Bitcoin Staking

Sep 4, 2025 | Updated Dec 28, 2025

Bitcoin Staking refers to earning rewards or yield on Bitcoin holdings via third-party platforms or protocols that put the Bitcoin to use.

What Is Bitcoin Staking?

The term Bitcoin Staking is often a source of confusion because the Bitcoin network is secured through Proof-of-Work (PoW), not a Proof-of-Stake (PoS) consensus mechanism. In a true PoS system (like Ethereum or Cardano), users lock up or “stake” their coins to help validate transactions and secure the network, earning rewards in return.

Because Bitcoin uses PoW, it is not possible to stake BTC on its native blockchain. When you hear the term “Bitcoin Staking,” it generally refers to alternative, indirect methods for generating a return on your Bitcoin. These methods typically involve either entrusting your Bitcoin to a centralized service or “wrapping” it to be used on another blockchain.

These services aim to offer a way for long-term Bitcoin holders to earn passive income on their assets without having to sacrifice their exposure by selling the asset.

How Does Bitcoin Staking Work?

Since native staking is not possible, earning yield on Bitcoin is achieved through several different models, each with its own process and risk profile.

Centralized Finance (CeFi) Platforms

This is the most common method. Crypto exchanges and lending platforms offer “earn” or “staking” programs where you can deposit your Bitcoin. In reality, you are typically lending your BTC to the platform, which then lends it out to other users at a higher interest rate. The platform passes a portion of that interest back to you as a reward. While simple, this method requires you to give up custody of your Bitcoin to a third party.

Wrapped Bitcoin (wBTC) in DeFi

To use Bitcoin within the Decentralized Finance (DeFi) ecosystem, which largely operates on Proof-of-Stake blockchains like Ethereum, it must first be “wrapped.” This process creates Wrapped Bitcoin (wBTC), an ERC-20 token pegged 1:1 to the value of Bitcoin. This tokenized version of Bitcoin can then be utilized in various DeFi applications, such as lending protocols or liquidity pools, to generate yield, similar to staking rewards for PoS tokens.

Emerging Layer-2 Solutions

This is a developing area where new protocols are being built on top of Bitcoin. Some of these Layer-2 networks allow Bitcoin to be used as a security asset, essentially letting users “stake” their BTC to help secure the layer 2 network which relies on proof of stake. This innovative approach creates a form of native yield directly from the Bitcoin ecosystem, removing the need to wrap or bridge the asset to another blockchain.

Risks of Bitcoin Staking

While earning yield on Bitcoin can be attractive, it is crucial to understand the associated risks, which differ significantly from traditional PoS staking.

Custody Risk
- When using CeFi platforms, you transfer your Bitcoin to the platform’s wallet. This means you are trusting them to keep your assets safe. If the platform is hacked or becomes insolvent, your funds could be lost. This is a direct trade-off against the core Bitcoin principle of self-custody (“not your keys, not your coins”).
Smart Contract Risk
- When using wBTC in DeFi protocols, you are exposed to the risk of bugs or vulnerabilities in the smart contracts of both the wrapping service and the DeFi application you are using.
Third-Party Risk
- All indirect staking methods rely on intermediaries, whether it’s a centralized exchange, a wBTC custodian, or a bridge protocol. The failure or malicious action of any of these third parties can put your underlying Bitcoin at risk.