The Basics of Staking and Earning Passive Income with Crypto | by Tracy Hardwick | The Capital | Mar, 2025

Earning passive income with cryptocurrency has become easier than ever, and one of the most popular ways to do it is through staking. Whether you’re holding onto crypto for the long term or looking for ways to make your assets work for you, staking allows you to earn rewards without actively trading.

But how does staking work, and what should you know before getting started? Let’s break it down step by step.

Staking is the process of locking up your cryptocurrency to support the security and operations of a blockchain network. In return, you earn rewards — similar to earning interest in a traditional savings account.

This is only possible on blockchains that use proof of stake (PoS) and its variations, where participants help validate transactions and maintain the network.

Staking is an alternative to the energy-intensive proof of work (PoW) system used by Bitcoin. Instead of miners competing to solve complex puzzles, PoS networks allow users to stake their crypto to help verify transactions. The more crypto you stake, the higher your chances of being selected to validate transactions and earn rewards.

Here’s a simple breakdown of how staking works:

1. You lock up your tokens in a staking pool or as a validator.
2. Your tokens help secure the blockchain by participating in the validation process.
3. You earn rewards in the form of additional tokens.

The process is automated, so once you stake your crypto, you start earning without needing to do anything else.

Not all cryptocurrencies support staking. Only those that use PoS or its variations allow users to participate. Here are some of the most popular staking coins:

• Ethereum (ETH) — The largest PoS blockchain after its transition from proof of work.
• Cardano (ADA) — Known for its energy-efficient staking model.
• Solana (SOL) — Offers fast transactions and competitive staking rewards.
• Polkadot (DOT) — Uses a unique staking system for cross-chain interoperability.
• Cosmos (ATOM) — Secures its multi-chain network through staking.
• Avalanche (AVAX) — A high-speed PoS blockchain with staking incentives.

Each of these networks has different staking rewards and requirements, so it’s important to research before choosing where to stake.

There are several ways to stake, depending on your level of technical expertise and how much effort you want to put in.

1. Staking Through an Exchange (Easiest Option)

Many crypto exchanges offer staking services that allow users to stake their tokens with just a few clicks. Some popular platforms include:

• Binance
• Coinbase
• Kraken
• KuCoin

Pros:

• Easy to use, beginner-friendly
• No need to set up a validator node

Cons:

• Lower rewards due to exchange fees
• Less control over your assets

2. Staking with a Validator (More Control, Higher Rewards)

You can delegate your tokens to a validator on PoS networks like Cardano, Solana, and Polkadot. Validators manage the technical side while you receive staking rewards.

Pros:

• Higher rewards than exchange staking
• More decentralized than using an exchange

Cons:

• Requires choosing a reliable validator
• Slashing risk (if the validator behaves maliciously, a portion of your funds may be lost)

3. Running Your Own Validator Node (Advanced Option)

For those with technical expertise, running your own validator node allows you to fully participate in a PoS network without relying on a third party. However, it requires:

• A dedicated computer or server
• Technical knowledge to set up and maintain the node
• A large minimum stake (e.g., 32 ETH for Ethereum)

Pros:

• Maximum rewards and full control
• Helps decentralize the network

Cons:

• High initial investment
• Requires ongoing maintenance

Staking rewards vary by network and can range from 3% to 20% annually, depending on factors like:

• The number of participants staking
• The blockchain’s reward structure
• Market conditions and demand for the token

For example:

• Ethereum (ETH): 4–6% APY
• Cardano (ADA): 4–5% APY
• Solana (SOL): 6–8% APY
• Polkadot (DOT): 10–12% APY

Some platforms offer higher yields for locking up tokens for longer periods, but this comes with the risk of reduced flexibility.

While staking is a great way to earn passive income, it is not without risks.

1. Lock-Up Periods

Some networks require you to lock up your funds for a set period, meaning you cannot withdraw them immediately if prices drop.

Example: Ethereum’s staking withdrawals were initially locked until the Shanghai upgrade.

2. Slashing Risks

If you stake with a validator that misbehaves or becomes inactive, a portion of your funds may be slashed as a penalty. Choosing a reliable validator minimizes this risk.

3. Market Volatility

Staking rewards are often paid in the native cryptocurrency. If the token’s value drops, your staking rewards could lose value as well.

If you’re ready to stake your crypto, follow these steps:

1. Choose a Cryptocurrency to Stake

• Pick a PoS coin with strong fundamentals, like Ethereum or Cardano.

2. Decide How You Want to Stake

• Use an exchange for convenience, delegate to a validator for higher rewards, or run your own node for full control.

3. Select a Platform or Validator

• If staking on an exchange, check fees and lock-up periods.
• If delegating, research validator reputation and past performance.

4. Stake Your Tokens and Start Earning

• Follow the staking process on your chosen platform.
• Track your rewards and adjust your strategy if needed.

Staking is one of the best ways to earn passive income in crypto while supporting blockchain networks. Whether you stake through an exchange, delegate to a validator, or run your own node, the key is choosing the right platform and understanding the risks.

By staking wisely, you can grow your crypto holdings over time without actively trading, making it an excellent long-term strategy for investors.