What is Staking Crypto: Everything You Need To Know in 2025

In some blockchains, like Bitcoin and Litecoin and DOGE, only those with access to specialized hardware can get rewarded for participating in the decentralized network. That’s because those blockchains are run by an algorithm called Proof of Work – it takes work only high-performing computers can do to get rewards worth the cost of doing that work.

There’s also Proof-of-Stake blockchains, like Ethereum and Solana, which require participants to put cryptocurrencies at stake, instead of owning expensive hardware.

Staking aims to lower the barriers of entry for those who want to participate in blockchain networks, as it requires mostly putting up cash, and in a lesser degree, minimal hardware requirements, compared to the highly specialized equipment required for Proof-of-Work. In theory, greater participation should make blockchains more decentralized and secure. This guide will break down everything about staking—how it works, why it matters, and what you need to know before jumping in. Let's get started.

Key Takeaways

• Staking is an easy way for users to participate in a blockchain network and potentially get rewarded for doing so.
• Staking can only work in a Proof of Stake (PoS) blockchain, as it is a key part of the decision-making system.
• There are four types of staking: native staking, delegated staking, liquid staking, and restaking.

What is Staking Crypto?

Staking crypto is a process that allows a user to take part in a PoS blockchain network by becoming a validator. In a PoS blockchain, validators are responsible for making decisions, such as choosing the next blocks to add to the blockchain. The more crypto assets a validator stakes, the higher its chances of getting selected to verify a new block.

Crypto staking works by locking crypto assets in a staking contract and running the PoS blockchain's validator software program. In return for their contributions to the network, validators receive staking rewards.

The reward structure differs from blockchain to blockchain or staking platform to staking platform. However, the staking rewards are usually additional native tokens of the blockchain. If a validator's staked tokens are on a PoS blockchain like Solana, its staking rewards will be SOL.

Staking crypto isn't just about participating in a network's decision-making and getting rewarded. It is an activity that maintains the network security and stability within PoS blockchains. This is due to slashing, a penalty mechanism that PoS blockchains employ. Validators that behave maliciously in a PoS blockchain get a portion of their staked assets slashed or reduced. In extreme cases, a validator can be evicted from the network and its entire stake slashed.

Individuals or groups participating in staking are divided into validators and delegators.

• Validators are the parties that run the validator software program, choose new blocks, and verify transactions. Most PoS blockchains have high requirements for who can become a validator. For example, becoming a validator on Ethereum requires a minimum stake of 32 ETH. That's $89,664 according to current ETH prices on Coingecko.
• The other party participating in staking is the Delegator. This category of users delegates their staked assets to a validator, increasing their power and influence within the network. In return, the validator shares its staking rewards with delegators. The delegator role enables users who cannot meet the requirements to become validators to participate in the staking process.

Types of Staking

Since its introduction, staking has evolved and now takes up different shapes and sizes. Here are the types of staking available across PoS blockchains and staking platforms.

Native Staking

If you've read the article up to this point, you will already have an idea of how native staking works.

Native staking is the process of locking crypto assets in a staking contract to become a participant in a PoS consensus mechanism. You do it by running the validator software and meeting the other network requirements.

Validators in a blockchain project do things like validate transactions and verify blocks. In return, they get staking rewards.

Native staking offers the most security and control of all the staking types. This is because the validator creates and secures new blocks on the network.

Delegated Staking

Users who cannot meet the requirements to become validators on a PoS blockchain can still take part in staking through delegation. In delegated staking, token holders delegate their staked tokens to validators on the network. They do this via centralized and decentralized staking platforms.

Delegated staking varies from staking platform to staking platform. Some staking platforms run validators of their own, while others have a list of validators for token holders to choose from.

Since staking platforms handle most of the staking process, delegated staking is the best option for beginners.

Liquid Staking

Liquid staking emerged as a solution to the issues of traditional staking, such as illiquidity. It is a type of staking where token holders receive digital assets to replace their staking cryptocurrencies. These digital assets are called Liquid Staking Tokens (LSTs).

Crypto investors can use these new digital assets the way they would use their staking cryptocurrencies onchain. This includes borrowing/lending, collateral, etc.

The kick, though, is that crypto investors cannot convert them to fiat like USD or GBP. Furthermore, they are burnt or become invalid at the end of the staking period.

Restaking

Restaking is an advanced staking method that allows crypto investors to reuse their staked cryptocurrencies, either on another PoS network or staking platform. This allows crypto investors to earn more staking rewards.

On some platforms, crypto users can use LSTs to restake. In exchange, they receive Liquid Restaking Tokens (LRTs). Restaking enables crypto users to contribute to network security across several platforms with the same staking cryptocurrencies.

However, Alon Muroch, CEO of SSV Labs says that “Restaking has emerged as an attempt to make staked capital more productive by reusing it to bootstrap services and applications for extra rewards, but it comes with inherent risks and limitations."

How Does Staking Crypto Work?

The way staking crypto works differs depending on the type of staking. With native staking, crypto investors lock their tokens in a staking contract. Doing so allows them to become validators on the network, responsible for activities such as:

• Selecting and verifying blocks to add to the network.
• Verifying and validating crypto transactions.
• Contributing to the network security of the blockchain.

Delegated staking involves delegating staking cryptocurrencies to a validator. Crypto users can do this via centralized or decentralized platforms. The process is fairly simple. Crypto users connect their staking wallet to the platform to initiate the action. The staking cryptocurrencies will remain in the staking wallet but will not be functional until they are unstaked.

The liquid staking process is similar to delegated staking, the only difference being that LSTs are issued to the crypto user after staking.

With restaking, users can stake their staking cryptocurrencies on other platforms to earn additional staking rewards. Restaking platforms provide a service that allows validators to deploy staked tokens on multiple platforms simultaneously.

Challenges and Risks of Staking Crypto

While staking crypto is a great way to take part in a blockchain network and earn rewards, it is not completely risk-free. Here are some of the challenges you might encounter and the risks involved in staking.

Illiquidity

Illiquidity is an issue that is peculiar to native staking. During the staking period, users will not be able to access their staked tokens. The staked tokens only become available when a user decides to unstake them. However, most staking platforms have a waiting period before staked tokens become available. On most staking platforms, the waiting period is 30 days.

Moreover, users will not earn rewards during the waiting period. On some staking platforms, it is not possible to transfer staked assets immediately.

As a rule, with native staking, users should only stake crypto assets they're sure they will not need throughout the staking period.

Token Devaluation & Third-Party Involvement

Another issue with native staking is token devaluation. If the price of a staked token drops during the staking period, the total value of a user's holdings will likely reduce before they can unstake.

Furthermore, if a user stakes their crypto assets via a staking pool, the actions of the pool's operator will also affect them.

Slashing

If a validator is penalized for malicious activity within the network, a delegator can lose parts of their staked tokens to slashing. In a scenario where a validator is kicked out of the network, delegators will lose all their staked assets. The risks of slashing are much higher with restaking than any other type of staking.

To prevent this, delegators must do proper research before choosing where they delegate their digital assets.

Hacks & Platform Exploits

Since delegators use a service provider to participate in staking, any potential hacks or exploits to the platform could result in a loss of staking cryptocurrencies. As a rule, delegators should only use platforms with a strong record of security and trust. This reduces the chances of encountering security risks.

"There's no free lunch. Like with every capital gain, there's an inherent risk to it. The question is, therefore how attractive is the risk-return profile. Let's take a look at the risks: the biggest one is the slashing of your stake," said Kai Wawrzinek, co-founder of Impossible Cloud Network.

"If the validator goes down, or misbehaves, even if you're not responsible for that, your stake will be slashed. That's why an individual staking his crypto will usually delegate his coins to a staking provider that takes care of the validator operation. These guys are professionals, but of course they can also make mistakes or be victims of power outages, etc."

The Future of Staking in the Crypto Ecosystem

Crypto staking has boosted network participation among crypto holders, allowing them to earn staking rewards. The staking user experience has also improved with the emergence of liquid staking and restaking.

As more people participate in staking, PoS networks and platforms will become more decentralized. Advancements in crypto rewards and incentives will also facilitate inclusivity and accessibility within the crypto ecosystem.

Muroch adds that “s the industry evolves, the focus will shift to incentivizing validators so builders can create a more robust, composable, and based ecosystem. The approval of an Ethereum staking ETF could further accelerate institutional adoption, bringing more liquidity and legitimacy to the space."

As security and governance models evolve, we will likely see the introduction of more staking systems in the coming years. These systems will shape the staking narrative and provide more use cases within the crypto world.

FAQs

When does staking begin?

Staking begins when a crypto user meets the hardware and software requirements to become a validator on a Proof of Stake (PoS) blockchain. This includes locking their staking cryptocurrencies in a staking contract and running the validator software program.

Are staking rewards and yields the same?

Although both of them refer to passive income from digital assets, they are not the same. Staking rewards are the earnings from participating in the consensus mechanism of a PoS network. On the other hand, yields may refer to the earnings from several crypto-based activities. These include staking, yield farming, liquidity provision, etc.

What are Staking Pools?

Staking pools are funds where crypto users deposit staking cryptocurrencies to increase their voting power. They're ideal for crypto investors who want to contribute to network security via staking but do not have enough tokens to become validators and do not want to delegate their tokens.

Staking pools usually have designated administrators or operators. These parties are responsible for managing the validator/validators.

How are staking rewards calculated?

Several factors are considered when calculating staking rewards. These include the proportion of cryptocurrencies staked, the duration of staking, and the status of the validator. Popular validators in the PoS network will typically receive more staking rewards.

Validators share their staking rewards with delegators who staked tokens with them. However, the amount of staking rewards a delegator receives depends on their staking platform. Centralized platforms typically take a cut from delegators staking rewards, while decentralized platforms do not.

Is staking secure?

How secure staking is depends on the overall security of the Proof of Stake (PoS) blockchain or the staking platform. As a rule, crypto users are advised to properly research the PoS network or platform they want to stake with.

What cryptocurrencies can be staked assets?

Not all cryptocurrencies can be staked assets. Only the native tokens of Proof of Stake (PoS) networks and staking platforms can be staked assets. All other cryptocurrencies cannot be staked as they don't meet the requirements. For example, the native coins of blockchain networks with a different consensus mechanism cannot be staking cryptocurrencies. This includes Bitcoin, which is native to a Proof of Work (PoW) network.

Similarly, stablecoins, privacy coins, and other cryptocurrency types cannot be staked assets.