What Is Staking? Understanding Network Security vs Profit Staking
What is staking? Broadly speaking, staking can be divided into two main categories:
- Consensus staking — helps secure and decentralize a blockchain network.
- Profit-oriented staking — aims to earn rewards from decentralized finance (DeFi) protocols.
Let’s look at both in detail.
1. Consensus Staking — Securing the Network
Consensus staking is directly related to how a blockchain operates.
It serves a similar purpose to mining — maintaining the network’s security and integrity.
For example, in the Bitcoin network, miners use powerful computing devices known as ASICs to solve complex mathematical problems. But the main purpose of mining isn’t simply to create new bitcoins — it’s to secure the network.
When you send a Bitcoin transaction, it must be confirmed by miners before being permanently added to the blockchain.
Miners compete to create the next block, include pending transactions, and receive a reward (block reward + transaction fees).
The more miners participate, the greater the total computing power, making the network more secure and decentralized.
Transition to Staking (Proof of Stake)
Staking is an alternative to mining, now used in most modern blockchains — for example, Ethereum.
Previously, Ethereum used mining with graphics cards, similar to Bitcoin’s Proof of Work (PoW).
Now, Ethereum operates under the Proof of Stake (PoS) algorithm, replacing mining with staking.
Instead of building mining rigs, participants lock up (stake) a certain amount of ETH in their wallets.
The more ETH you stake, the higher your chance of being selected to create the next block — and to earn both the block reward and transaction fees.
Staking Pools
What if you only have a small amount of coins?
That’s where staking pools come in — groups of users who combine their coins to increase their collective chance of validating blocks.
When the pool earns rewards, they are distributed proportionally to each participant’s contribution.
This makes staking accessible even to users who don’t hold large amounts.
Rewards and Returns
Staking is considered one of the safest forms of passive income in crypto — especially for long-term holders who want to support the network and earn consistent rewards.
For example, in Ethereum, the average annual staking yield is around 7%.
This means that 1 staked ETH will earn about 0.07 ETH per year in rewards.
Rewards are paid in the same token you stake.
2. Profit-Oriented Staking — DeFi Rewards
Now let’s move to the second category: staking in DeFi protocols.
As covered in earlier lessons, decentralized exchanges (DEXs) earn from transaction fees.
Some share part of their profits with users who stake the exchange’s tokens.
Here’s how it works:
- You buy the platform’s token.
- You stake it (lock it up in a smart contract).
- You earn a share of the platform’s total revenue from trading fees.
Your rewards depend on the proportion of tokens you’ve staked compared to the total tokens staked on the platform.
This form of staking has nothing to do with network security — it’s purely profit-oriented, used to generate income from protocol activity.
Comparing the Two Types of Staking
| Type | Purpose | Example | Rewards | Risk |
|---|---|---|---|---|
| Consensus (Network) Staking | Secures and validates the blockchain | Ethereum, Cardano | ~5–7% annually | Very low |
| Profit (DeFi) Staking | Generates yield from protocol revenue | Uniswap, PancakeSwap | 10–200%+ APY | Moderate to high |
Consensus staking is about security and stability, while profit staking is about yield and risk.
Practical Application
In this module, we’ll focus on consensus staking — staking that helps secure the network.
This approach offers lower returns but minimal risk, making it ideal for:
- Long-term investors
- Portfolio builders
- Users seeking predictable, steady growth
In later modules, we’ll cover DeFi staking and yield pools, which can provide higher returns — but with increased exposure to market and smart contract risks.
These materials are created for educational purposes only and do not constitute financial advice.