining used in Proof-of-Work (PoW) systems.

When you stake your coins, you commit them to the network, enabling validators (special nodes responsible for confirming transactions) to operate. The more coins you stake, the greater your chance of being selected as a validator and receiving crypto rewards. 

The size of your reward will depend on several factors, including network activity, staking duration and the total amount staked.

Staking is generally more accessible than mining, as it doesn’t require expensive computer hardware or high electricity consumption. Many blockchains also offer delegated staking, which enables users to assign their coins to an existing validator instead of running their own node, making participation possible for a wider range of holders, including those with less technical experience or smaller holdings.

Popular staking coins include:

• Ethereum – now PoS-based after the Merge upgrade. It requires 32 ETH for solo validation, though smaller amounts can be staked via pools
• Cardano – an energy-efficient PoS blockchain with a strong research foundation and user-friendly staking pools
• Polkadot – uses nominated Proof of Stake, allowing token holders to nominate validators and share in rewards

Download the Crypto.com App and start staking.

What are the benefits of crypto staking?

Crypto staking offers a range of advantages both for individual investors and the blockchain networks they support:

• Earn passive income – locking up your crypto lets you receive staking rewards, typically in the form of the same cryptocurrency and without actively trading. Depending on the network and staking duration, returns can rival traditional savings or investment products.
• Strengthen blockchain security – in Proof-of-Stake (PoS) systems, the more coins are staked, the harder it is for bad actors to manipulate the network, because validators risk losing their stake if they act dishonestly.
• Improve efficiency and sustainability – PoS uses far less energy than Proof-of-Work mining, reducing the environmental impact while maintaining high transaction levels.

When staking with Crypto.com, users benefit from a popular, beginner-friendly platform. The Crypto.com App and exchange both make staking as simple as possible, making it easy to start earning rewards without needing much technical expertise. 

Naturally, platform integrity is a top priority. Crypto.com uses industry leading measures including cold storage, insurance coverage and multi-factor authentication to protect user assets. 

Additionally, our platform supports staking for multiple coins, including Cronos, Ethereum, Cardano and Polkadot, allowing users to diversify the risk within their staking portfolio.

Crypto staking methods

There are many ways to participate in crypto staking. Understanding the main staking methods can help you to choose the ones that best fits your financial goals and technical capabilities:

1. Solo staking

Solo staking is the most technically demanding method, requiring significant knowledge, reliable hardware and the ability to meet minimum staking requirements (for example, 32 ETH for Ethereum). If you stake solo, you’re running your own validator node and staking coins directly on the blockchain, which makes it suitable only for experienced crypto users who want full independence.

2. Delegated staking

In delegated staking, you assign your coins to a trusted validator who does the work of validating transactions for you. You keep ownership of your coins, while the validator shares the rewards (minus a commission). Cardano and Tezos use delegation, helping to make staking accessible without running your own node.

3. Pooled staking

Pooled staking allows multiple users to combine their coins to meet the minimum staking requirements. This is common with networks sporting high entry thresholds, such as Ethereum. Rewards are usually distributed proportionate to each participant’s contribution, though not always.

4. Active staking

Active staking requires you to manually lock, claim and then reinvest your rewards on a regular basis. This can lead to higher returns for active users, especially if you frequently compound your rewards, but this type of staking requires a significant amount of time and attention. An example of active staking is Cosmos, where rewards can be claimed and re-staked for increased yield.

5. Passive staking

Passive staking automates much of the staking process, making it easy for beginners. Your coins remain in your wallet or on a crypto platform and rewards are distributed without the need for frequent management.

6. Exchange staking

Many cryptocurrency exchanges, including Crypto.com, offer in-app staking services. You simply select the coin and duration and the exchange handles the validation or delegation for you. This is one of the easiest ways to start staking, though it involves trusting the exchange with custody of your assets.

What is Proof of Stake (PoS)?

Proof of Stake (PoS) is a consensus mechanism used by blockchain networks to validate transactions and protect the network’s integrity without relying on energy intensive mining. In PoS, validators are chosen to create new blocks based on the number of coins they hold and stake as collateral. 

The more coins staked, the higher the chance of being selected to validate transactions and earn rewards.

Unlike Proof of Work (PoW), which requires miners to solve complex puzzles using computing power, PoS relies on carrot and stick economic incentives, because while rewards are on offer, validators also risk losing their staked coins if they act dishonestly.

PoS offers several advantages over PoW, including considerably lower energy needs, faster transaction times and greater scalability. And because it doesn’t require expensive hardware, PoS is more accessible to a wider range of participants.

Popular PoS coins include:

• Cronos, the native token of the Cronos network.
• Ethereum transitioned to PoS with its Merge upgrade.
• Cardano uses a unique PoS protocol called Ouroboros.
• Polkadot employs a Nominated Proof of Stake (NPoS) system.

What is Proof of Work (PoW)?

Proof of Work (PoW) is a consensus mechanism used by many early blockchain networks to validate transactions and defend the system. In PoW, miners compete to solve complex mathematical puzzles using powerful computers, with the first to solve the puzzle getting the chance to add the next block to the blockchain and earning a reward.

Compared to PoS, PoW requires significant energy and computing power, making it much less environmentally friendly and also significantly more expensive. However, PoW has extremely strong blockchain integrity and is very resistant to attacks, which is why it was widely adopted in the early days of cryptocurrency in the first place.

The most famous example of a PoW blockchain is Bitcoin, which remains the largest and most well-known cryptocurrency in the world. Despite the increased costs compared to PoS, PoW continues to be a trusted system for many cryptocurrencies.

What are validators and delegators in staking?

In crypto staking, validators are network participants responsible for verifying and validating transactions and then subsequently adding new blocks to the blockchain. To become a validator, individuals must stake a minimum amount of cryptocurrency and run a node with reliable hardware and internet connectivity. 

Validators are responsible for the network’s integrity, as they are held responsible for confirming transactions honestly. As a general rule, multiple validators will be involved in each new block to prevent single points of failure.

If they try to approve invalid transactions, attack the network or stay offline too often, they risk the network confiscating some of their staked coins through a penalty called ‘slashing’.

Delegators are coin holders who don’t run validator nodes themselves, instead delegating their stake to trusted validators to participate indirectly in the staking process. Delegators share in the rewards earned by the validators but usually pay a small commission to the validator for their service. 

This allows users with smaller holdings or less technical knowledge to benefit from staking while still supporting network security. Since delegating means trusting someone else with your stake, it’s important to choose validators with a strong track record of reliability and honesty – this additional check further strengthens the network.

How to stake cryptocurrency

Here’s your step-by-step guide to staking on Crypto.com:

1. Download the Crypto.com App

First, download the Crypto.com app from the Apple App Store or Google Play Store. The app is free and designed to make staking and other crypto activities simple and accessible. You can also stake through our online platform.

2. Create an account

Next, open the app and sign up by providing your email, creating a strong password and completing identity verification (KYC). This will involve providing a government issued ID (commonly a passport or driving licence), proof of address such as a bank statement and a selfie. Crypto.com prioritises security with multi-factor authentication to protect your account.

3. Deposit cryptocurrency

After account setup, deposit cryptocurrency into your wallet. You can transfer coins from an external wallet or purchase crypto directly in-app using fiat currency. Crypto.com supports a wide range of popular coins for staking.

4. Choose your coin and stake

Once your funds are available, navigate to the ‘Earn’ or ‘Staking’ menu on the App. Select the coin you want to stake, review the staking terms (duration, rewards rate) and confirm your stake. The app will lock in your coins for the chosen period while you start earning rewards.

Top crypto coins to stake

1. Ethereum 

Ethereum is by far the largest smart contract platform, having transitioned to Proof-of-Stake with its Ethereum Merge upgrade. Staking ETH helps secure the network and earns rewards averaging around 5% annually. With a minimum of 32 ETH required for solo staking, many users stake via pools or exchanges like Crypto.com to earn passive income.

2. CRO

CRO is the native token of the Cronos ecosystem. Staking CRO offers very competitive rewards depending on the duration. Beyond rewards, staking CRO often provides benefits including lower trading fees and access to exclusive platform features.

3. Cardano 

Cardano (ADA) uses a unique PoS protocol called Ouroboros. Like Ethereum, typical annual returns stand at around 5%. However, ADA staking requires no lock-up, offering more flexibility and making it popular among the smaller user base.

4. Solana

Solana (SOL) is known for its high-speed transactions and low fees. Staking SOL helps to secure the network and yields around 7% annually. It supports delegated staking, which allows users to participate without running a validator node.

5. Cosmos 

Cosmos (ATOM) aims to allow for interoperability between blockchains. Staking ATOM helps maintain its network integrity, with rewards averaging between 7% and 10% per year. Users can actively claim and reinvest rewards for compounding gains.

Other notable staking coins include Polkadot with rewards sometimes higher than 10% and Tezos, which offers roughly 6% returns. 

Each coin offers unique features and staking benefits, so diversifying your staking portfolio can improve the reliability of your income and reduce your overall risk.

Explore top coins for staking.

Staking rewards: How much can you earn?

Staking rewards vary widely from fractions of a percent to double-digit returns, depending on several factors. Key influences include:

• The specific cryptocurrency’s network rules.
• The total amount of coins staked.
• The duration of your stake.
• The overall demand for validating transactions.

Networks often adjust rewards to maintain security and encourage participation, particularly if the number of willing validators drops close to maintenance level.

For major cryptocurrencies, average annual returns typically range from around 4% to 12%. For example, Ethereum offers around 4% to 6% Annual Percentage Yield (APY), while Polkadot and Cosmos can provide returns between 8% and 12%. Some tokens, like Cronos or Solana, may offer rewards closer to 10% or even higher, especially with longer lock-up periods. 

Arguably, staking rewards have to compete with traditional equity market returns and traditional savings accounts, but remember staking rewards can fluctuate due to market conditions, network inflation and validator performance. It’s also important to consider both the lock-up terms and fees when calculating potential earnings. 

Join millions staking securely on Crypto.com.

Tax implications of crypto staking

Crypto staking rewards are generally considered taxable income by tax authorities regardless of jurisdiction. When you earn staking rewards, their fair market value at the time of receipt is often treated as ordinary income and must be reported on your tax return.

Additionally, if you later sell or exchange the staked coins or rewards, you may trigger capital gains or losses based on the difference between the sale price and the value when you received them. This means both the initial staking rewards and any subsequent transactions involving those coins could have tax consequences.

Because tax laws vary by country it’s important to keep detailed records of all staking activities, including dates, amounts earned and market values. In some jurisdictions, staking rewards operate in a grey area of taxation, so it can make sense to consult a specialist, independent accountant, especially when large amounts are involved.

The most important thing is to properly report your earnings; as long as you do this, then your local tax authority will generally be willing to help ensure you pay what you owe with no penalties, even if the calculation is complicated.

Risks of crypto staking

While crypto staking offers attractive rewards, it also carries several risks that investors should consider before participating:

• Market volatility – possibly the largest risk, as the value of your staked coins and rewards can fluctuate significantly due to overall cryptocurrency market movements. Even if you earn staking rewards, a sharp price drop in the underlying asset may reduce your overall investment value.
• Lock-up periods – many staking protocols require you to lock your coins for a set duration during which you cannot access or trade them. This can limit your flexibility, especially if you need liquidity or want to sell due to adverse market conditions. Of course, lock-ups function to reduce volatility in the first place and the rewards are designed to at least in part compensate for this risk.
• Slashing – penalties imposed on validators who act maliciously or fail to perform their duties properly. If you stake by running a validator node or delegating to one, you could lose a portion of your staked tokens if the validator misbehaves or experiences downtime.
• Technical and regulatory risk – if you choose to run a technically complex staking node yourself, any mistakes could result in lost rewards or penalties. Additionally, regulatory frameworks around staking are still evolving in many jurisdictions, creating uncertainty around tax treatment and legal compliance.

Beginner mistakes when staking crypto

Many new crypto stakers make avoidable mistakes that can reduce their earnings or increase their risk profile:

• Lack of research – you need to analyse any coin thoroughly before staking. Each cryptocurrency has different staking rules, reward rates and network stability. Failing to understand these can lead to poor choices or losses.
• Ignoring staking terms and lock-up periods – many staking programs require you to lock your funds for weeks or months, during which you cannot access or sell your coins. This isn’t unreasonable given the need for network stability, but can be problematic if market conditions change suddenly or you need liquidity.
• Overlooking fees – staking costs can include validator commissions, network fees or penalties for early ‘unstaking’. High fees can significantly eat into your rewards if not considered upfront, with the headline rate of return often misleading.

Crypto staking outlook

Crypto staking is rapidly growing in popularity as more blockchains adopt Proof-of-Stake (PoS) consensus to improve scalability and sustainability. The rising demand for decentralised finance (DeFi) and blockchain applications is also fuelling greater participation in staking, with total staked assets now cumulatively worth billions of dollars worldwide. This highlights staking’s role as a key driver of passive income in the digital world.

However, increasing regulatory scrutiny is presenting new challenges. Governments are always keen on tax and many are now focusing on how to classify staking rewards for tax purposes while also ensuring everybody complies with financial laws. Clearer regulations will improve transparency but may or may not increase complexity for stakers.

Looking ahead, staking platforms are evolving to become more user-friendly and accessible. Innovations like liquid staking (allowing users to trade staked assets) are gaining traction, as this resolves one of the key disadvantages.

Overall, staking is expected to remain a cornerstone of the crypto ecosystem, attracting both retail and institutional investors seeking efficient ways to earn rewards while supporting blockchain networks. But the landscape is likely to continue rapidly evolving.

FAQs about crypto staking

What exactly is crypto staking and how does it work?
Crypto staking involves locking up your cryptocurrency to support a blockchain network’s operations, including validating transactions. In return, you earn crypto rewards proportional to the amount staked.

Is crypto staking legal?
Yes, staking is legal in most countries, but regulations vary by jurisdiction. It’s important to follow local laws and report any staking income for tax purposes.

Is crypto staking profitable?
Staking can be profitable by providing passive income through rewards. However, profitability depends on the coin’s reward rates, market conditions and fees.

Does crypto staking pay daily?
Some platforms distribute staking rewards daily, while others pay weekly or monthly. The schedule depends on the network and staking provider.

Can I sell my crypto after staking?
It depends on the staking terms. Some require lock-up periods during which you can’t sell, while others allow flexible staking with immediate access to your coins.

Can I lose my crypto if I stake it?
Yes, risks include market volatility and slashing penalties if validators misbehave or nodes go offline. Always understand the risks before staking.

Are staking rewards taxed?
In many jurisdictions, staking rewards are considered taxable income and must be reported. Tax laws differ, so it can be worth consulting an independent accountant.

What’s the easiest crypto to stake?
Coins like Cronos, Cardano and Ethereum are popular for beginner-friendly staking due to their low barriers to entry and user-friendly setup.

Important Information: This is general informational content sponsored by Crypto.com and should not be considered as investment advice. Trading cryptocurrencies carries risks, such as price volatility and market risks. Before deciding to trade cryptocurrencies, consider your risk appetite. Seek professional financial advice if you are unsure. Staking rewards, fee reduction, and other benefits referenced in this article may be subject to eligibility requirements, token holdings, and may change at the discretion of Crypto.com.