How to stake and earn rewards on a proof-of-stake blockchain

Key takeaways #

• Staking means locking up coins to help run a proof-of-stake blockchain; in return you earn rewards, similar to interest.
• Proof-of-stake replaces the energy-hungry mining (proof-of-work) used by Bitcoin — Ethereum switched to it in 2022.
• You can stake by running your own validator, joining a staking pool, or staking through an Australian exchange.
• Rewards come with risks: lock-up periods, price volatility, slashing penalties and platform counterparty risk.

If you’ve wondered how to stake cryptocurrency — earning rewards on coins you already hold, a bit like interest on a savings deposit — staking on a proof-of-stake blockchain is the answer. Staking means locking up coins to help run and secure one of these networks. Proof-of-stake is the second most common way cryptocurrencies secure their blockchains, and since Ethereum’s switch to it in 2022 (the “Merge”), it underpins the majority of crypto assets by value. This guide explains how staking works, how to do it from Australia, and the risks to weigh up first.

Proof-of-stake in a nutshell #

Where proof-of-work (Bitcoin’s system) relies on computers solving hard mathematical problems to verify transactions, proof-of-stake relies on those who have the most skin in the game. Participants stake coins — locking them up as collateral — and the network selects stakers, weighted by how much they’ve staked, to propose and verify new blocks. Behave honestly and you earn rewards; try to cheat and a portion of your stake is destroyed (a penalty known as “slashing”).

Because there’s no computational race, PoS networks use a fraction of the energy of proof-of-work, and ordinary holders can participate without specialist hardware.

How staking rewards work #

The precise mechanics vary by chain, but the pattern is consistent:

• Eligibility. Your coins must be staked and, on many networks, held in your wallet for a minimum period (sometimes called an activation or warm-up period) before they’re eligible to earn.
• Selection. When the network produces a new block, it selects a staker to propose it. Selection is randomised but weighted heavily toward stake size — staking more coins means a proportionally higher chance of being chosen and rewarded.
• Rewards. Rewards are paid in the native coin, either directly to your wallet or into the pool you’ve joined. On major networks, annual yields typically range from around 2% to 8%, varying with the total amount staked network-wide.

Three ways to stake #

1. Run your own validator. The most control and the best rates, but it demands technical skill, a reliable always-on connection and a meaningful minimum stake (32 ETH for an Ethereum validator, for example). This suits experienced users comfortable maintaining a server — expect to stake from a dedicated machine or a home setup you keep online 24/7.
2. Join a staking pool or liquid staking service. Pool small amounts together with other holders, share the rewards, and skip the infrastructure. Most major chains have well-established options.
3. Stake through an exchange. AUSTRAC-registered Australian exchanges such as Swyftx, CoinSpot and Independent Reserve offer staking on major proof-of-stake coins. It’s the easiest entry point — a couple of clicks — but you’re trusting the platform’s custody, and fees come off your rewards.

Whichever route you choose, the tax office treats staking rewards as assessable income when received, with capital gains tax applying when you later dispose of the coins — see our Australian crypto tax guide.

Risks to weigh before staking #

• Volatility. A 5% yield means little if the coin falls 40% in the same period. You’re earning more of an asset whose price moves.
• Lock-ups and unbonding. Many networks make staked coins inaccessible for days when you unstake, so you can’t react quickly to market moves.
• Slashing. Validators that misbehave or malfunction lose part of their stake. Reputable pools insure or absorb this, but it’s a real risk if you run your own node.
• Counterparty risk. Staking through a platform means trusting that platform with your coins — the same lesson the 2022–23 lender collapses taught the industry (see our crypto lending primer).
• Scams. Guaranteed-return staking schemes promoted on social media are simply theft. Stick to staking the major, established networks.

Frequently asked questions #

How much can I earn from staking? Roughly 2–8% a year on major networks, depending on the chain and how much of the network is staking. Anything promising dramatically more deserves deep suspicion.

Is staking worth it for small holders? Yes, via a pool or an Australian exchange — the amounts are small but it’s essentially passive, and it works with any balance.

Is staking safe? It’s much safer than lending or yield farming, but nothing in crypto is risk-free. Only stake coins you’re happy to hold long-term, and prefer staking in a wallet you control for larger amounts.

Do I pay tax on staking rewards? Yes. Rewards are treated as assessable income in the year you receive them, and a later disposal of the coins can trigger capital gains tax on top — see our Australian crypto tax guide.