Crypto Staking: Worth It?

What is Crypto Staking?

When you are staking crypto, you are basically locking your funds to allow for returns on a yield-per-year basis. These returns are considered “rewards.”Not all coins allow for crypto staking, however. Only coins which run under a Proof-of-Stake protocol, like Ethereum, are capable of being used for crypto staking. Other popular staking coins include Cardano, Solana, and Tezos.



Some platforms allow you to stake your coins as well. Crypto exchanges allow their users to stake coins from their wallets for different yields and periods. Kraken and Binance are popular choices for users who go this route. Staking-as-a-service platforms such as Stake.Fish and Stake Capital have also grown in popularity as alternatives.

Is staking taxable?

The IRS sees staking rewards as a taxable event. When you receive a crypto staking reward, you are expected to assess it’s fair market value in USD. This will be recognized as income, as staking is most comparable to receiving interest on your crypto.

Your tax professional can help you find the fair market value of your past, current, and future crypto staking activities. Simply set up a free consultation with a Yoke Tax pro today.

What are the benefits of crypto staking?

The benefits of staking are lucrative, especially if you want to have more of an impact on a particular cryptocurrency. Because staking makes you more entrenched in a cryptocurrency’s ecosystem, you are granted “voting rights” as to what happens with the crypto next. Similar to stockholders getting a vote on what a company does, a stakeholder gets a vote on what happens next in a cryptocurrency’s development.

Staking can simplify growing your crypto holdings. Because all you really have to do is press a few buttons and not use your coins, staking can be a very simple source of passive income. Simply watch your holdings grow and reap the benefits.

In addition, crypto staking is less resource-intensive than crypto mining. The Proof of Stake network works by locking crypto assets and using those locked assets as validation for future crypto transactions. This results in a reward from the network, which is given to the crypto’s owner (you!).

Are there any risks to crypto staking?

As with all things relating to currency, there are inherent risks. Crypto staking is no different. For one, crypto can be incredibly volatile. Price swings are common, and many crypto experts have noticed a pattern of the entire market following Bitcoin. If you are staking smaller coins, the chances of one Bitcoin downswing decimating your reward opportunities are high.

Lock-up periods also make crypto staking risky. You might lock up your cryptocurrency for a few months or a few years. This means that you have no control over them for that amount of time. In a volatile market where a coin might surge in price, you may want to sell it and simply be unable to. Since there is no way to “unstake” your crypto until the holding period has completed, you may find yourself regretting locking up a once in a lifetime selling opportunity.

Fees are also a common risk of crypto staking. While they vary by exchange, it isn’t uncommon for rewards to be eaten up by fees. In such a case, you end up missing out on rewards you should have earned.

To figure out the best way to minimize these risks, consider setting up a consultation with a Yoke Tax professional. A pro with over 20 years of experience can help you find the path which saves you the most money.

How are crypto staking rewards taxed?

As mentioned earlier, crypto staking rewards are considered to be taxable income by the IRS. This means that, if you earn $150 worth of rewards by staking ADA, then you owe regular income tax on that interest. According to Form 1040, Schedule 1, the rewards are reported at their USD value during the tax year they were earned. If you received $50 worth of ADA as a crypto staking reward during the tax year, you will only be taxed on that original $50, whether or not ADA rises or decreases in price.

If you were to sell your crypto staking rewards, it would then be subject to a capital gains tax. However, if you want to know how to pay ZERO crypto taxes and keep the IRS out of your wallet, we have an in-depth article to help you do just that. Read it here.