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DeFi 4 min read

What is Staking? How to Earn Passive Income with Crypto

Learn the mechanics of Proof-of-Stake, the risks involved, and the best platforms to start earning rewards.

Key Takeaways
  • Staking earns you rewards for supporting network security.
  • It only works on 'Proof of Stake' blockchains like Ethereum and Solana.
  • Your funds are often locked for a set period (cannot sell).
  • You can stake easily via exchanges or privately via wallets.

What is Staking? The Mechanics ⚙️

Staking is where you lock or hold your funds in a cryptocurrency wallet to support the security and operations of a blockchain network. In return for this service, the network pays you rewards (like interest).

Unlike Bitcoin (which uses energy-hungry mining), modern blockchains use Validators. These validators must put up their own money ("Stake") as a security deposit to prove they will act honestly. If they validate transactions correctly, they earn rewards. If they cheat, they lose their money.

When you stake, you are essentially delegating your coins to these validators to help secure the network.

Risks vs. Rewards ⚖️

Before you start earning, you must understand the trade-offs.

The Pros

  • Passive Income: Earn 4% - 12%+ APY on assets you plan to hold anyway.
  • Compound Growth: Re-stake your rewards to grow your stack faster.
  • Network Health: You directly contribute to the security of the blockchain.

The Risks

  • Lock-Up Periods: You often cannot sell or move your coins for days or weeks (e.g., 21 days for ATOM).
  • Slashing: If your chosen validator behaves badly, a portion of your stake could be penalized.
  • Price Volatility: If the coin price drops 50%, a 5% staking reward won't save you.

The Golden Rule of Crypto

Liquidity Risk: Always check the "Unbonding Period." If the market crashes while your coins are staked, you cannot sell them until the unbonding period is over (often 7-21 days).

Method 1: Exchanges (Easiest) 🏦

Platforms and exchange providers have jumped into the staking ring. This is Custodial Staking—they handle the technical work for you.

  • Nexo: Earn up to 12% on stablecoins and 8% on other tokens. Very easy to set up; often pays out daily.
  • Binance Earn: Offers "Flexible Savings" (lower rate, withdraw anytime) and "Locked Staking" (higher rate, funds locked for 30/60/90 days).
  • Coinbase: A beginner-friendly option for staking ETH, ALGO, and TEZOS. Great for earning small rewards on as little as $1.

Pro Tip

Not your keys, not your crypto. Keep this in mind when staking large amounts on an exchange. While convenient, you are trusting the exchange with your funds.

Method 2: Private Wallets (Safest) 🛡️

This is Non-Custodial Staking (often called Cold Staking). You earn rewards while keeping full control of your private keys.

  • Ledger Live: The Ledger hardware wallet allows you to stake coins like Tron (TRX), Cosmos (ATOM), and Algorand (ALGO) directly from the app while your keys remain offline.
  • Trust Wallet: A mobile wallet that supports one-click staking for many coins. You maintain control, but it's a hot wallet (online).
  • Trezor: Supports staking for some assets (like Tezos) via third-party integrations like Exodus.

Need a wallet? Check our guide →

Summary

  • Beginners: Start with an Exchange (Binance/Coinbase) to learn the ropes.
  • Long-Term HODLers: Move to a Hardware Wallet (Ledger) to stake securely without third-party risk.

Disclaimer: I am not a financial adviser. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. Affiliate disclosure: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase, sign-up and/or subscribe. However, this does not impact my opinion.