Quick Answer: Staking is when you commit your cryptocurrency to help support a blockchain network and may earn rewards in return. Your crypto gets "locked" for a period while it helps verify transactions, and you may receive additional crypto as compensation.
Key Takeaways
- What it is: Staking involves locking up your crypto to help validate transactions on a blockchain network
- How rewards work: You may earn additional cryptocurrency (usually the same type you staked) as a reward for supporting the network
- Which cryptos support it: Major Proof-of-Stake cryptocurrencies include Ethereum (ETH), Solana (SOL), Cardano (ADA), Polkadot (DOT), and Tezos (XTZ)
- No hardware required: Unlike mining, staking doesn't require expensive equipment or technical expertise
If you've been around crypto for any length of time, you've probably heard the term "staking." Not quite sure what it means? You're in the right place.
Here's a simple breakdown of staking*, how it works, and why it matters.
What is Staking?
Staking is when you commit your cryptocurrency to help support a blockchain network. In return, you may earn rewards over time.
When you stake, your crypto gets "locked" for a certain period. During that time, it can't be sold or traded, but it's doing a job behind the scenes. It's helping verify transactions and keep the network running smoothly. In exchange, you may receive a reward, often paid in the same type of crypto you staked.
That's staking in a nutshell: You lock up your crypto. It supports the network. You may earn more crypto as a reward.
Still Not Clicking? Let's Look At It A Different Way
Imagine staking like planting a fruit tree.
You place the seed in the ground (your staked crypto). You can't move it or eat the fruit right away. But over time, as it grows and contributes to the orchard (the network), the tree starts to produce fruit (rewards). When harvest comes, you get your share.
Even if you're not the one trimming branches or watering every day, your tree is part of the system and it's working for you.
How Staking Works
When you stake cryptocurrency, your assets are delegated to help validate transactions on the blockchain. Here's the basic process:
- You choose a cryptocurrency that supports staking (like ETH, SOL, or ADA)
- You lock up your crypto through a platform or wallet
- Your staked crypto helps verify transactions on the network
- You may receive rewards, typically paid in the same cryptocurrency
Most everyday investors participate as "delegators," meaning they stake through a platform that handles the technical work. This makes staking accessible without requiring specialized knowledge or equipment.
What is Proof-of-Stake?
To understand staking, you need to know why it exists. That brings us to something called Proof-of-Stake, or PoS.
Proof-of-Stake is a system that certain blockchains use to process and confirm transactions. It's how the network stays accurate, secure, and decentralized without relying on massive amounts of energy.
Here's the idea: instead of using computers to solve complex puzzles like Bitcoin does (called Proof-of-Work), Proof-of-Stake relies on people locking up their crypto to help verify transactions. When someone stakes their crypto, they're signaling trust in the network and in return, they may be selected to help confirm a new block of data.
That's what your staked crypto is doing - it's helping the system run.
Proof-of-Stake vs. Proof-of-Work
|
Feature |
Proof-of-Stake (PoS) |
Proof-of-Work (PoW) |
|
Transaction Processing |
Based on amount of crypto staked |
Based on computing power |
|
Hardware Required |
Internet connection only |
Expensive specialized equipment |
|
Energy Use |
Low energy consumption |
High energy consumption |
|
Participation Method |
Staking/validating |
Mining |
|
Examples |
Ethereum, Solana, Cardano |
Bitcoin |
|
Security Model |
Economic stake as collateral |
Computational work as proof |
Which Cryptocurrencies Support Staking?
Several major cryptocurrencies use Proof-of-Stake and support staking:
- Ethereum (ETH): The second-largest cryptocurrency by market cap, transitioned to PoS in 2022
- Solana (SOL): Known for fast transaction speeds and low fees
- Cardano (ADA): A research-driven blockchain platform
- Polkadot (DOT): Enables cross-chain transfers of data and assets
- Tezos (XTZ): A self-amending blockchain with on-chain governance
The Benefits of Staking Crypto
Here are a few reasons why people stake crypto:
Earn Rewards
When you stake your crypto, you may receive rewards over time. Staking reward rates vary by network and can change based on factors like total amount staked on the network and network performance. Rewards are not guaranteed.
Passive Participation
Once you stake, everything runs in the background. You don't have to manage anything day to day; your crypto does the work for you.
No Hardware or Mining Required
You don't need expensive equipment or technical knowledge. With staking, most people simply lock their crypto using a trusted platform or provider.
Energy-Efficient
Unlike crypto mining, staking uses very little power. It's a more sustainable way to support blockchain technology.
Risks of Staking
Staking involves considerable risk. Before participating, consider these key risks:
- Slashing: If a validator misbehaves (like having significant downtime or "double signing"), staked tokens may be reduced as a penalty
- Lock-up Periods: Staked crypto cannot be sold or traded during the staking period. Unbonding periods vary by network (e.g., Solana: 2-4 days; Ethereum: up to 44 days)
- Market Volatility: The value of your staked crypto can decrease regardless of rewards earned
- Rewards Not Guaranteed: Staking rewards depend on network performance and are never guaranteed
- Liquidity Risk: You may be unable to access your staked assets during favorable market conditions
Stake Crypto at iTrustCapital
If you're interested in staking, you can do it inside a Premium Custody Account (PCA) or a tax-advantaged Crypto IRA** at iTrustCapital.
Eligible crypto assets include Solana (SOL) and Ethereum (ETH), with more supported assets planned for the future. We make it easy to stake, all while keeping your assets secure.
Click here to learn more and stake today.
*Staking involves considerable risk. See Staking Risks for more information.
**Some taxes may apply.
Frequently Asked Questions
What is staking in crypto?
Staking is when you commit your cryptocurrency to help support a blockchain network. Your crypto gets "locked" for a period while it helps verify transactions, and you may earn additional crypto as a reward. It's similar to earning interest in a savings account, but the blockchain network provides the reward instead of a bank.
How much can you earn from staking?
Staking reward rates vary significantly by cryptocurrency and network conditions. Rates are typically expressed as an annual percentage yield (APY) and can change over time based on factors like total network participation and protocol updates. Rewards are not guaranteed, and you should consider more than APY when deciding whether to stake.
What are the risks of staking?
Key risks include slashing (where staked tokens are reduced due to validator misbehavior), lock-up periods that prevent selling during market movements, market volatility affecting your principal, and the fact that rewards are never guaranteed. You should conduct your own research before staking any cryptocurrency.
Which cryptocurrencies support staking?
Major cryptocurrencies that support staking include Ethereum (ETH), Solana (SOL), Cardano (ADA), Polkadot (DOT), and Tezos (XTZ). These all use Proof-of-Stake consensus mechanisms. Bitcoin does not support staking as it uses Proof-of-Work.
What is the difference between staking and mining?
Staking uses Proof-of-Stake, where you lock up crypto to help validate transactions—no special hardware needed. Mining uses Proof-of-Work, requiring expensive equipment and significant energy to solve complex puzzles. Staking is more energy-efficient and accessible to everyday investors.
Can you stake crypto in an IRA?
Yes, you can stake certain cryptocurrencies inside a self-directed IRA. Platforms like iTrustCapital allow you to stake supported assets like Solana (SOL) and Ethereum (ETH) within a tax-advantaged retirement account, potentially earning rewards in a tax-deferred or tax-free environment.
How long do you have to lock up crypto when staking?
Lock-up periods vary by cryptocurrency. For example, Solana typically has bonding and unbonding periods of about 2–5 days, depending on the network epoch timing. Ethereum staking timelines are more variable: bonding can take anywhere from hours to several days depending on validator queue demand, while unstaking/withdrawals may take weeks or longer during periods of network congestion. During these periods, staked assets are generally unavailable for selling.
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This article is for informational purposes only and is not intended to constitute investment advice in any way or constitute an offer to buy or sell any cryptocurrency, digital asset or security or to participate in any investment strategy.
iTrustCapital is a fintech software platform for alternative assets. iTrustCapital is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.
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