What Is Crypto Asset Staking? A Guide to Earning Passive Income

What Is Crypto Staking?

Crypto staking is an innovative method for earning passive income with your digital assets while supporting the security and stability of blockchain networks. In recent years, this mechanism has become highly popular among investors, as it offers the potential for higher returns compared to traditional bank deposits, attracting significant attention in the investment community.

Staking is a crucial function in Proof of Stake (PoS) blockchains, where it helps secure the network and enables the creation of new coins. In practice, staking involves locking up your crypto assets for a set period to contribute to blockchain operations, earning rewards in return.

Blockchains using a PoS consensus mechanism require users to “stake” a specified amount of cryptocurrency to validate new transactions and add blocks to the network. This process ensures that only valid transactions and data are recorded, maintaining the blockchain’s reliability and security.

To qualify as a transaction validator, users must lock a certain amount of crypto as collateral. Some blockchains have minimum staking requirements, while others allow participation with small amounts. This flexibility makes staking accessible to investors of all sizes.

Staking also comes with responsibilities. If a user validates incorrect or fraudulent data, they may lose part or all of their staked assets as a penalty. Conversely, correctly validating data earns additional crypto rewards. This incentive structure motivates participants to validate accurately and reliably.

Staking is foundational to the consensus mechanisms of major cryptocurrencies by market capitalization—such as Solana (SOL), Ethereum (ETH), and Binance Coin (BNB)—serving as the backbone of these networks’ stability and growth.

What Is Proof of Stake?

Proof of Stake (PoS) is a consensus mechanism for blockchains, regarded as an innovative alternative to traditional Proof of Work (PoW). While PoW blockchains secure their networks and generate new coins through mining, PoS uses staking as a different approach.

Blockchains and cryptocurrencies that employ PoS are notable for low transaction fees and reduced energy consumption. This is a key environmental advantage and positions PoS as a sustainable blockchain technology. Since PoS does not require powerful computers or massive electricity usage, it is accessible to a broader range of participants.

Understanding the differences between PoS and PoW is essential, as some users confuse the two. Their functions are fundamentally distinct: PoW coins are mined and cannot be staked, while PoS coins are supported and generated through staking.

In PoS blockchains, block creators are called “validators” rather than “miners.” Validators are individuals or groups who commit their own assets to participate in the network. The more a validator stakes, the higher the chances of adding new blocks and earning staking rewards.

Validators bear critical responsibilities. Malicious actions—such as producing invalid blocks—are penalized by forfeiture or destruction of staked assets. This system motivates validators to act honestly, supporting network health and integrity.

Validators can increase their influence by accepting delegated stakes from other holders. The more delegated stake a validator receives, the more weight they carry in consensus voting, giving validators with larger stakes greater influence in the network.

Transaction validation through staking is not determined solely by an individual’s token holdings. For example, individual holders can join staking pools, where pool operators validate transactions on their behalf. This structure allows holders with small amounts to participate in staking.

Validators must also follow rules specific to each blockchain. For example, Ethereum requires a minimum of 32 ETH per validator. For those unable to meet this requirement, staking pools allow cooperation among holders with smaller balances. Typically, third-party operators manage staking pools rather than the blockchain itself.

What Is a Staking Pool?

A staking pool is a group of crypto holders who combine their assets to earn rewards. This system is especially important for accessing blockchains with high minimum staking requirements, which may be difficult for individuals to meet alone.

For example, Ethereum requires at least 32 ETH to become a validator. Investors with less than 32 ETH can only realistically stake on Ethereum by joining a staking pool. This setup allows participants with small holdings to earn rewards through Ethereum staking.

One key advantage of staking pools is that they do not require technical expertise. Running a validator node independently demands specialized knowledge and 24/7 server maintenance, but staking pools eliminate these technical barriers.

Participating in a staking pool is generally straightforward. Users transfer funds to a crypto wallet, send the relevant coins, and select a pool. Many exchanges and platforms offer intuitive interfaces, making it easy for beginners to get started.

However, note that staking pools charge fees to cover operating costs, deducting these from user rewards. Because fee rates differ across pools, it’s important to compare your options before joining.

Recently, concerns have arisen about some staking pools becoming too large and exerting excessive control over the blockchain. Concentrating power in a single pool undermines blockchain decentralization, the core principle of the industry. To support a healthy ecosystem, it is advisable to distribute stakes across multiple pools.

Pros and Cons of Crypto Staking

Benefits of Crypto Staking

Crypto staking provides many compelling benefits for investors.

The primary advantage is the ability to easily earn interest on your crypto holdings. With bank deposit rates remaining low, staking is regarded as an investment tool that can deliver high returns—sometimes 10–20% per year. Since you earn rewards simply by holding, staking suits long-term investors seeking steady growth.

Another major benefit is the lack of specialized hardware requirements, unlike crypto mining. Mining needs high-performance GPUs or ASICs and consumes significant electricity, but staking can be done from a regular computer or smartphone, making it accessible even to non-technical investors.

Staking also makes a direct contribution to blockchain security and efficiency. Participants function as validators, verifying transactions and supporting the healthy operation of blockchains. For many, this sense of contributing to the ecosystem’s advancement enhances satisfaction beyond financial gains.

Staking also offers environmental advantages. It is far more eco-friendly than mining, which is criticized for high energy consumption and environmental impact. As sustainability becomes more important, staking’s low environmental impact is a major value proposition.

Drawbacks of Crypto Staking

However, staking also involves certain drawbacks and risks.

The greatest risk is the price volatility of cryptocurrencies. Even if staking rewards are high, a substantial drop in asset value can lead to an overall loss. Small-cap coins offering high rewards often do so to attract attention, but they present a greater risk of price crashes.

Another issue is liquidity. During the staking lock period, your coins cannot be traded or used. This means you may miss profit-taking opportunities during rallies or be unable to sell in a downturn.

Some cryptocurrencies also impose an unbonding period of seven days or more when unstaking. During this time, you cannot earn rewards or sell your assets, so your funds are fully locked. Always confirm the minimum lockup and unbonding periods before staking.

For risk-averse investors, an alternative to staking is investing in shares of crypto-related companies. By investing in stocks, you can benefit from the industry’s growth while reducing direct exposure to crypto price swings.

How to Start Crypto Staking

Anyone who owns crypto on a PoS chain can participate in staking. However, to become a validator with block creation rights, you need to meet requirements such as a minimum coin balance, technical knowledge, and a computer that is always online. If validator operations are interrupted, your staked assets may be forfeited, so stable system management is essential.

For individual investors, there are simpler ways to stake. Leading crypto exchanges offer user-friendly staking services even for beginners. Here’s how to get started:

Step 1. Buy Proof of Stake (PoS) Crypto

Not all cryptocurrencies can be staked. Choose a native coin from a PoS blockchain. Research the staking mechanisms, expected rewards, and processes for major staking coins such as Ethereum, Cardano, Polkadot, and Solana before investing.

To buy crypto directly, use an exchange that supports fiat currencies, allowing you to purchase with dollars or yen. This makes it easy for beginners to get started.

After purchase, you can often stake directly on the same exchange—saving time, blockchain fees, and simplifying the process.

Another advantage of staking on exchanges is that there’s no need to buy expensive validator equipment. You can start with any amount, allowing you to gradually increase your investment while minimizing risk.

However, staking terms and supported cryptos vary by exchange. Compare several platforms before purchasing to find the one that best fits your needs.

Step 2. Start Staking

After buying crypto, you can initiate staking directly on the exchange’s platform.

Most exchanges provide a dedicated “Staking” page where you can search for your chosen crypto. The user interface is intuitive and easy to navigate, even for first-time users.

Step 3. Stake Your Crypto

Once you select your crypto, choose the staking options that best align with your investment strategy.

Most cryptocurrencies offer multiple staking periods, such as 30, 60, 90, or 120 days. Generally, longer terms offer higher reward rates. Some coins offer flexible staking, which lets you unstake and claim rewards at any time.

You can freely choose staking terms and amounts on most platforms. Select the best combination based on your risk tolerance and investment goals.

Note that staking slots on exchanges are often limited. Popular plans can fill up quickly. If a slot isn’t available, check back periodically, as new availability may open later.

That’s it—your setup is complete. You’re now ready to earn staking rewards, which are usually credited automatically on a regular schedule. No special action is needed; simply watch your rewards grow.

Which Cryptocurrencies Are Best for Staking?

1. Polkadot

Polkadot is an advanced blockchain project developed by Ethereum co-founder Gavin Wood, leveraging scalable multi-chain technology. Its technical innovation and compelling staking rewards make it one of the top staking coins.

On major exchanges, the minimum staking threshold is just 0.1 DOT, so you can start with a small investment. Staking reward rates depend on terms—flexible staking (no lockup, free withdrawal) offers over 5%, while 120-day terms offer 16% or more. Running your own validator node requires a substantial commitment of 350 DOT.

Polkadot is popular among investors seeking passive income through staking. It ranks in the industry’s top 10 by market cap and is recognized for solid project operations and technical development. Its future prospects are strong, making it one of the best long-term staking options.

2. Tezos

Tezos uses a unique Liquid Proof of Stake (LPoS) mechanism that allows holders to delegate block voting rights—a key differentiator from other cryptocurrencies.

XTZ, the native coin, is generated through a process called “baking,” reflecting the culture of the Tezos community. Users can participate as “bakers,” staking XTZ to help validate new blocks and earn attractive rewards.

On major exchanges, flexible staking pays around 3.12%, while 120-day staking offers up to 11.75%. While rates vary with market conditions, Tezos provides relatively stable returns.

You can also stake with a personal wallet, requiring as little as 1 XTZ. The first payout arrives after 35–40 days, with subsequent rewards paid every three days—an appealing feature for investors.

Tezos rewards are generally stable, and XTZ ranks among the top staking coins. Annual returns average 6.75–10.60%, making it a strong choice for those seeking stable income.

3. Polygon

Polygon is a layer-2 blockchain designed to solve Ethereum’s scalability issues. Its native coin, MATIC, is known for its suitability as a staking asset.

Polygon excels by dramatically increasing Ethereum’s scalability and ensuring interoperability among Ethereum-based DApps. With speeds up to 65,000 transactions per second, Polygon enables fast, efficient transactions—making it a top staking coin.

Entry requirements are low. Delegators can join with one coin, and actual staking begins with just two coins, making it easy for many investors to participate.

Users can start staking via MetaMask or other popular wallets, or through supported exchanges. Staking rewards fluctuate with network conditions and the number of coins staked, but remain attractive.

4. Algorand

Algorand is an innovative platform that enables scalability through validator nodes and instant transactions, providing an efficient staking experience.

ALGO allows anyone to become a validator with just one coin, drastically lowering the entry barrier. While this makes staking accessible, the low requirement can reduce incentives to run a validator, so actual validator numbers remain modest.

Returns depend on the staking option, but average annual yields are typically 4–10%. Although lower than some major cryptocurrencies, the reduced risk makes Algorand suitable for conservative investors.

5. Solana

Solana is a high-performance blockchain focused on scalability, known for low fees and fast transactions. Its technical strengths place it among the industry’s top projects by market cap, drawing strong future expectations.

SOL is highly rated as a staking coin. Users cannot operate their own nodes, but the network has many reliable validators, making staking accessible to all.

Users delegate their stake to selected validators and receive a share of the rewards those validators earn. This structure makes Solana staking easy for all investors, regardless of technical expertise.

SOL has experienced significant price appreciation, with past highs of $210 per coin. Combined with staking rewards, this creates the potential for strong returns. Annual staking yields typically range from 7–11%.

Should You Stake Crypto?

Crypto staking is an open investment method, but it is not suitable for every investor. Carefully consider your investment objectives and risk tolerance before deciding.

That said, if you want to put your crypto holdings to work and earn passive income, staking is an excellent choice. With bank deposit rates at historic lows, staking yields above 10% per year make it a powerful way to grow your assets.

It’s important to note that not all cryptocurrencies can be staked. PoW coins like Bitcoin are not eligible, so select a cryptocurrency that supports the PoS consensus mechanism.

If you do not yet own staking-enabled crypto, start by researching potential options. Assess each project’s technical features, development team, community engagement, and roadmap.

Before buying, consider whether each coin or token is suitable for long-term investment. Staking typically requires locking assets for a period, so conviction in the project’s long-term outlook is essential.

Only purchase staking crypto if it fits your long-term strategy. Avoid impulsive investing and make decisions based on thorough research and analysis. Always use surplus funds—never invest money needed for daily living.

FAQ

What Is Crypto Staking? What Is the Basic Mechanism?

Crypto staking is the process of depositing assets to help secure a Proof of Stake blockchain and earn rewards. Participants receive native crypto rewards for supporting network validation. This can be done by running a validator node directly or by delegating assets to another party.

How Can I Earn Passive Income Through Staking?

You can earn rewards by staking crypto on networks like Ethereum or Solana and participating in network operations. Passive income is generated from transaction fees and newly issued tokens.

What Are Typical Staking Yields? Please Compare Major Cryptocurrencies.

Staking yields vary by cryptocurrency: OKJ offers 6.88%, Bitpoint 8.40%, SBIVC Trade 8.2%, and GMO Coin 6.98%. Since rates fluctuate with market conditions, always check for the latest details.

What Are the Risks of Staking? Is It Safe?

The main risk is market volatility—token values can change during the staking period, impacting total rewards. There are also risks related to hard forks and smart contracts. Always choose reputable protocols.

What Is the Minimum Investment Required for Staking?

The minimum stake varies by cryptocurrency. For Ethereum, it’s 1 ETH; some other protocols accept even smaller amounts. Check each project’s specific requirements.

When Will I Receive Staking Rewards?

Staking rewards are credited on Wednesdays, 28 days after the previous payout. The calculation period follows this same 28-day cycle and is processed automatically.

What’s the Difference Between Mining and Staking?

Mining relies on computational power and consumes significant energy, while staking is based on asset holdings and is more energy efficient. Staking enables passive income at lower cost.

Which Cryptocurrencies Are Best for Beginners Starting Staking?

Ethereum and Cardano are recommended for beginners. Ethereum offers high rewards, while Cardano allows for low-cost staking. Both provide high liquidity and stable returns.

Are Staking Rewards Taxable?

Yes, staking rewards are subject to Japanese income tax and must generally be reported as miscellaneous income. Consult your local tax office for details on calculations.

Can I Sell Crypto While It’s Staked?

Staked crypto cannot be sold or transferred during the staking period. Assets remain locked until staking ends.