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Crypto staking allows investors to support blockchain networks while earning rewards. Before staking, it is important to understand how it works, the requirements involved, and the potential risks to returns.
Staking means locking your cryptocurrency in a blockchain network to help validate transactions and maintain security. In return, investors earn additional tokens as rewards from the network.
Staking is available only for cryptocurrencies using Proof-of-Stake or similar systems, such as Ethereum, Cardano, Solana, and Polkadot, enabling investors to participate in network operations.
Investors can stake their tokens through exchanges or wallets for convenience, or by running a validator node directly, which requires more technical knowledge and responsibility
The value of staked cryptocurrencies can fluctuate sharply. Even with staking rewards, a sudden fall in token prices may reduce overall returns and negatively affect investment portfolios.
Many staking programs require assets to be locked for a fixed duration. During this period, investors cannot sell or transfer tokens, limiting flexibility during market movements.
Using exchanges or third-party platforms for staking exposes investors to security risks. Hacks, fraud, or technical issues can result in partial or complete loss of staked funds.
Crypto staking remains a regulatory grey area in India. Staking rewards are treated as income and may be taxed at 30 per cent, impacting net investment returns.