Crypto Staking: How a Reward That Looks Like Interest Really Works

What staking is

A blockchain needs rules for deciding who makes and validates the next block. Bitcoin uses a computing race (proof of work); proof-of-stake chains such as Ethereum choose validators from participants who commit coins. Staking means committing coins in this way to take part in validation and receiving rewards for it. Validators who break the rules lose part of the committed coins, which pushes them to behave honestly. So staking rewards are less like bank interest, money someone pays to borrow yours, and more like payment for helping secure the network.

Where the rewards come from

Most staking rewards are newly issued coins, with part of the transaction fees on top. New issuance slightly dilutes every holder's share, including those who do not stake. So not staking shrinks your share of total supply, while staking partly offsets that dilution. A displayed yield of a few percent a year means your number of coins grows by that much, not that you earn that much in your home currency. Yields keep changing with network conditions too; for example, more participants can mean a lower reward rate for each.

• Reward = new issuance + part of transaction fees
• New issuance dilutes every holder's share
• Displayed yield is measured in coins
• Yields change with participation and other factors

Ways to take part

Staking splits into methods depending on who does the validating and who holds the keys. Each carries different fees and risks, so check the structure before the label.

• Solo validation: needs a set minimum and running a server; you bear operating mistakes
• Delegation: coins stay in your wallet and only validation rights go to a validator, who takes a fee
• Exchange staking: the exchange takes part for you and shares rewards; you must trust the exchange
• Liquid staking: you get a tradable token in place of your coins, adding that token's price and contract risk

Lock-ups and unbonding waits

Many blockchains stop you from withdrawing staked coins right away. After you request it, network rules may make you wait anywhere from days to weeks, and the wait can grow when many people are leaving at once. Exchange staking may add its own waiting period. During that time you cannot sell even if the price moves sharply, so the lock-up is part of the risk, not just an inconvenience. Liquid staking tokens were created to ease this, but in stressed moments those tokens have traded below the coins they represent.

Risks of staking

Staking is not a deposit with guaranteed principal. The risks fall into four groups. The biggest is the price of the coin itself: if the price falls more than your reward adds, you lose money in your home currency.

• Price risk: a fall larger than the reward means a loss in your currency
• Slashing: part of the stake is cut if a validator breaks rules or stays offline too long
• Custodian risk: an exchange or service going bust, being hacked or shutting down
• Contract risk: bugs or hacks in liquid staking or DeFi contracts

Working it out in your home currency

Suppose an annual reward rate of 5% and 100 coins staked for a year. Without restaking rewards, you have 105 coins a year later. But if the coin's price fell 20% over that year, the value is 105 × 0.8 = 84% of where you started, a 16% loss. If the price is unchanged, the 5% more coins become a 5% gain in value. Enter a reward rate and period into this site's Compound Return Simulator to see how the number of coins grows if rewards are restaked, and use the Percentage Calculator to combine that with a price change into a change in value. Add validator or exchange fees and price moves during the unbonding wait to get closer to the real result.

• Assumed: 5% a year, 100 coins → 105 a year later
• Price −20%: value 84%, a 16% loss
• Price unchanged: +5% in value
• Also add fees and price moves during the unbonding wait

Records and tax

Staking rewards arrive in small amounts each time, so unless you keep the date, amount and that day's price, they are hard to reconstruct later. With exchange staking, download the reward history regularly. In Korea, crypto taxation is scheduled by law to start on 1 January 2027, but as of October 2026 the detailed rules on when and as what kind of income staking rewards count are not fully settled, so check announcements from the National Tax Service. How to keep records is covered in the crypto tax guide.

Summary and caution

Staking rewards are payment for securing a proof-of-stake blockchain, mostly paid in newly issued coins, and the displayed yield is measured in coins. There are lock-ups and unbonding waits, slashing and custodian risk, and the result in your home currency depends heavily on the coin's price. The numbers in this guide are assumptions to show the calculation; it does not recommend staking any coin or service and is not investment advice.