What is staking? Crypto rewards, security, and the privacy you need to consider

Staking is a way to earn rewards by helping keep a blockchain network operational and secure . Instead of mining, staking supports networks like Ethereum by locking up cryptocurrency to validate transactions. In return, stakers earn passive income through token rewards.

While staking is often promoted for its simplicity, it’s important to understand the risks: especially how your wallet address, activity patterns, and delegation choices can affect your privacy.

What does staking actually mean?

Staking is the process of actively participating in a proof-of-stake (PoS) blockchain by locking up a certain amount of cryptocurrency to support network functions like block validation and governance.

Your staked assets act like a security deposit, proving your commitment to the network. If you're running a validator node, you verify and add transactions to the blockchain. If you’re a delegator, you support validators without operating your own node.

How proof-of-stake works

In PoS networks, validators are randomly selected to confirm transactions based on how much crypto they’ve staked. Unlike mining, this uses little energy. If validators act honestly, they earn rewards. If they misbehave, their stake can be slashed (penalized).

You don’t need technical skills to stake — many users delegate their tokens to a validator. However, who you delegate to matters. Poorly chosen validators can leak metadata or centralize influence. For tips on choosing private and decentralized options, check out our guide to traffic analysis threats.

Why do people stake crypto?

1. Earn passive income: You receive token rewards (like interest) for staking your crypto
2. Support the network: Your stake helps secure the blockchain and verify legitimate transactions
3. Participate in governance: Stakers may vote on protocol upgrades and proposals
4. Reduce network fees: Some chains offer lower fees or better access for active stakers

Centralized vs. decentralized staking

Understanding who controls the staking process is crucial for both security and privacy.

Centralized staking platforms

• Custodians like exchanges stake on your behalf

• You don’t control your private keys

• Metadata (IP, wallet, timing) is logged and stored

• Regulatory or service shutdowns can restrict access

Decentralized / self-custodial staking

• You stake from your own wallet or through decentralized tools
• You retain full control of your assets and private keys
• Less metadata exposure—especially with tools like Nym’s Noise Generating Mixnet
• Requires more research, but promotes network health

When privacy matters, staking from your own wallet and routing network activity through decentralized privacy infrastructure is the safer option.

How delegated staking works

Delegated staking allows users to earn rewards without becoming a validator themselves. You "delegate" your tokens to a validator who does the work for you—while you retain ownership of your crypto.

It’s important to choose a validator aligned with your goals: low commission, high uptime, and privacy awareness are key. Delegation doesn’t transfer custody, but it does reveal your staking behavior. If you’re interested in staking with privacy in mind, see our guide on how to stake in the Nym mixnet.

Staking vs. lending: What’s the difference?

Many users confuse staking with lending — but they serve very different purposes.

Staking

• Supports blockchain consensus
• Helps secure the network
• Yields depend on protocol inflation
• Assets may be locked or slashed

Lending

• Earns interest by loaning crypto to borrowers
• Involves credit risk or collateral platforms
• Often uses centralized finance (CeFi) models
• No involvement in governance or consensus

Staking is blockchain-native and decentralized by design, whereas lending often introduces third parties and external risk.

6 best practices for staking safely and privately

Staking can deliver steady crypto rewards — but without protecting your metadata, your activity may be traced. These six steps help you stake confidently, preserve privacy, and support Nym’s mission of secure data protection.

1. Use a non‑custodial wallet

Always use a wallet where you control the private keys. Exchange platforms often log identity, IPs, and device data. With self‑custody, you retain both asset control and privacy.

2. Choose privacy‑focused validators

When delegating, select validators that avoid KYC requirements and are community-driven. This prevents data centralization and lowers exposure to surveillance or censorship risk.

3. Avoid exchange‑based staking

Exchanges log extensive metadata—such as your IP, browser, and staking patterns. For context on how this metadata can be analyzed and weaponized, see What is traffic analysis?

4. Use a privacy VPN with mixnet support

When accessing staking tools or blockchain explorers, use privacy infrastructure that hides your IP and timing data. Learn how tools like NymVPN protect you even when using vulnerable apps in Can you be tracked while using a VPN?

5. Know lock‑up and unbonding periods

Understand how long tokens remain locked after staking or withdrawal. During this time, your assets and participation patterns can still be monitored or exposed.

6. Stay informed on broader privacy tools

Staking safely means understanding your exposure across platforms. Read What is open source? to understand how open infrastructure helps verify privacy protections — and avoid hidden surveillance features in closed-source tools.