What Is Staking in Crypto? Earning Rewards for Locking Up Coins

Staking is locking up coins to help run a blockchain, and being paid a share of the network's rewards for doing it. Networks such as Ethereum, Solana and Cardano use it in place of mining: instead of proving you spent electricity, you put coins down as a deposit that you lose part of if you misbehave. It works like a security deposit that earns interest — the money sits there as a promise to behave, and behaving pays.

How does staking keep a network honest?

Somebody has to check transactions and add new blocks. On a staking network those somebodies are called validators, and they are picked to propose blocks roughly in proportion to how much they have locked up. Do the job properly and you collect rewards. Break the rules, or stay offline for long stretches, and the network takes a slice of your deposit, a penalty known as slashing. Ethereum switched from mining to staking in September 2022, and running your own validator there takes 32 ETH.

How do people stake without 32 ETH?

Almost everyone stakes through someone else, in one of three ways:

• An exchange. A button in the app: the exchange runs the machines and keeps a cut of the rewards. Simplest, but your coins sit with a company rather than with you.
• A staking pool such as Lido. Your ETH joins a large pot and you get a token back that stands for your share and keeps earning while you hold it.
• Delegating. On Solana and Cardano you point your coins at a validator from your own wallet, without handing the coins to anybody.

What should you check before staking?

Three things. How long the coins are tied up, because some networks make you wait in a queue for days to get them back. What the reward really is: on Ethereum it has been a low single-digit percentage a year, so anyone advertising twenty or thirty percent is either taking a risk they have not explained or running a scam. And who is holding the coins while they are staked, since a middleman that fails takes your deposit with it.

A sensible first step is to stake a small amount, watch how long the exit actually takes, and only then decide whether to do more. Remember that rewards are paid in the same coin you staked, whose value moves on its own. Read next: what decentralization means and exchange or wallet, where to keep your coins.