“Earn rewards on your crypto” is one of the most common slogans in the industry. Behind many of these offers is staking: locking up crypto-assets to help run a blockchain network. Staking is a real technical mechanism, not a trick, but it is also widely misunderstood. Rewards are not interest, they are not guaranteed, and the risks are different from those of a savings account.
This guide explains in plain language what staking is, how it works, the main ways people stake and what can go wrong.
Proof of work versus proof of stake
Every blockchain needs a way to agree on which transactions are valid and in what order. This is called a consensus mechanism.
- Proof of work (PoW), used by Bitcoin, relies on “miners” who spend computing power and electricity to compete for the right to add the next block. We explain this in more detail in our beginner’s guide to Bitcoin.
- Proof of stake (PoS) replaces computing power with collateral. Participants called validators lock up (“stake”) the network’s own coins. The protocol selects validators to propose and confirm blocks, and rewards them for doing this correctly.
Ethereum switched from proof of work to proof of stake in September 2022, an event known as “the Merge”. Many other networks, such as Cardano, Solana, Polkadot and Cosmos-based chains, use a form of proof of stake from the start.
How staking works
In a proof-of-stake network, the stake acts as a security deposit. The basic logic is:
- A validator locks up a certain amount of the network’s coins.
- The protocol assigns the validator tasks, such as proposing new blocks or voting (“attesting”) on blocks proposed by others.
- If the validator does its job correctly and stays online, it receives rewards, usually newly created coins plus part of the transaction fees.
- If the validator misbehaves, for example by signing two conflicting blocks, part of its stake can be destroyed. This is called slashing.
Because validators have something to lose, attacking the network becomes expensive. That is the core idea behind proof of stake.
The rewards are paid in the network’s own coin. The rate is not fixed: it depends on the protocol’s rules, the total amount staked by everyone, network activity and, for many networks, how well the validator performs. A rate shown on a website is a snapshot or an estimate, not a promise.
The main ways to stake
1. Running your own validator
You can run validator software yourself. On Ethereum this requires 32 ETH per validator, a computer that is online around the clock and technical knowledge to keep everything updated and secure. You keep full control of your keys, but you also carry all the operational risk: downtime or configuration mistakes can cost you rewards or even lead to slashing.
2. Delegating
On many networks (for example Cardano, Solana, Polkadot and Cosmos chains) you can delegate your coins to a validator run by someone else, often directly from your own wallet. The coins usually stay in your wallet or under protocol rules, but the validator’s performance affects your rewards, and on some networks a slashing event can also hit delegators. Validators typically charge a commission.
3. Staking through an exchange or broker (custodial staking)
Many crypto platforms offer staking with one click. The platform holds your coins and stakes them on your behalf, then passes on part of the rewards after deducting a fee. This is the simplest option, but it adds counterparty risk: you depend on the platform being solvent, honest and well run. In the EU, check that the provider is authorised under MiCA before you hand over any crypto. Our guide on checking whether a crypto exchange is licensed in the EU shows how.
4. Liquid staking
Liquid staking protocols stake your coins and give you a token in return that represents your staked position. You can trade or use that token elsewhere while the underlying coins remain staked. This adds flexibility, but also extra layers of risk: smart contract bugs, the liquid token trading below the value of the underlying coins, and concentration of stake in a few large protocols.
The risks of staking
Staking is often marketed as “passive income”. The risks below are why that framing is misleading.
Price risk
Rewards are paid in the same crypto-asset you stake. If the price of that asset falls, the value of your stake and your rewards falls with it. Rewards in coins do not protect you against a price decline in euros; a fall in price can easily be larger than any rewards received.
Lock-up and unbonding periods
Many networks require a waiting period before staked coins can be withdrawn. Depending on the network and on how many people are leaving at the same time, this can range from days to weeks. During that time you cannot sell, even if the market moves sharply. Some custodial products add their own lock-up terms on top.
Slashing and penalties
Validators that go offline or break protocol rules can lose rewards or part of their stake. If you delegate or use a platform, check whether, and how, such losses are passed on to you.
Counterparty and custody risk
With custodial staking, your coins are held by a company. If that company fails, is hacked or freezes withdrawals, you may not get your coins back quickly, or at all. Several well-known lending and “earn” platforms collapsed in 2022 and customers lost access to their funds. Crypto held at a platform is not covered by bank deposit guarantee schemes.
Smart contract and technical risk
Liquid staking and other DeFi-based staking rely on smart contracts. Bugs or exploits can lead to losses that no one compensates. Running your own validator carries the risk of key loss or misconfiguration.
Dilution and changing rules
Part of the rewards often comes from newly issued coins. If you do not stake, your share of the total supply shrinks; if you do stake, the new coins still increase the total supply, which can weigh on the price. Protocols can also change their reward rules through upgrades or governance votes.
Tax and administration
Staked crypto is still part of your assets. In the Netherlands, crypto generally falls into box 3 and is valued on 1 January; see our explanation of crypto taxes in the Netherlands. Keep good records of what you stake, where and when.
Questions to ask before you stake
- Who holds my coins? Myself, a protocol, or a company?
- Is the provider authorised? For platforms serving EU customers, check the MiCA registers.
- How long can my coins be locked? Including network unbonding periods and platform terms.
- What fees apply? Validator commission, platform fees and any withdrawal costs.
- What happens in case of slashing, hacks or insolvency? Read the terms, not just the headline rate.
- Can I afford to lose this money? If not, staking does not change the answer.
Red flags
Be very careful with any offer that promises fixed, high or “guaranteed” staking returns, uses pressure tactics such as countdowns, or asks you to send coins to an unknown address to “activate” staking. These are classic signs of fraud. Our guide on how to spot crypto scams covers the most common patterns.
The bottom line
Staking is a legitimate part of how proof-of-stake blockchains work. It can pay rewards, but those rewards are variable, paid in a volatile asset and come with real risks: price falls, lock-ups, slashing, smart contract failures and the failure of the platform holding your coins. Treat staking as an extra layer of risk on top of owning the crypto-asset itself, not as a safe way to earn a return.
Sources: Ethereum.org documentation on proof of stake and staking, Regulation (EU) 2023/1114 (MiCA), ESMA and AFM consumer warnings on crypto-assets. Information as of October 2026.