How Staking Works and Its Risks: 2026 Rewards and Key Considerations

Staking is a mechanism where you participate in blockchain transaction validation using your held crypto assets and receive rewards in return. As of 2026, domestic crypto asset exchange providers widely offer no-application-required formats that automatically grant rewards simply for holding eligible assets in your account, making it easy to get started as an extension of your holdings. However, unlike bank deposits, staking does not guarantee the principal, and rewards fluctuate; it is essential to understand these points from the outset.

How Staking Works

Blockchains rely on participants to validate transactions and update the ledger. This validation process is known as "consensus," and one of its primary mechanisms is Proof of Stake (PoS). Under PoS, participants who hold and stake larger amounts of cryptocurrency have a higher probability of being selected to validate blocks. In return, they receive rewards in the form of newly minted tokens and a share of transaction fees.

There are two main ways to participate in staking. The first is through staking programs offered by exchanges or wallet services. The second involves running your own node to become a validator directly, which requires technical expertise and a significant amount of cryptocurrency. For most individual investors, participating via an exchange or wallet is the more practical approach.

Risks Related to Lock-up Periods and Liquidity

Staking typically involves a "lock-up period," during which deposited crypto assets cannot be withdrawn. The duration of this period varies by asset and service, ranging from a few days to several weeks, or even longer in some cases. During this time, you cannot sell your assets to realize losses if prices decline.

Furthermore, even after the lock-up period ends, it may take additional time for funds to actually become available. Since you might not be able to access your capital immediately in the event of an urgent need for cash, you should avoid using money intended for living expenses or emergency reserves for staking. For investors seeking liquidity, there is a mechanism known as "liquid staking" that allows earning rewards without lock-ups; however, this approach carries separate risks associated with DeFi (Decentralized Finance).

What Is Slashing

Slashing is a mechanism where a portion of staked crypto assets is confiscated if a validator engages in misconduct or violates network rules. This occurs when a validator goes offline for too long or commits fraudulent acts, such as double-signing.

When using exchanges or staking services, the service provider typically operates the validators, meaning they often bear the risk of slashing. However, this is not the case for all services, so it is crucial to review the terms of service beforehand to understand how losses from slashing are allocated.

Understanding Rewards (Yields)

Staking rewards are often displayed as an annual percentage rate (APR), but this figure is variable. Since it fluctuates based on the number of network participants, the status of the reward pool, and market conditions, there is no guarantee that the displayed yield will continue in the future.

Additionally, rewards are typically paid in the same cryptocurrency asset that was staked. This means that if the price of the cryptocurrency received as a reward declines, your actual earnings in JPY terms will decrease. It is important to note that staking yields represent an increase strictly in terms of the "quantity of cryptocurrency" and do not guarantee profits in fiat currency terms.

Furthermore, receiving rewards may trigger a taxable event at the time of receipt. In Japan, staking rewards from cryptocurrencies are highly likely to be taxed as miscellaneous income. We recommend consulting with a tax accountant or your local tax office regarding the necessity of filing a final tax return and the specific calculation methods.

Things to Check Before Starting Staking

Before you start staking, make sure to verify the following points:

• The length of the lock-up period and whether early withdrawal is allowed
• Who bears the losses in the event of slashing
• The frequency of reward payments and factors causing fluctuations
• The service provider's track record and security measures
• Fee rates (which may be deducted from rewards depending on the service)

Fee rates and reward rates vary by service and time period, so always check the official website for the latest information. When selecting an exchange, we recommend comparing multiple services using our crypto exchange comparison.

Summary

Staking is a mechanism that allows you to earn rewards by utilizing your held crypto assets. However, there is no guarantee of principal, and risks include price volatility during lock-up periods, slashing penalties, and operational risks associated with service providers. Yields are variable and do not guarantee future returns. When participating in staking, it is essential to fully understand the mechanisms and risks involved, and only invest funds you can afford to lose.

Risks and Disclosures

Risk: Cryptocurrencies are highly volatile, and you may lose your principal. This article provides general information based on data as of 2026-09-07; it does not constitute investment solicitation, advice, or a recommendation for any specific asset. Trading eligibility and tax regulations vary by country/region, so please verify local regulations and the latest terms of each exchange before trading.

Affiliate Disclosure: This article may contain advertising (affiliate) links, through which our site may earn compensation at no additional cost to you. Such compensation does not influence our evaluations.

Frequently Asked Questions

What is staking?

Staking is a process where you lock up your cryptocurrency to participate in transaction validation on a blockchain network, earning rewards in return. It is used on blockchains that employ the Proof of Stake (PoS) consensus mechanism.

What are the main risks of staking?

Key risks include liquidity risk (you cannot sell during the lock-up period even if the price drops), slashing (a portion of your staked assets may be forfeited if the validator misbehaves), variable reward rates, and operational risks from the service provider. Your principal is not guaranteed.

Are staking rewards guaranteed?

No, they are not guaranteed. The annual percentage rate (APR) fluctuates based on network participation and market conditions. Additionally, rewards are paid in the same cryptocurrency, so if its price falls, the value in fiat currency (like USD or EUR) will decrease.

Do I need to pay taxes on staking rewards?

In many jurisdictions, staking rewards are considered taxable income (often as miscellaneous income). Whether you need to file a tax return and how to calculate it depends on your individual situation. It is recommended to consult a tax professional or your local tax authority.

What is the difference between staking on an exchange and doing it yourself?

When using an exchange or wallet service, the provider handles validator operations, so you need no technical knowledge and can start easily. When staking yourself, you must maintain a node and manage security, but you may avoid service fees.