Learn / Experienced · Mining and Staking

Mining and staking: who pays, who earns?

Someone has to be paid to keep a blockchain running, and someone has to pay them. In this module you follow the money behind mining and staking, so that when an advertisement promises “earn while you sleep”, you can ask the right question: where does that money come from?

We use Bitcoin for mining and Ethereum for staking, and we do not discuss prices or promise returns.

Education only, not financial advice. Examples use made-up numbers, not live prices.

Who pays whom

Both mining and staking solve the same problem: choosing who adds the next block, honestly, without a boss. Both rely on rewards and on costs for cheating. Rewards come from two places:

• New coins created by the rules. Called the block reward or issuance. This is effectively paid by all holders, because new coins slowly dilute the share of everyone else.
• Transaction fees. Paid by users who want their transactions included.

Mining on Bitcoin

Miners spend electricity and equipment competing to add the next block. The winner earns the block reward plus fees. The reward started at 50 bitcoins and is cut in half after every 210,000 blocks, which takes about four years. This event is called the halving. The most recent halving was on 20 April 2024 and lowered the reward from 6.25 to 3.125 bitcoins per block. The next is expected around 2028 at block 1,050,000. Because the reward keeps shrinking, the total supply approaches a fixed limit of 21 million.

The halving does two honest things: it slows the creation of new coins, and it squeezes miners’ income, which pushes them to cut costs and depend more on fees over time. What it does not do is tell you what any price will do. Claims that a halving “guarantees” anything are guesses dressed up as rules; Module 7 shows why.

Staking on Ethereum

Ethereum replaced mining with staking in 2022. To run a validator yourself you lock up 32 ETH as a deposit. Validators propose and vote on blocks and are paid for doing it correctly. If a validator misbehaves, for example by signing two conflicting votes, part of the deposit can be destroyed in a penalty called slashing. Being offline costs smaller penalties.

Staked ETH was locked until the Shanghai and Capella upgrade (often called Shapella) on 12 April 2023, which enabled withdrawals. Rewards above 32 ETH are paid automatically to a withdrawal address, and a full exit goes through an exit queue, so you cannot assume instant access. Ethereum’s own documentation stresses that rewards vary; they are not a fixed interest rate.

Staking through someone else

Most people do not have 32 ETH, or do not want to run a computer all day, so they use an exchange, a staking pool or “liquid staking” that gives them a receipt token. This is convenient but adds layers of risk:

• Smart contract risk: a flaw in the pool’s code.
• Custody risk: the provider holds the keys or the funds.
• Liquidity risk: the receipt token can trade below the value of what it represents, and withdrawals may queue.
• Fees: the provider takes a share of the rewards.

Reading a yield claim

Whenever you see a percentage promised, ask four things. Where does the money come from: new issuance, fees, or other users’ deposits? What can reduce or erase it: slashing, lockups, falling token value? Is it fixed or variable? Who holds my funds meanwhile? A “guaranteed” high yield with no clear source is a classic warning sign. If the money comes only from new depositors, the plan depends on a steady flow of new people joining.

A Caribbean angle

Home mining on Bitcoin competes with large professional operations that buy electricity in bulk, so for most households the cost of power and equipment is the deciding factor, not the technology. Staking through a foreign platform raises the same questions of custody and rules covered in Module 8. Before locking funds anywhere, check whether it is allowed and whether you can leave when you need to.

Worked example: reading two ads

Imagine two adverts. Ad one says: “Stake with us and earn a guaranteed 20 percent every year, withdraw any time.” Ad two says: “Our staking pool pays variable rewards that depend on network activity; fees are 10 percent of rewards; withdrawals may queue.”

Run the four questions. For ad one, the source of the reward is not stated. Ethereum’s own rewards are variable, so a fixed, high, guaranteed figure must come from somewhere else: the company’s own funds, new depositors, or extra risk taken with your money. “Any time” withdrawal conflicts with the exit queue that exists on the network, so the company must be holding a reserve or lending your coins. That is custody and counterparty risk, not a free return.

Ad two is less exciting but answers the questions. It says the reward varies, names a fee, and warns about queues. You still carry smart contract and provider risk, and you should read how it works. The lesson: the plainer and more specific the description, the easier it is to judge. Vague, round and guaranteed numbers deserve extra suspicion.

Common mistakes

Calling staking “free interest”. It is a payment for a job with risks, and rewards vary.

Ignoring the lockup or exit queue. You may not get your funds on the day you want them.

Thinking halvings are price promises. They change supply rules, not the future.

Forgetting the provider’s risk. With pools and exchanges you carry their risks too.

Try it yourself

Find an advertisement or a post that promises a staking or mining return. Using the four questions above, write down: the stated source of the reward, what could reduce it, whether it is fixed, and who holds the funds. Then decide whether you would be comfortable explaining the arrangement to a friend in two sentences. If not, that is your answer for now.

Keep in mind

• Rewards are paid from new coins and from fees, so someone always bears the cost.
• Halving rules are known in advance; their market effects are not.
• Staking brings slashing, lockups and provider risk.
• Not financial advice.

Key terms from this lesson

• Block reward — newly created coins paid to whoever adds a block.
• Halving — the scheduled cut of Bitcoin’s block reward every 210,000 blocks.
• Validator — a participant who stakes coins to help confirm blocks.
• Slashing — a penalty that destroys part of a validator’s deposit for breaking the rules.
• Exit queue — the waiting line to leave staking.
• Liquid staking — staking through a provider that gives you a tradable receipt.

Sources and credits

• ethereum.org: Staking withdrawals — Shanghai and Capella, 12 April 2023
• CoinGecko: Bitcoin halving — halving dates and block heights
• Bitcoin Developer Guide: Block chain — how blocks and rewards work
• GSR: Enabling staked ETH withdrawals (Shapella) — 32 ETH validators and exit limits
• ethereum.org: Staking — how solo staking and staking pools work

Explained in our own words from these sources. Figures are approximate and reported by the sources named; check them yourself. Education only, not financial advice.

Module quiz

3 questions. Tap an answer to see if you are right and why. Get 2 right to complete the module.

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