What is Staking? What to Know and How to Get Started

How do you begin staking?

If you want to start staking, you have two options:

• Become a validator/node
• Delegate your stake to a staking pool/service

Becoming a validator requires a sizeable amount of crypto (for example, 32 ETH), plenty of hardware power and technical know-how. And, you’re tasked with keeping your node on 24/7 and helping to maintain the ledger.

This is beyond your average crypto investor.

However, delegating your stake to someone else is a relatively simple way to get among the profits, without the need for a sizeable investment or expensive, complicated hardware.

What is stake delegating and staking pools?

Stake delegating is, as the name suggests, delegating your stake to someone else for them to stake on your behalf. The easiest way this can be done is through an exchange. Certain exchanges have their own validators, and you can opt to delegate the crypto you store on the exchange for staking.

Another option is to join a staking pool directly. Staking pools are groups of individuals who pile all their crypto together to improve their staking power, and then share any rewards.

Whatever option you choose provides the benefit of having someone stake on your behalf. So you don’t need to have the equipment or knowledge to run a node yourself. And you don’t need to have large amounts of crypto.

Which option is best?

That depends on what you’re looking for.

Staking on an exchange is the simplest option for investors who aren’t tech-savvy. You just need to give your exchange your coins and let them do the rest. This does mean you have no control or say over how your coins are used, and your exchange will also most likely charge fees for providing the service.

With a staking pool, you get to select who is using your crypto and how. But, you’ll need to do more research to understand the validity of the pool, the fees they charge, customer support, and the size of the pool.

With both options, you are delegating your stake to a staking pool. It just depends whether you’d rather do that directly yourself, or let a middle man (like your exchange) do it for you.

It’s also worth noting that an exchange isn’t the only middle man available. There are now specific staking services, like Kraken and Aqru, as well as certain cryptowallets offering staking services. The level of input and control you have over your investment will vary depending on the service and provider. So some further research is required.

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The benefits and risks of staking

The biggest benefit of staking is the opportunity to make passive income from your investment. But it’s not without risk. For starters, staking typically requires you to lock away your funds for a certain amount of time. During which, you can’t do anything with them. So if there are large price fluctuations (which there often are) you can’t sell any of that locked away coin. That could lead to you missing out on big gains, or avoiding big losses.

If you make 5% profit from staking, but your crypto’s value drops by 40% in the same time frame, then you’ve still made a loss.

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Do I need to pay tax on my staking profits?

As staking is a profit-making scheme, you need to pay tax on any money you make staking, as well as any profit you make from selling your crypto stake further down the line. Two separate profits, two separate tax obligations.

You can read more about your crypto tax obligations here:

About the author of this page

This report was written by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.