The Staking Illusion: Why Bitcoin Pays No Yield — and Why That Is Good

Why does bitcoin pay no yield? Because nobody owes you bitcoin. A bitcoin is not a loan, a share or an account, but an asset you own directly. A yield can only exist if someone else pays it. With staking coins, it is mostly paid by the other holders, through newly created coins that dilute their share. With "interest on bitcoin", it is paid by a borrower to whom you hand over your coins. Both are a staking yield that promises more than it delivers. That bitcoin pays nothing is not a flaw, but the reason you do not have to trust anyone.

Why bitcoin cannot pay a yield

A yield is a stream of money that someone pays you. With a bond, the state or the company pays interest; with a share, the company pays a dividend out of its profit; with a flat, the tenant pays rent. There is always someone on the other side who owes you something.

With bitcoin that side does not exist. There is no issuer, no company and no contract. New bitcoin are created only through mining: whoever finds a block receives a fixed amount, 3.125 BTC per block since April 2024. That is not a yield for holders but payment for work that secures the network, with electricity and machines that cost money. How it works is explained in Bitcoin Mining Explained.

What bitcoin can offer you is something else: an increase in value, because the supply is fixed and demand has grown so far. That is not a payment but a price that can rise and fall. How that price has grown over the long run so far is shown by the Power Law model. You need to know the difference, because this is exactly where the offers that promise you "yield on bitcoin" or "staking" come in.

What staking is and who pays the staking yield

Many other coins do not use mining but proof of stake. Instead of spending electricity, participants lock up their coins as collateral, validate transactions and receive a reward. This is called staking. Ethereum switched to it in September 2022; Solana, Cardano and many others have worked this way from the start.

The reward comes mostly from newly created coins. So the supply grows, and the higher the staking yield, the more it grows. User fees add to it, but for most coins they are the smaller part. With Solana, for example, inflation started at 8 % a year in 2021 according to the project's documentation and has fallen by 15 % every year since, until it settles at 1.5 %.

A simple calculation shows what this means for you. Assume the coin's total value stays the same, since staking creates no new value, only new units.

Staking is therefore mainly a redistribution: from those who do not stake to those who do. Whoever holds the coin without staking pays the others' yield. Whoever stakes pays for it with lock-up and risk. Why this is one of several reasons to stay away from altcoins is covered in Altcoins Are Not Like Bitcoin. Here the subject is the mechanism itself.

What staking costs on top

The calculation above is still the friendly version. Three costs come on top.

Lock-ups. Whoever deposited ether for the new Ethereum network from late 2020 onwards could only withdraw it after the Shapella upgrade in April 2023, so not for more than two years. In that time ether fell from over $4’000 in November 2021 to about $1’000 in June 2022. The stakers could not sell the locked coins.

Penalties. With proof of stake, part of the collateral can be destroyed if a validator breaks the rules, for example through badly configured software. This is called slashing. Whoever stakes through a provider shares that provider's mistakes.

Taxes. In Germany, staking rewards are income under § 22 No. 3 of the Income Tax Act when received, according to the Federal Ministry of Finance's letter of 6 March 2025, with an exemption limit of €256 a year. In Switzerland the Federal Tax Administration treats them as taxable income. So you pay tax in euros or francs on coins whose value may fall afterwards.

Interest on bitcoin: a borrower's yield

Because bitcoin itself pays nothing, platforms appeared from around 2019 that paid anyway. You deposited bitcoin and received a few per cent on top every month, in bitcoin. The platforms called it an interest account, Earn or Yield. It looked like a savings account but was something else: an unsecured loan to a company that lent the coins on or traded with them itself.

2022 showed what that means. In May the stablecoin TerraUSD collapsed; its Anchor protocol had promised almost 20 % interest. The hedge fund Three Arrows Capital, one of the industry's largest borrowers, then could no longer service its loans. One platform after another froze withdrawals:

The customers of these platforms were no longer owners of their coins but creditors in insolvency proceedings. How that played out at Celsius in detail, and what customers from Mt. Gox to FTX got back, is in Crypto Exchange Bankrupt.

The core is simpler than any court case: if someone pays you interest on bitcoin, they have to earn more with your bitcoin than they pay you. They lend it to someone who pays higher interest because nobody else will give them money, or they trade it themselves. After 2022 a rule of thumb did the rounds: if you don't know where the yield comes from, you are the yield.

Where real yield comes from

Yield is not bad. It is just never free. Every real yield has a source, and the risk is attached to the source.

The first four rows have one thing in common: something is produced somewhere. A company sells goods, a tenant works, a miner secures the network. Staking and anonymous interest accounts fall out of line. In one case the money comes out of other holders' pockets, in the other from a business you cannot see into.

Digital credit: yield with a name and an address

If you want ongoing income from your wealth without selling bitcoin, since 2025 there has been a form that answers the question "who pays?" openly: preferred shares of bitcoin companies such as Strategy or Strive, tracked on this site under digital credit. They pay a dividend set out in a prospectus, trade on the stock exchange and are backed by the company's bitcoin.

The difference from Celsius is not that there is no risk. The dividend can be cut, the price can fall harder than bitcoin, and the company pays it partly from selling new shares, and in Strategy's case in 2026 also from selling bitcoin. The difference is that you know the debtor, its bitcoin, its obligations and its quarterly figures. What the security is and how well bitcoin covers it is explained in Digital Credit Explained; what can go wrong in The Risks of Bitcoin Preferred Stocks.

The separation matters: digital credit is a building block of its own next to your bitcoin holding, not a yield on your bitcoin. Your coins stay in your wallet, the preferred share sits in your brokerage account.

Why it is good that bitcoin pays nothing

What first looks like a drawback turns out, on closer inspection, to be the property that sets bitcoin apart from almost everything else.

No counterparty. What pays nothing cannot default. Your bitcoin are not a claim on someone who can go bankrupt, cheat or halt withdrawals. As long as you hold your keys yourself, the holding is yours without conditions. How to do that safely is in Storing Bitcoin Safely.

No penalty for doing nothing. With a staking coin you lose share if you merely hold it. With bitcoin the supply grows on a fixed schedule, by about 0.8 % a year since April 2024, and that growth pays for the network's security, not for other holders. Every holder is treated the same, whether they do anything or not.

No lock-up. You can sell, move or bequeath at any time. No protocol and no provider decides when you get to your coins.

Simple taxes. Without ongoing income, in Germany there is no receipt you have to tax every year. If you sell after more than a year, the gain is tax-free. In Switzerland, private capital gains stay tax-free and you only pay the annual wealth tax.

What to take away from the staking illusion

Three questions help with any offer that promises you a yield on crypto:

1. Who pays me, and how do they earn the money? If the answer is "new coins" or "we lend to institutional partners", you do not know the source.
2. Who owns my coins while they earn a yield? If the terms say the provider may use them, you are a creditor, not an owner.
3. What happens if I need them tomorrow? Lock-ups, notice periods and withdrawal freezes only show themselves when it counts.

Bitcoin passes all three questions because it answers each with "nobody": nobody pays you, nobody but you has your coins, nobody has to agree when you move them.