🤝Staking

What Is Staking (PoS)

Staking has become the most prominent consensus mechanism used by cryptocurrency projects to validate their blockchain, keeping it permissionless, trustless and irrefutable. Staking, or Proof-of-Stake, requires no physical hardware, unlike Proof-of-Work and is exponentially more environmentally friendly.

Staking uses validators and delegators, where a reward is received proportionately to the number of coins you provided to the stake. If you contributed 1% of the pool's coins, you would receive 1% of the pool's rewards. Rewards come in the form of the network fees, which are passed on to the validator.

Cryptocurrency projects utilizing PoS can instantly 'mint' their tokens instead of having to pre-mine them like you would with PoW.

Even by providing liquidity as a delegator, you are providing a service and therefore earning 'income' when you receive your reward. Lefts find out how SARS sees it.

Tax Treatment

As you are providing a service in return for crypto assets, it is likely SARS views staking rewards as income.

Furthermore, if you decide to hold your rewarded cryptocurrency, any appreciation greater than your cost basis should be taxed as a capital gain.

Your cost basis when receiving crypto assets is the market value on the date you received them.

Let us look at an example for clarification.

Example

Nia delegated 30,000 CRO (R150,000) on the decentralized Cronos chain, helping validate the network for a guaranteed APR of 12%. She is in the lowest income tax bracket.

Daily or Weekly reward payouts pose a problem with your cost basis, having multiple prices. Another problem Recap easily solves.

For simplicity, her yearly reward of 3600 CRO was valued at:

R18,000 (R5 each), which she immediately sold giving her new income of R18,000 with zero capital gain.

She pays tax on the full gain, seen as a trader, not an investor.

Taxed at 18% (18,000 * 18%)

= R3,240 Payable