Staking in cryptocurrency: a complete guide for investors

If you have cryptocurrency that is just sitting in your wallet, why not make it work? Staking is exactly what you need. It is the process where you lock your assets in the blockchain network, help it function, and earn additional income for it. Essentially, this is passive income for those who believe in the long term development of the crypto ecosystem.

Proof of Stake Mechanism — the Basis of Staking

Not all blockchains have Staking. This is only possible in networks that use the Proof of Stake consensus mechanism (PoS). This approach was developed in 2011 as a more efficient alternative to the traditional Proof of Work (PoW).

The main difference is simple: in PoW networks ( like Bitcoin ), miners solve complex mathematical problems using huge computational power. This requires a lot of electricity and equipment. In PoS networks, instead of miners, validators work, chosen by the network itself based on the size of their staking.

Why is this important? Because PoS is much more energy-efficient. Instead of a race for computational power, the network simply selects validators fairly, taking into account their willingness to participate in securing the network by staking their own assets. This creates a natural security mechanism — the validator is incentivized to work honestly because their own funds are at stake.

How Staking Actually Works

The process seems complicated, but in reality, everything is logical:

Validator selection. The network selects validators based on several factors: the size of their stake, the duration of their participation in the network, and sometimes a random component ( to avoid excessive centralization ). Obtaining the role of a validator does not mean buying a movie ticket — real capital needs to be invested.

Verification and Validation. The selected validator takes a set of transactions from the mempool (queue of unconfirmed operations), checks their correctness, and assembles them into a new block. It's like being a notary — you verify that everything is fair and put your stamp on it.

Adding to the blockchain. A verified and signed block is added to the chain as part of the distributed ledger. Now this information is stored on thousands of nodes in the network and is immutable.

Receiving rewards. For the work done, the validator receives a reward — usually a combination of transaction fees and new coins that the network mints to motivate participants. The size of the reward depends on many parameters, which we will discuss later.

Which cryptocurrencies support Staking

Staking is available in most major PoS blockchains:

• Ethereum — after the Shanghai upgrade (September 2022) staking ETH has become more accessible than ever.
• Solana — a fast blockchain with low fees and attractive rates
• Cardano — a network with a large ecosystem of staking pools
• Polkadot — a project with a flexible delegation mechanism
• Avalanche, Cosmos and dozens of other networks

But Bitcoin will not make this list — it operates on PoW, and staking is impossible for it.

Four paths to Staking — choose your own

There are several ways to start staking, and each is suitable for different levels of preparation and capital.

Independent staking through your own node

This is for those who are ready to seriously delve into the technology. You launch your validator node, invest the necessary minimum of cryptocurrency (, for example, for Ethereum it's 32 ETH), and are responsible for technical security. Pros: maximum control, 100% rewards, independence. Cons: technical knowledge is needed, risk of losing funds through slashing ( penalties for improper node operation), constant responsibility.

Staking through platforms

The simplest way. You just deposit funds on the platform (, you choose it yourself ), and the rest is done for you. No technical skills are needed. The platform manages the nodes, distributes rewards, and takes a portion as a commission. Downside: you trust your funds to a third party, so you need to carefully choose reliable services.

Delegation to the selected validator

Hybrid approach. You choose a validator that you like (, for example, based on the size of their commission or reputation ), and delegate your coins to them. The validator works, earns rewards, and sends you your share minus the commission. Some wallets integrate this feature directly into the app.

Staking pools — collective approach

If you do not have enough funds for a minimum of (, for example, 32 ETH), you can join a pool. There, coins from different participants are gathered, together they set up a validator, and the reward is distributed proportionally to each person's contribution. This is democratic, but you need to choose a reliable pool — commissions can vary.

Liquid Staking - staking without loss of liquidity

Regular staking has a problem: your coins are locked, you can't sell them, exchange them, or use them in other services. This limits opportunities, especially if the market starts to rise.

Liquid staking solves this problem. When you deposit coins into liquid staking, you are issued a special token (LST — Liquid Staking Token), which represents your position. This token can be traded, sold, used in DeFi protocols, and rewards are accumulated automatically.

For example, when staking ETH through certain services, you can receive stETH or a similar token, which rises in price along with the accumulation of rewards. You maintain flexibility while earning at the same time.

There is also native liquid staking, like on Cardano, where you directly delegate ADA and retain access to your funds without an additional token.

Why People Stake Cryptocurrency

Generating passive income. This is the most obvious reason. Instead of just sitting in a wallet, cryptocurrency earns a percentage. The annual yield (APR) varies from network to network — from 3-5% in major networks to 10-20% in less popular ones.

Support for the ecosystem. Many participants believe in projects and want to help them grow. Staking is a form of active participation. You help the network to be more secure and decentralized.

Right to governance. In some networks, stakers gain the right to vote on the development of the protocol. You not only earn income but also influence the future of the project.

Eco-friendliness. Unlike PoW mining, staking requires virtually no electricity. This attracts investors who care about the environment.

Risks to Consider

Staking is not a free lunch. There are real risks that need to be considered.

Price volatility. If the price of your cryptocurrency drops by 50%, the rewards from Staking are unlikely to compensate for the losses. You lock up capital and hope for a recovery, but there are no guarantees.

Slashing - penalty for mistakes. If you run your own validator and make a mistake (offline, double signing, rule violation), the network may take part of your stake as a penalty. In large networks, this is rare, but possible.

Risk of Centralization. If staking is controlled by a few large players, it threatens the decentralization of the network. This is a long term systemic risk.

Technical errors. Smart contracts may contain bugs. If you are using a new liquidity Staking protocol, there is a risk that a vulnerability may be discovered and funds may be lost.

Platform Risk. If you use the platform for staking, you are entrusting it with your funds. If the platform is hacked or absconds with the money, you could lose everything. Always choose reliable ones with a good reputation and audit.

How your reward is calculated

Staking rewards depend on several factors:

• Your contribution. The more you invest, the greater the reward.
• Participation Time. Some networks offer bonuses for long term participation.
• Total staking amount in the network. If a lot of coins have been added to the network, the rewards will be lower for each ( divided among more validators ).
• Fees and inflation. The network determines how many new coins to mint annually as a reward.

Rewards are typically expressed as an annual percentage rate (APR). If the network offers a 6% APR, it means that over the year you will receive 6% of your stake in rewards.

In some networks, the reward is fixed, while in others it varies depending on network parameters.

How to start staking in 2024

1. Choose a network and cryptocurrency. Decide which project you like and supports Staking. Study the minimum requirements and reward rates.

2. Choose a staking method. Decide whether you will run your own validator, use a platform, delegate, or join a pool. Each option has its pros and cons.

3. Prepare your wallet. Use a reliable wallet that supports Staking and your chosen blockchain. Make sure it is a popular and trusted wallet with a good reputation for security.

4. Start small. If you are new to this, do not invest everything at once. Start with a smaller amount, understand the process, and make sure everything works as expected.

5. Monitor your rewards. Keep track of whether you are receiving the expected rewards. Withdraw your rewards regularly if they are available.

Can coins be withdrawn back

In most modern networks, yes, you can. But it was more difficult before. For example, in Ethereum, prior to the Shanghai update in 2023, users could not withdraw staked ETH — they had to wait and only receive rewards.

Now all major networks allow you to withdraw your stake relatively quickly, although some may impose a waiting period of (several days or weeks).

Check the specific rules of your network and platform — withdrawal times vary.

Why not all cryptocurrencies can be staked

Staking is only possible in PoS networks. If the cryptocurrency uses PoW ( like Bitcoin ), staking is not possible — mining is used there.

Even in PoS networks, not all tokens support staking. Some projects use other motivation mechanisms or simply have not implemented staking in their protocol.

Before depositing funds, always check official sources — does the specific coin support Staking and under what conditions.

Conclusion: is staking for you or not

Staking is a real way to earn on cryptocurrency if you plan to hold it long term. It is more environmentally friendly than mining and more accessible than trading.

However, do not forget about the risks. Choose reliable networks, do not rush with new protocols, study the terms before investing, and do not invest more than you can afford to lose. Start with proven large networks, gain experience, and gradually expand your staking portfolio.

The main thing is to make decisions consciously, not under the influence of FOMO. Staking should be part of a long term strategy, not a short term speculation.