Crypto 101 · DeFi
Staking Explained: Earning Rewards for Securing a Network
Abstract
Staking means locking a network's own coin as a bond that helps secure a proof-of-stake blockchain; validators who do the work, and those who delegate to them, earn rewards from new issuance and fees. We explain how staking works on Ethereum and Solana, where the reward comes from, and the risks of lock-ups, slashing and validator choice.
Keywords: staking, proof of stake, validators, delegation, rewards, Solana, Ethereum
1. In plain English
Proof-of-stake networks do not use mining. Instead, people lock up the network's own coin as a deposit, called stake. The network picks validators to add blocks, weighted by how much stake they hold, and pays them rewards. If a validator cheats, part of its stake can be destroyed. The locked coins are the security: attacking the network would put a lot of your own money at risk.
You can stake directly by running a validator, or delegate your coins to one that runs the machines for you and passes on the rewards, minus a commission.
2. Where the reward comes from
Staking rewards are paid from new issuance plus transaction fees. That matters for judging any staking yield: issuance dilutes everyone who is not staking, so the reward partly transfers value from non-stakers to stakers. On Ethereum, validators lock ETH to secure the chain and part of every fee is burned [1, 2]. Solana describes staking SOL with validators and earning rewards, with an inflation schedule that decreases over time [3, 4].
3. Go deeper: risks
- Price risk: rewards are paid in the coin, whose price can fall more than the reward earns.
- Lock-up: some networks make unstaking take time, during which you cannot sell.
- Slashing: validators that break the rules can be penalised, and delegators may share the loss.
- Choosing a validator: commission, uptime and reputation matter.
Compare this with mining on a proof-of-work chain, where security is paid for with electricity instead of locked capital, and read the trade-offs in proof of work versus proof of stake.
4. Staking compared with mining
Table 1. Two ways of paying for security.
| Proof-of-work mining | Proof-of-stake staking | |
|---|---|---|
| What you commit | Hardware and electricity | Coins locked as a bond |
| Reward | Block subsidy and fees | New issuance and fees |
| Main risk | Costs exceed income | Price falls, lock-ups, slashing |
| Entry cost | Machine plus power | Holding the coin; delegation lowers the bar |
Neither is free money: both pay for security, and both carry risk. The comparison is developed in proof of work versus proof of stake.
5. In Scrypt Wallet
Scrypt Wallet holds SOL and ETH with keys you control, and its Earn section lists staking options. See live data on the Solana and Ethereum pages.
References
- ethereum.org (2022). Proof-of-stake (PoS). Ethereum developer documentation for the proof-of-stake consensus mechanism. https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/
- Buterin, V., et al. (2019). EIP-1559: Fee market change for ETH 1.0 chain. Ethereum Improvement Proposal introducing the burned base fee. https://eips.ethereum.org/EIPS/eip-1559
- Solana Foundation (2024). Solana staking. Solana's explanation of staking SOL with validators and the rewards it earns. https://solana.com/staking
- Solana Foundation (2024). Inflation Schedule. Solana developer documentation: initial inflation rate, disinflation rate and long-term rate. Governance proposals (SIMDs) may change these parameters. https://github.com/solana-foundation/developer-content/blob/main/docs/economics/inflation/inflation-schedule.md
Common questions
Where do staking rewards come from?
From new coins issued by the protocol and from transaction fees, paid to those who help secure the network.
Can I lose money by staking?
Yes. The coin's price can fall, some networks lock staked coins for a period, and validators that misbehave can be penalised.
General education, not financial, tax or legal advice. Figures are schematic. Protocol parameters are cited to primary sources and can change; verify against the linked source before relying on them.