Crypto Staking Explained
Staking lets you earn passive income by locking up your crypto to help secure a blockchain network. It's like earning interest on your holdings.
What is Staking?
Staking is committing your crypto to support a blockchain network:
- Lock tokens in the network
- Help validate transactions
- Earn rewards for participation
- Similar to earning interest at a bank
How Does It Work?
Staking is part of Proof of Stake (PoS) consensus:
- Validators stake tokens as collateral
- They're selected to create new blocks
- Honest behavior = rewards
- Dishonest behavior = stake gets "slashed" (penalty)
Proof of Stake vs Proof of Work
Bitcoin uses energy-intensive mining (PoW). Ethereum and most new chains use staking (PoS), which is 99% more energy efficient.
Ways to Stake
| Method | Minimum | Control | Rewards |
|---|---|---|---|
| Run validator | 32 ETH | Full | Highest |
| Staking pool | Any amount | Partial | Good |
| Exchange staking | Any amount | None | Lower |
| Liquid staking | Any amount | Token | Good |
Popular Staking Coins
- Ethereum (ETH) - ~4% APY, most popular
- Solana (SOL) - ~6-7% APY, easy staking
- Cardano (ADA) - ~4-5% APY, no lock-up
- Polkadot (DOT) - ~10-14% APY, 28-day unbonding
- Cosmos (ATOM) - ~15-20% APY, 21-day unbonding
APY vs APR
APY includes compounding, APR doesn't. A 10% APR compounded becomes ~10.5% APY. Always compare the same metric.
Benefits of Staking
- Passive income - Earn while holding
- Support the network - Help secure blockchain
- No expensive hardware - Unlike mining
- Compound returns - Restake rewards
Risks of Staking
Lock-up Periods
- Many chains require unbonding period
- Can't sell during market crashes
- Ethereum: withdrawal queue varies
- Some chains: 7-28 days to unstake
Slashing Risk
- Validators can be penalized for misbehavior
- Affects delegators too
- Choose reputable validators
Price Volatility
- Rewards mean nothing if token crashes 80%
- Can't sell during lock-up
- 5% yield doesn't offset 50% price drop
Staking ≠ Risk-Free
Staking rewards don't make up for a declining asset. Only stake coins you believe in long-term regardless of staking rewards.
Getting Started
Exchange Staking (Easiest)
- Available on Coinbase, Kraken, Binance
- One-click staking
- Exchange handles technical details
- Slightly lower rewards (they take cut)
Wallet Staking
- Stake directly from wallet
- Choose your own validators
- Keep control of your keys
- Slightly more complex setup
Staking Tips
- Diversify across multiple validators
- Research validator track record
- Understand unbonding periods
- Factor in lock-ups for your strategy
- Compound rewards regularly
- Track rewards for taxes