What Is Staking Crypto and How Does It Work?

• Staking lets you earn crypto rewards by helping support a proof-of-stake blockchain.

• Instead of mining, you lock up or delegate your tokens so the network can use them to help validate transactions.

• In return, you can earn more of that token over time, though rewards and risks vary by network and platform.

Ty Gaines' expert take

"At TokenTax, we’ve helped many clients who are surprised by the tax complexities of crypto staking. From staking rewards being taxed as income to the challenges of reporting when you sell those tokens later, the tax situation can get complicated fast. We work with clients to ensure they’re fully compliant while minimizing their tax burden. Whether you’re staking on multiple platforms or dealing with large-scale staking rewards, having detailed records and expert guidance is key to avoiding mistakes and staying ahead of IRS regulations."

- Ty Gaines, EA, Tax Expert at TokenTax

When you stake your coins, they end up in a special account (tied to your existing wallet) designated for staking. You choose a validator, which is a node that proposes and confirms new blocks. The more tokens delegated to a validator, the higher its odds of being chosen to produce blocks. The validator earns rewards for its work, keeps a commission, and shares the rest with its delegators. Ethereum has no native delegation, so you either run a validator or stake through a pool, exchange, or liquid staking token.

Most networks fund these rewards through token inflation or a cut of transaction fees. If a validator tries to cheat or fails to stay online consistently, the network might slash some of their stake. On Cosmos Hub, delegators can lose part of their stake when their validator is slashed, by 5 percent for double signing and 0.01 percent for downtime. On Ethereum, slashing hits validators and, through them, pool stakers. Since Referendum 1910 in July 2026, Polkadot nominators can no longer be slashed, but validators still can. That said, choosing a stable, reputable validator is always key to consistent returns.

Staking is how proof-of-stake blockchains select block validators, offering a less resource-intensive alternative to the proof-of-work model. By staking, participants essentially vouch for the network's ongoing success, locking up tokens to validate blocks. This removes the need for large mining operations and uses far less energy.

Staking also gives holders a direct stake in the network's health, since misbehaving validators can lose rewards or stake.

Staking is only possible on blockchains that use proof of stake (PoS) or delegated proof of stake (DPoS). Under PoS, validators lock tokens to propose or verify blocks. With DPoS, regular holders pass their tokens' "voting rights" to chosen delegates, who then perform validation.

Proof of work vs proof of stake

Proof of work needs massive computing power to solve algorithmic puzzles, which uses a lot of electricity. Proof of stake, meanwhile, picks validators based on how many coins they stake, significantly reducing energy demand. Many newer blockchains focus on PoS due to its more efficient resource usage.

What happens after staking crypto?

The first reward can take a while. Cardano pays its first rewards about 15 to 20 days after you delegate. Solana stake starts earning at the next epoch. A new Polkadot nomination takes about 48 hours, and payouts must be claimed before they expire after 84 eras. A new Ethereum validator waits in an activation queue first. If you decide to unstake, you'll typically have to wait through an unbonding or unlock phase. After that, your tokens can be traded or moved again.

Staking can earn yield on coins you already plan to hold. The staking rewards might help offset token inflation or add to your overall holdings over time.

But there are potential downsides. Locked tokens won't be liquid if you need to offload them quickly, and validator issues may lower your rewards. Plus, the underlying asset can swing in price. High yields won't matter much if the coin's value dives.

There is always risk involved in crypto. Do your own research and understand your risk tolerance before investing or staking.

Plenty of services offer staking, each with different rates, fees, and user experiences. Exchanges often let you stake with a click, though you give up control of your private keys. Non-custodial wallets put you in charge of your tokens and let you pick your validator directly.

For beginners, a centralized exchange's streamlined approach might simplify everything. Meanwhile, seasoned users often lean toward self-custody wallets or specialized DeFi protocols for more flexibility and possibly better returns. Whichever path you pick, it's worth checking the details on how they calculate rewards and how long funds stay locked.

See our expert picks of the best crypto staking platforms.

In the US, staking rewards are income at their fair market value on the date you gain control of them, meaning you can sell or move them (IRS Revenue Ruling 2023-14). When you later sell or trade those tokens, you have a capital gain or loss measured from the value you reported as income. Knowing when you earned each reward helps you calculate everything correctly.

Keep a record of the date, time, and value of each reward. Most people report staking rewards on Schedule 1, or on Schedule C if staking is a business, where self-employment tax may apply. Sales go on Form 8949. Since January 1, 2025, you have tracked the cost basis separately for each wallet or account. Form 1099-DA reports sales through brokers. Starting in 2026, it also shows basis, but only for coins bought in that same account after 2025. Staking rewards are not reported on Form 1099-DA, and DeFi platforms do not issue it.

Pro tip
Prepare for tax season and make a strategy with our expert guide to crypto staking taxes.

Cardano staking: If you hold ADA, read our Cardano staking guide for a closer look at how rewards, delegation, and validator choice work on that network.

Solana staking: Our Solana staking guide explains how Solana staking works, what to expect from rewards, and how to choose a validator.

Best crypto to stake: Still comparing options? See our roundup of the best crypto to stake for a broader look at rewards, risk, and ease of use across major coins.