With the rise of cryptocurrencies like Bitcoin and Ethereum, a new way to earn passive income called staking has emerged. Staking allows cryptocurrency holders to earn rewards on their holdings by helping validate transactions on proof-of-stake blockchains. But can staking generate enough income to allow someone to make a living?
What is Crypto Staking?
Cryptocurrency staking involves locking up holdings of coins or tokens to participate in transaction validation on a proof-of-stake (PoS) blockchain. Instead of mining, PoS protocols aim to secure their networks through stakers locking up their coins. The more coins they stake, the more likely they are to be selected to validate new blocks of transactions and earn staking rewards.
Staking serves the dual purpose of securing the network while also rewarding token holders with extra crypto. Typically, staking rewards are a percentage yield on the amount staked. For example, staking Ethereum currently yields around 5-7% annually. The yield comes from network fees and newly created coins from inflation. Top PoS coins for staking include Ethereum, Cardano, Solana, Polkadot and Tezos.
How Much Can You Earn Staking Crypto?
How much you can make staking crypto depends on several factors:
- Size of your staked assets – The more you stake, the higher your staking rewards.
- Staking yields – Different cryptocurrencies offer varying staking yields.
- Staking costs – Some staking services charge fees which reduce profits.
- Taxes – Staking rewards are taxed as income in many jurisdictions.
As an example, staking $10,000 worth of a crypto asset with 10% yield would generate around $1,000 in annual staking rewards before any taxes or fees. Here’s how much you could earn staking different sized crypto portfolios:
| Cryptocurrency Value Staked | Annual Staking Yield | Annual Staking Rewards |
|---|---|---|
| $10,000 | 5% | $500 |
| $50,000 | 6% | $3,000 |
| $100,000 | 7% | $7,000 |
| $500,000 | 8% | $40,000 |
| $1,000,000 | 10% | $100,000 |
As the table shows, you would need a large crypto portfolio to make a substantial income solely from staking. With a $1 million portfolio earning 10% annually, you could generate $100,000 in staking rewards. But very few individual cryptocurrency holders have portfolios in the millions.
Other Factors Impacting Staking Income
Aside from portfolio size and staking yields, other factors can reduce how much staking income you actually realize:
- Staking expenses – Some staking services charge fees for staking that range from 10-25% of rewards. This cuts into profits significantly.
- Slashing – Failure to validate transactions properly results in slashing of staked assets as a penalty. Loss from slashing reduces income.
- Taxes – In many jurisdictions, staking rewards are treated as income subject to ordinary tax rates of 10-40%.
- Loss of liquidity – Staked assets are locked up and illiquid for withdrawal until the staking period ends.
Considering these factors, actual realized staking income is often 50-75% less than potential staking yields. Someone with a $100,000 staked portfolio might only earn $3,000-$5,000 in take home annual income after expenses and taxes.
Staking Income vs. Living Costs
To determine if staking income can cover living costs, you need to look at average annual living expenses. Here’s a breakdown of average annual spending for individuals in the U.S. (figures in USD):
| Expense Category | Average Annual Spending |
|---|---|
| Housing | $18,000 |
| Transportation | $9,000 |
| Food | $7,000 |
| Healthcare | $5,000 |
| Entertainment | $3,000 |
| Other | $8,000 |
| Total | $50,000 |
Based on average spending, an individual needs about $50,000 annually to cover basic living expenses in the U.S. High cost areas like San Francisco or New York City may require $75,000 or more.
Matching this up with potential staking income, achieving $50,000 annually would require staking a portfolio of around $500,000 to $1 million in crypto assets. And that doesn’t factor in any expenses, taxes or loss of staked assets. Realistically, most individuals would need to stake well over $1 million in crypto to earn enough passive income to live on.
Other Considerations
Aside from the income requirements, some other considerations for relying on staking crypto for living expenses include:
- Volatile assets – Cryptocurrencies tend to be volatile assets that could lose value and reduce your staked principal.
- Changing yields – Staking yields can fluctuate which impacts recurring income.
- Long lockup – Staking often requires long lockup periods of months or years, reducing liquidity.
- Concentrated risk – Relying solely on crypto staking creates concentrated risk versus diversified income sources.
These factors make relying entirely on crypto staking income risky from a financial planning perspective. Staking is best used to generate supplemental income rather than a sole source of living expenses.
Conclusion
While it is possible to generate income through cryptocurrency staking, it would require staking at least $500,000 to $1 million in assets to earn enough to live on. Even then, expenses, volatility and taxes can reduce actual take home income well below what’s needed for living costs. Unless you have substantial crypto wealth, staking is not a viable sole solution for making a living. Smaller scale staking can provide some nice extra income, but likely requires supplementing with other sources to make a living wage.