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Crypto Staking

15 minutes
crypto staking
Cristian Cochintu
Cristian Cochintu
16 November 2023

Crypto staking is a way of earning passive income, and it can be seen as the crypto world's equivalent of earning interest or dividends while holding onto your underlying assets. 

With staking, you can grow your crypto while you HODL. However, crypto staking presents an indirect risk. If you want to earn rewards in crypto while staking, the volatile asset might suffer dramatic price moves. If your staked assets suffer a large price drop, that could outweigh any interest you earn on them. 

There is quite a bit you should know before you start crypto staking. Here is a quick guide that can help.

Staking Key Takeaways

  • Understand staking – Although crypto staking is a way of earning passive income, is not without risk: crypto prices are volatile and can drop quickly    
  • Follow the process – It is important to note that not all crypto exchanges offer staking and not all cryptocurrencies have staking; 
  • Explore other forms of passive income – Other common forms of passive income include dividends from stock holdings, interest on bonds, and real estate income


What is crypto staking and how does it work?  

Crypto staking is the process of locking cryptocurrency to earn crypto rewards. While this sounds complicated, everyday users can often do it directly from their digital wallets, or they can use services provided by crypto exchanges that will handle the technical details for a cut of the proceeds. 

Staking is needed by proof-of-stake (PoS) blockchains to verify and validate crypto transactions and create new blocks on the network. Without it, the PoS blockchain wouldn’t be able to function.  

Fundamentally, blockchains may vary in the type of consensus mechanism used. The two most popular types of blockchains are proof-of-work (PoW), and Bitcoin is the most famous example. The other one is proof-of-stake (PoS), which requires crypto holders to stake their holdings to validate transactions.  

Each process helps crypto networks reach consensus, confirming that all transaction data adds up as it should. Participants are required to reach that consensus. This is what staking does. Those who hold on to or lock up crypto assets in their crypto wallets are actively participating in the consensus-taking process of these networks. In essence, crypto stakes approve and verify transactions on the blockchain. 

Simply put, crypto staking is a way for investors to earn a passive income and help secure the PoS blockchain network. The blockchain network will determine the specific rewards and give it to the validator (the crypto staker) who delivered the new block.  

You might think of crypto staking in the same way as depositing cash into a savings account. As a reward, the bank pays the depositor interest while the money is in their bank account. The bank can then use the money for lending and other purposes. The act of staking coins is like earning interest. 

What is proof-of-stake (PoS)? 

Proof-of-stake (PoS) is a blockchain consensus mechanism that aims to increase speed and efficiency while decreasing fees. Instead of using expensive computer hardware for solving complex math puzzles, the PoS is helping save costs while also being a less energy-intensive blockchain algorithm. This time-efficient method doesn't require miners to solve complex math problems. Instead, transactions can be validated by those who have invested in the blockchain through staking. 

As it is the case with PoW, network participants invested in maintaining the PoS blockchain earn crypto in exchange for their effort. Although the exact details of each project's implementations may vary, the gist is that users place their tokens on the line to get a chance at adding a block to the blockchain and receive a reward. The tokens they stake act as a guarantee that any transaction added to the blockchain is legitimate. 

Validators, as they are commonly known, are selected by the network based on their stake size and how long they have held it. The most invested participants get rewarded. If the transactions included in a block are later found to be invalid, In what is called a slashing event, transactions in a new block can be found to be invalid, and users can have a portion of their stake burnt by the network. 

What cryptos can I stake?  

The PoS concept is being used by a lot of blockchain networks. Over the past years, many new PoS blockchain projects have been created. Here is a list of common proof–of–stake coins that crypto investors can stake to earn a passive income. Most important crypto exchanges, such as Coinbase, Binance, and Kraken, support all of these crypto-staking coins. 

These cryptos have better yields than traditional financial markets. However, investors should remember the risks associated with investing in cryptocurrency and that they can quickly decrease their value. 


Ethereum is one of the most well-known blockchains. As the first programable blockchain ever created, the platform is now home to countless decentralized projects, from games to exchanges. Although Ethereum was initially launched as a PoW blockchain, as of September 2022, Ethereum uses the PoS consensus and has become more energy efficient. To stake Ethereum, you will need at least 32 ETH. However, if you don’t own that much Ether, you can still stake ETH by joining a staking pool.


Users can help ensure the Aave protocol's economic viability and security by locking their funds in the Defi protocol. These staked tokens may be used to validate transactions, provide voting power or serve as collateral. You can either use a staking pool on an exchange or directly through a digital wallet to stake cryptocurrency tokens. The Aave tokens are placed in a Safety module protocol. This module is a "mitigation tool" to protect against smart contract risks and bugs, exploits, or any other events that could cause funds loss. Aave offers tokens in addition to cash rewards to encourage holders to contribute liquidity to the Safety Module. 


EOS is similar to Ethereum and was created as an alternative decentralized blockchain to Ethereum. EOS tokens can be staked for rewards. 


Cosmos is aiming to become the "internet for blockchains". The project's team hopes to connect different blockchains, allowing them all to transact with each other. This is called "interoperability." The coin is called ATOM and you can start staking ATOM on most crypto exchanges.  


Tezos is an open-source blockchain network that uses Tezos cryptocurrency for staking and pay for transaction fees. It has its own currency and a symbol called XTZ. It can also be staked on specific platforms and networks.  


Cardano is a smart-contract platform that is very similar to Ethereum. Cardano, however, is a multi-layered platform that has one layer for transactions of the ADA coin (the cryptocurrency that powers the Cardano PoS network) and another layer to develop decentralized applications (dApps). 


Polkadot, a cryptocurrency that was created in August 2020, is a younger PoS crypto and blockchain. Like Cosmos, Polkadot aims to provide interoperability and is designed to support of parachains, which are different blockchains created by different developers. 


Why not all cryptocurrencies have staking  

To be able to engage in crypto staking, cryptocurrencies must be the native coins of a proof-of-stake (PoS) consensus mechanism blockchain. Since many cryptos don't use the proof-of-stake consensus mechanism, so they can't be used for staking. 

Fundamentally, cryptocurrencies are different by the way their native blockchain functions. That’s why crypto stakers should be aware of the blockchain used by each cryptocurrency and learn how it functions. Bitcoin was the first crypto and the blockchain used the proof-of-work (PoW) consensus, meaning that BTC can’t be staked. However, other blockchains launched after Bitcoin introduced the concept of proof-of-stake (PoS). Peercoin (PPC) was the blockchain to introduce proof-of-stake (PoS) in 2012. 

The core difference between the PoW and PoW lies in the blockchain’s security. It is still a matter of debate which consensus mechanism is more secure. While proof-of-work blockchain requires a lot of computational power, it is also very difficult to attack proof-of-work blockchains. This is why some cryptocurrencies prefer PoW. However, the PoS blockchain offers a more energy-efficient option for blockchain developers.  

How do I stake cryptocurrency?  

Although it may seem complicated at first to stake cryptocurrency, it becomes very easy once you become familiar with the process. This is how you stake cryptocurrency step by step. 

1. Purchase a coin that allows crypto staking (PoS crypto) 

Not all cryptocurrencies allow crypto staking, as we have already mentioned. To become a crypto staker and earn a passive income from your crypto, you need to use a coin that is native to a proof-of-stake (PoS) blockchain. These are the top PoS cryptocurrencies that you can stake: 

  • Ethereum (ETH ) was the first cryptocurrency to have a programmable blockchain that developers could use to create decentralized apps (Dapps). Ethereum began with proof-of-work (PoW) but has now transitioned to a proof-of-stake (PoS) consensus. 
  • Cardano (ADA) is an eco-friendly cryptocurrency. It is based on peer-reviewed research, and it was developed using evidence-based methodologies. 
  • Polkadot (DOT ) is a protocol that allows different blockchains to connect to one another and allow them to work together. 
  • Solana (SOL) is a fast and efficient blockchain that offers low fees and allows for scaling. 

Of course, there are other crypto-staking coin options. But before you choose any of them, make sure you research the blockchain, understand how it works, and how to stake crypto. To be able to stake them, you will need to own them. To buy cryptocurrency, you can use any of the popular crypto exchanges and trading platforms that offer direct ownership.  

2. Transfer your crypto funds to a blockchain wallet 

Once you have purchased your crypto, it will own it on the exchange where it was bought. Some exchanges offer staking programs for a selection of cryptocurrencies. You can stake crypto directly on an exchange if that is the case. 

However, not all crypto staking programs are on crypto exchanges. If this is the case with your chosen crypto, you will need to transfer your funds to a crypto wallet. Wallets are the best way to store cryptocurrency. You can download a free wallet or purchase a hardware wallet. 

Once you have your wallet, select the option to deposit cryptocurrency and then choose the type of cryptocurrency that you want. This will create a wallet address. Open your exchange account and select the option to withdraw crypto. To transfer your crypto to your wallet, copy and paste the wallet address. 

3. Participate in a stake pool 

Although staking works differently for each cryptocurrency, most staking uses staking pools. These staking pools allow crypto traders to pool their funds for greater chances of earning staking rewards. 

Find out which staking pool is available for your cryptocurrency. Here are some things you should look out for: 

  • Reliability. You can't earn rewards if your staking pool's server is down. Choose one with a minimum of 100% uptime. 
  • Reasonable fees. Most staking pools take a small percentage of the staking rewards to cover their costs. The cryptocurrency will determine the amount, but most fees are between 2% and 5%. 
  • Size. Although smaller pools are less likely than larger ones to be selected to validate blocks, they offer greater rewards once they are. A pool that is too small could lead to failure. However, cryptos can limit the rewards that a pool can earn so large pools could become saturated. Mid-sized pools are the best for most investors. 

Once you have found a pool, add your crypto to it using your wallet. This is all you have to do to start earning rewards. 

Yield Farming vs. Staking: which passive income strategy is better?  

The world of decentralized finance (DeFi) offers many financial opportunities to all individuals, and these two are some of the most popular. Yield farming is similar to staking, as both are excellent ways to earn passive income for crypto holders. One difference between the two strategies is that for yield farming users are required to deposit their crypto funds onto DeFi platforms. On the other hand, crypto staking refers to when crypto investors lock up their funds in order to support the blockchain, validate transactions, and block on the network. 

Before you decide between yield farming and staking, you should look at the main differences between the two DeFi options: 

  • Profit. Staking provides an annual percentual yield, which is similar to the back interest and, usually, it’s around 5-10%. Yield farming is more difficult than crypto staking but can give you greater rewards.  
  • Reward. For crypto stacking, the rewards come from the blockchain network, as an incentive to help create new blocks. For yield farming, the rewards come from the liquidity pool, based on how much it is used (rewards are paid by those using the liquidity pool).  
  • Security. Crypto staking is necessary to ensure the security of blockchain networks. Bad actors are always penalized and they risk losing their crypto. Yield farming’s security relies on the smart contracts of the chosen platform, and some have been hacked before.  
  • Impermanent loss (IL). There is no IL risk for crypto staking. However, Yield farming comes with a high IL risk which is influenced by the coin’s price movements.  
  • Time. Different blockchain networks require that users stake their funds for a set period of time. Yield farming does not require that users lock up their funds for a set period. 

Is staking the right option?  

Investors in cryptocurrencies have the option to earn passive income through their holdings. If you have any crypto that you can stake, and you don't plan to trade it soon, you should stake it. You'll earn more crypto by doing this. 

What happens if you don’t have any crypto to stake yet? It's worth looking into cryptos that allow you to stake. This is an option offered by many, but you need to make sure that each one is worth your time. If you believe that crypto is a long-term investment, it makes sense to purchase it for staking. 

The good news is that crypto staking can be done by anyone. However, unless someone has a large stash of proof–of–stake coins, it's unlikely that they will make a lot of money from staking. 

If you look at crypto staking as another way to earn passive income, the stake rewards are like stock dividend payments. These rewards don't require the user to do much other than hold the correct assets at the right time and place. Compound interest will increase the profit potential of all users who stake their coins for longer periods. 

However, unlike dividends, there are some variables that affect the amount of staking rewards users will receive. These factors are worth researching and analyzing when looking for the most lucrative staking coins. 

  • What is the block reward? 
  • The size of your staking pool 
  • Supply locked 

Also, it is important to consider the fiat money value for the coin being staked. Staking can be lucrative if the value of the coin is stable or increases. Profits could be reduced if the coin's price falls. 


Have you explored other forms of passive income?  

Crypto staking is a way to earn a passive income if you already own the cryptocurrency and plan on holding it for the long term. But if you don’t own it or are not familiar to decentralized finance, you might find it difficult to navigate this financial investment. And while staking may be a good choice for some cryptocurrency owners, there are many other ways of generating passive income. It may be worth looking into some of those options, as well.  

Dividend Stocks 

One way to build an income stream is to invest in dividend stocks, which distribute part of the company’s earnings to investors on a regular basis, such as quarterly. The best ones increase their pay-out over time, helping grow future income. 

Dividend stocks typically are less volatile than growth stocks and help diversify your portfolio. Investors can also choose to reinvest dividends. 

Some dividend stocks can also provide some exposure to the cryptocurrency market, while also keeping your investment on the safe side. These are typically known as cryptocurrency stocks, blockchain stocks, metaverse stocks, and even NFT stocks

Unlike digital assets, stocks are regulated instruments, which are traded on reputable stock apps and trading platforms offered by stockbrokers and CFD brokers

Stock trading and investing are transparent, and you can always check the latest balance sheet of the chosen company.  

You can also invest in exchange-traded funds that hold dividend stocks rather than picking and choosing individual stocks to buy. Investors can even get exposure to a basket of crypto-related stocks, that are actively managed based on their performance. These are typically known crypto ETFs (including the well-known Bitcoin ETF BITU), blockchain ETFs, metaverse ETFs, or even NFT ETFs

This is a form of passive investing for those who prefer a more hands-off approach. 

With you can trade 2.000+CFDs on shares and other assets and invest in 5.000 stocks and ETFs with ownership. 



You may also find bonds to be a reliable alternative to crypto staking, since the process is quite similar. Think of bonds as a type of savings account that allows you to put money away for a specific period and earn a fixed amount in interest. While some banks could change your interest rate over time, your interest rate will remain the same with bonds. Fixed-term bonds offer attractive interest rates, but you will not be able to access your money during the bond term. 

Bonds are considered a safer investment than stocks, but also generally earn a lower return on your investment. According to experts, an investment portfolio should include bonds because of their lower volatility and relative safety compared to stocks. 

With you can trade CFDs on the most popular E.U., U.S., and U.K. bonds. 


Real Estate Investment Trusts (REITs) 

Investors may also be interested in Real Estate Investment Trusts (REITs), which are companies that raise funds by selling shares of stock and issuing bonds in order to purchase and lease out real estate assets like shopping malls, office buildings, apartment buildings, and warehouses. Instead of going through all the trouble of owning real estate, you have the REIT management handle all the ownership and rental logistics, while you collect dividends, which are frequently higher than many stock-based investments. REITs are required to pay out nearly all their after-tax profits to their investors as dividends

You can buy and sell shares of REIT stock in the market via a brokerage account, like any other public company. This makes REITs about the most liquid real estate investment available. In addition, you can buy shares of exchange-traded funds (ETFs) that own shares of many REITs. 

With you can trade and invest in REITs listed on 10 global stock exchanges. 


Free resources 

Before you start investing and trading in passive income vehicles, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of crypto trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you become a better trader or make more informed investment decisions. 

Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how trading and investing work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading. 

FAQs about Staking 






Cristian Cochintu
Cristian Cochintu

Cristian Cochintu writes about trading and investing for Cristian has more than 15 years of brokerage, freelance, and in-house experience writing for financial institutions and coaching financial writers.