# Staking

![](/files/0KuD0EfrkxI663SfyEyd)

## 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](/south-african-tax-guide/transaction-types/mining.md) 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. 

{% hint style="success" %}
Cryptocurrency projects utilizing **PoS** can instantly 'mint' their tokens instead of having to pre-mine them like you would with **PoW**. 
{% endhint %}

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.

{% hint style="info" %}
Your [**cost basis**](#tax-treatment) when receiving crypto assets is the market value on the date you received them. 
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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.

{% hint style="danger" %}
Daily or Weekly reward payouts pose a problem with your *cost basis*, having multiple prices. Another problem *Recap* easily solves.
{% endhint %}

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**


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