Staking

In simple terms

Staking is like putting your money in a savings account that helps run a bank. You lock up your crypto, and in return, the network pays you rewards for helping verify that transactions are real and honest.

Definition

Locking up your crypto to help validate transactions on a blockchain and earn rewards.

In depth

Staking is a consensus mechanism where validators lock up cryptocurrency as collateral to earn the right to propose and validate new blocks on a proof-of-stake blockchain. Validators are selected to create blocks based on their stake size and other factors, and they earn transaction fees plus newly minted tokens as rewards. If a validator acts dishonestly or goes offline, a portion of their staked amount is forfeited through a process called slashing, creating economic incentive for network security and honest participation.

How does Staking work?

Staking is how proof-of-stake blockchains decide who writes the next block. A participant locks tokens as a bond and either runs a validator or delegates to one. The protocol selects validators to propose and attest to blocks, weighted by the amount staked. Honest work earns rewards from newly issued tokens and transaction fees, while provable misbehavior such as signing two conflicting blocks can be punished by destroying part of the bond, called slashing. Ethereum requires 32 ETH to run a validator directly, so smaller holders delegate or use pooled services. Withdrawing usually involves a queue or unbonding period before tokens move freely.

An example

Someone delegates 100 tokens to a validator advertising a 4% annual reward rate and a 10% commission. Using illustrative figures, gross rewards over a year would be about 4 tokens, the validator keeps 0.4, and the delegator receives roughly 3.6. Those rates are variable rather than promised, and shift with how much of the supply is staked. The dollar value of the tokens can fall by far more than any reward earned.

Figures are illustrative only.

What beginners get wrong

• Reading an advertised percentage as a fixed return, when staking rates float with network participation and are paid in a token whose price can drop.
• Staking money needed soon, then discovering an unbonding period of days or weeks before the tokens can be moved or sold.
• Picking a validator purely on lowest commission, without checking uptime history or how much stake is already concentrated with that operator.
• Locked tokens are not risk-free; slashing, validator downtime, and smart contract bugs in pooled staking services can all reduce the balance.

Related terms

• Proof of Stake (PoS)
• Lock-Up Period
• Yield Farming
• Governance Token
• Node
• Mining
• Validator
• Liquid Staking

Part of

What is cryptocurrency, and how does it work? — the subject page for cryptocurrency basics, with all 23 of its definitions in one place.