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Crypto staking shouldn’t be intimidating.
For some users, staking is a way to participate in keeping the network secure while earning rewards. However, for newcomers to the staking game, the whole process can feel confusing.
We’re here to help demystify everything.
Read on to learn more about crypto staking and what it means for you.
Let’s start with the basics of crypto staking.
Essentially, stakers, also known as validators, lock up their coins to secure a blockchain network. In return, they get a share of the network-generated revenue.
Think of it like a yield-bearing security deposit.
You lock up your coins to secure the network; you receive interest in return. But this simple explanation is just part of the story.
So, how does this mechanism actually secure the network?
It’s all about how a network comes to a consensus. If this is all new to you, just think of consensus as coming to an agreement.
Instead of deciding on where to eat or who’s doing the dishes, though, this agreement revolves around which transactions are valid. Proof of Stake, the consensus mechanism powering a staking network, offers rewards to users who lock up their coins to protect the network.
The idea is that if you try to cheat the network, your coins get taken away — called slashing.
If you do your job and validate the transaction properly, you get a reward in the form of more coins. These rewards come from network fees and new coin issuance.
The risk of slashing keeps stakers honest.
There are a few different types of staking. Here is what you need to know:
It’s worth noting that staked coins are often locked for a period of time. That means you won’t be able to access them. This will depend on the network you stake with and the type of staking you participate in.
Some staking options, like exchange/platform staking, might not have lockup periods at all.
So that’s the basics of crypto staking. But what about the benefits?
Well, the big benefit you get from staking is obviously the passive income. The amount you receive will depend on various factors and will often fluctuate. For example, the current reward for Ethereum stakers is 2.9% as of February 2025* (data from beaconcha.in), down from 3.5% in January.
These rewards are typically distributed either daily or weekly.
What are some other advantages of staking?
Of course, there are some downsides to crypto staking. The first of which are the required lock-up periods.
While not every staking option demands you lock up your tokens, many do. This could mean there are months when you can’t withdraw your coins. When it comes to risk, lockups open up a few potential possibilities:
There’s also the possibility of exchange/platform staking-specific risks. Some exchanges in the past have gone through their own ups and downs, putting users' staked coins in limbo.
So, no matter how you decide to stake, consider all the potential risks before locking up your coins.
When you stake coins and earn rewards, it puts you in a unique position in terms of taxes.**
You see, staking rewards are considered income and must be reported in the year you receive them* (learn more at irs.gov). Moreover, the value is based on the price at the time you receive those rewards.
If this seems confusing, here is a list of what gets taxed and how**:
To make sure you’re square with the IRS, be sure to keep records of when you receive rewards. Note the value at the time of rewards and how much you received. Additionally, if you’re using a staking platform, be sure to store all the records and statements they might send you.
Also, don’t wait until tax season to start.
Being proactive is the best way to ensure you’re doing things right. Consider using crypto tax software to make the job easier, or consult with a tax professional if you have any questions.
Is crypto staking right for you?
It can be a great way to earn rewards and contribute to a blockchain network. If you’re in it for the long run and don’t plan on selling coins anytime soon, it can be a great way to make your investments work for you.
Of course, there are potential downsides to consider, like the volatility of the crypto market.
Whatever decision you make, Bitcoin Depot is here to help you on your crypto journey. We offer several different ways to purchase cryptocurrency. But, if you’re looking to get involved in staking, consider our buy online service.
There, you can find all kinds of staking-enabled coins, like Ethereum and Solana.
*The information provided above is for informational purposes only. The inclusion of any particular 3rd party site does not imply an endorsement, sponsorship, or partnership between Bitcoin Depot and the 3rd parties listed above. While Bitcoin Depot endeavors to ensure the accuracy and relevance of the information provided, we do not guarantee the reliability of any 3rd party’s information.
** The information provided above is for informational purposes only. While Bitcoin Depot endeavors to ensure the accuracy and relevance of the information provided, it does not constitute tax advice, and you should seek a tax advisor to better understand applicable tax laws and regulations.