Crypto staking: what it is and how it works
Staking locks crypto to help a proof-of-stake network confirm transactions and earn rewards. In the US, rewards are generally taxable income when received.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
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- Validators confirm blocks; delegators may assign coins to them.
- Staked coins can be locked and can lose value or be slashed.
- Staking uses locked coins rather than mining hardware to secure the chain.
- In the US, staking rewards are generally taxable income when received.
Proof-of-stake networks choose validators by committed coins, not computing power. Ethereum is one such network, and the Ethereum blockchain records its validators and transactions.
What is staking and why stake?
Staking locks cryptocurrency to help a proof-of-stake network confirm transactions and earn rewards. Validators stake coins to confirm blocks, and delegators assign coins to a validator for a share of rewards. The network selects validators in proportion to the coins they commit.
How do staking rewards work?
Rewards come from new coins or network fees, and they vary by network and validator. A network may pay in its own coin, or it may pass along fees to validators.
- Network rules set the reward and schedule.
- Validator performance affects what you receive.
- The amount you stake sets your share.
What risks does staking have?
Staked coins can be locked, so you may not be able to move them right away. Their market value can fall while locked. Slashing can destroy part of a validator's stake, and pooled or delegated services add platform risks.
How is staking taxed in the US?
The IRS treats cryptocurrency as property. Staking rewards are generally taxable income when you receive them, valued at market value on that date.
How is staking different from mining?
Staking and mining both secure a blockchain. Mining uses machines and electricity. Staking uses locked coins to choose validators, so it usually uses far less energy.
Frequently asked questions
You do not need to run your own validator. Many wallets, exchanges, and pooled services let you delegate or join a pool.
Liquid staking gives you a token that represents staked coins, which you can sometimes use in other apps while the coins stay locked.
Not always. Many networks make you wait through an unbonding period, and some platforms add delays or limits.
No. Staking is native to proof-of-stake and some hybrid networks; Bitcoin has no native staking.
