Staking

How does staking work?

Proof-of-stake networks have no miners. Instead they have validators, who put up their own crypto as a deposit. Validators who confirm transactions honestly earn rewards. Those who cheat or perform badly can lose part of their deposit.

On Ethereum, running your own validator takes 32 ETHEther (ETH)The currency of the Ethereum network, used to pay network fees, as a stake under proof of stake and to send value between people.. People with less can take part through pooled staking services or crypto exchanges.

Think of a security deposit. You put up money to show you will play by the rules, and if you break them, part of it is taken away.

What are the risks?

Staking rewards are not free money:

• Price swings. Rewards are paid in the same cryptocurrency. If the price falls, you can lose money even as your number of coins grows.
• Penalties. A validator that breaks the rules can lose part of its deposit (slashingSlashingA penalty on proof-of-stake networks. A validator that breaks the rules loses part of its stake and is removed from the network.), and one that goes offline receives smaller penalties.
• Waiting times. You often have to queue to get your crypto back, so you can't always sell straight away. On Ethereum, staked ETH could not be withdrawn at all until an upgrade in April 2023.
• Counterparty risk. If a service stakes for you, you rely on it to do its job and look after your crypto.
• Smart contracts. So-called liquid stakingLiquid stakingStaking where you receive a token as a receipt for your stake. The token can be sold or used while the crypto itself stays locked. adds the risk of bugs in smart contractsSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met..

Staking rewards are not guaranteed. They depend on the network's rules and can change.