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Crypto staking explained: how it works, and what it risks

Staking sounds like a savings account for crypto. It isn't, quite. Here's where the rewards really come from, what you give up to earn them, and the risks most sign-up pages skip.

Beginner guide · 9-minute read · Updated 2026-10-21

The short answer

Staking means locking up coins to help run a blockchain. In return, the network pays you rewards in more of the same coin.

It only works on blockchains that use proof of stake. That's a way of keeping the record honest where people put coins up as a deposit, instead of running power-hungry mining machines. Ethereum switched to proof of stake in September 2022 (the "Merge"). Solana, Cardano and many others use it too.

Bitcoin doesn't use proof of stake. You can't stake bitcoin on its own network.

How it works, step by step

1. Validators keep the record. These are computers that check new transactions and add them to the chain.
2. They put up a deposit. To be a validator, you lock up coins. That's your "stake".
3. Good work gets paid. The network pays validators new coins and a share of fees for doing the job right.
4. Bad work gets punished. Cheating, or some serious mistakes, can cost part of the deposit. That's called slashing.

Most people don't run a validator themselves. They hand their coins to one, or to a service, and share the rewards.

Where the rewards come from

This is the part worth slowing down for. Staking rewards come from two places:

• Newly created coins. The network makes new coins to pay validators.
• Transaction fees. Users pay fees, and part goes to validators.

Here's the catch with the first one. New coins add to the supply. If you don't stake, your share of the whole network shrinks a little. Staking partly just keeps your slice the same size.

Reward rates also change. They depend on how many people stake and on the network's rules. Any rate you see is a guess about the future, not a promise.

The 4 ways to stake

The 5 real risks

1. Price risk

This is the big one. Rewards are paid in the same coin. If the coin falls, a 5% reward won't cover a 50% drop. Crypto prices swing hard; see crypto volatility explained.

2. Lockups

Many networks make you wait to unstake. Ethereum withdrawals go through a queue that can take days or weeks when it's busy. Other networks have fixed waiting periods. You may not be able to sell when you want to.

3. Slashing

If the validator you use misbehaves, or goes offline in some setups, part of the stake can be lost. Picking a validator matters.

4. Platform risk

If you stake on an exchange, the exchange holds your coins. If it fails, gets hacked or freezes withdrawals, your coins are stuck with it. Read our guide on self-custody vs exchange.

5. Smart-contract risk

Liquid staking and DeFi staking run on code. Code can have bugs. Hacks of staking and lending apps have happened.

Rules change (dated facts)

In February 2023, the US exchange Kraken agreed with the SEC to shut down its US staking service and pay $30 million. Since then, US regulators' views on staking have shifted, and more US platforms offer it again.

That's the pattern for crypto in general: the rules have changed fast, and they can change again. Check how your platform holds staked coins, and what happens to them if the platform fails.

Taxes (US basics)

In July 2023, the IRS said in Revenue Ruling 2023-14 that staking rewards count as income in the year you gain control of them, valued at their market price then. Selling them later can also create a gain or loss.

That's a general rule, not advice for you. See our crypto taxes basics, and talk to a tax professional.

Safety checklist

1. Never share your seed phrase to "activate" staking. Real staking never needs it.
2. Start from the official app or site you typed in yourself. Fake staking sites with "guaranteed" high rates are a classic scam. See crypto scams to avoid.
3. Know the unstaking wait before you start.
4. Check the cut. Services take a share of rewards. Compare it.
5. Only stake coins you'd be fine holding through a big drop. Staking doesn't change the coin's risk.

Try it today (no money needed)

1. Pick one proof-of-stake coin. Look up how long it takes to unstake.
2. Find its current yearly supply growth (the network's issuance).
3. Compare that with the reward rate offered. How much of the reward is just keeping your share the same?

Questions