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Crypto staking can earn you extra coins. Here’s what you should know—including whether crypto staking is taxable in Canada.
Staking involves locking up or holding certain cryptocurrencies as collateral to keep a blockchain—a cryptocurrency’s distributed digital ledger—functional. In exchange for pledging or locking up their coins for a period of time, stakers earn extra coins as a reward. Staking rewards are somewhat like stock dividends: Stakers receive rewards for pledging their coins, while stock investors receive dividends when they own shares in certain companies. And you give up your right to staking rewards if you sell your coins, much like you would give up future dividends if you sell a stock.
Of all the stakers of a cryptocurrency, one gets selected—based on predetermined rules of the blockchain—to validate transactions for the blockchain, and this staker receives additional coins.
Crypto staking is a feature of blockchains that use the proof-of-stake (PoS) “consensus mechanism,” or method of validating transactions. Examples include Ethereum (ETH), Cardano (ADA), Polkadot (DOT) and Solana (SOL). In the case of some blockchains, the more tokens you stake, the more likely you are to be chosen. However, since owning a large amount of crypto to stake can be expensive, investors can also join a staking pool—a service that combines coins from various investors and distributes rewards to each contributor based on their share.
If you start staking crypto, keep detailed records of your activities—your earnings may have tax implications.
Example: “Since the Ethereum platform now uses the proof-of-stake consensus mechanism, Lisa staked her ether to contribute to the blockchain and earn passive income.”
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