Staking Scam: For a few years now, so-called “staking” has enjoyed increasing popularity, especially in the world of cryptocurrencies. But what is behind this term and what are the risks involved?
In this article, we will deal with the topic in detail and explain the definition, function as well as the fraud risks in detail. We will focus in particular on the cryptocurrencies Cardano and Ethereum, as these are the two most commonly used for staking.
Topics at a glance
- What is Staking?
- How does Staking work?
- Staking with Cardano
- Staking on Ethereum
- Taxes on Staking
- Experiences with Staking
- Compensation for fraud
- Staking Scam: Lawyers help injured parties
What is Staking?
Staking is a method used by some cryptocurrencies to secure the blockchain and validate transactions. Unlike mining, no special hardware is needed here, but coins of the cryptocurrency in question have to be deposited as a stake in a wallet.
Staking turns users’ wallets into validators that check and confirm transactions. In return, users receive rewards in the form of new coins. This is thus a mechanism that supports the decentralisation and security of the blockchain.
The term staking comes from the English word “to stake” and means something like “to make a bet”. Originally, the term was used in the context of gambling, to place a stake in a bet or game.
In the cryptocurrency world, the term is used to describe the method by which users deposit coins as a stake to secure the blockchain.
What do I need to consider?
When staking, there are a few aspects that users should consider. Firstly, you should make sure that you deposit the coins in a secure wallet and that the platform you are staking on is reputable and trustworthy.
Furthermore, one should be aware of the amount of rewards one receives for staking and the risks involved. It is advisable to inform yourself in detail about the topic and the cryptocurrency in question before making an investment decision.
What are the risks?
Although staking is a popular method to generate passive income from cryptocurrencies, there are also risks that users should consider. The risks include in particular:
- Volatility: Cryptocurrency prices can be very volatile, which can lead to significant losses.
- Failure of validators: If the validator that validates transactions fails, there may be delays or losses.
- Inflation: If too many coins are clocked, this can lead to inflation of the cryptocurrency, which lowers the value of the coins.
What is a Staking Scam or Fraud?
As with all investments, there is a risk of fraud or scams with staking. This is where investors are deceived and tricked into investing cryptocurrencies in fraudulent projects that have no real value.
An example of a staking scam is the so-called “exit scam”. Here, a platform is set up on which users can stake their coins. As soon as enough coins have been staked, the operators disappear with the coins and leave the users empty-handed.
Another example of fraud in this area is so-called “fake coins”.
Here, a cryptocurrency is launched that pretends to support a staking system. In reality, however, it is a fraudulent cryptocurrency that has no real value. Often, such fake coins are offered at a very low price to attract investors who then buy and stake the coins.
A well-known example of a fake coin scam is Bitconnect. Bitconnect was a cryptocurrency that pretended to support a staking system. The company promised high returns for staking Bitconnect coins. However, it turned out that Bitconnect was a Ponzi scheme and the company eventually disappeared with investors’ money.
Short definition Staking
Staking involves depositing cryptocurrencies in a wallet to validate transactions and secure the blockchain. In return, users receive rewards in the form of new coins. The amount of the rewards depends on various factors such as the number of staked coins and the duration of the staking.
It is thus a mechanism that supports the decentralisation and security of the blockchain.
Staking at Cardano
Cardano is one of the most popular blockchain platforms that has implemented a proof-of-stake consensus mechanism to secure the blockchain. Staking on Cardano allows users to deposit their ADA coins (the cryptocurrency used on the Cardano platform) in a special wallet to receive rewards.
The amount of the rewards depends on various factors, such as the number of coins staked and the duration of the staking. The rewards are paid out in ADA Coins. There are also some wallets that support Cardano staking. These include Daedalus and Yoroi, for example.
Cardano also offers a multi-tiered system consisting of three different staking categories: Basic Level, Intermediate Level and Premium Level. The higher the level, the higher the potential reward. To get to the higher levels, users have to stake their ADA coins for a longer period of time.
Cardano also allows users to join a staking pool. A staking pool is a group of users who pool their ADA Coins to participate together in validating transactions. The larger the pool, the higher the chances of rewards.
Cardano staking is a way to generate passive income from your cryptocurrency. However, it is important to be aware of the risks and to inform yourself in detail about the system and the cryptocurrency in question.
As with any investment in cryptocurrencies, users should weigh up the potential risks and rewards and make an informed decision.
As a law firm, we recommend that users seek detailed advice before investing in cryptocurrency staking systems and only invest in reputable projects. We are happy to assist you in this regard and provide comprehensive advice on all legal issues related to cryptocurrencies.
Staking with Ethereum
Ethereum is one of the most well-known cryptocurrencies and blockchain platforms that currently uses the proof-of-work consensus mechanism to secure the blockchain. However, Ethereum plans to switch to a proof-of-stake consensus mechanism in the near future to improve the security and scalability of the blockchain.
Ethereum’s staking allows users to deposit their ETH coins in a special wallet to receive rewards. The amount of the rewards depends on various factors, such as the number of staked coins and the duration of the staking. The rewards are paid out in ETH coins.
Contrasts Cardano and Ethereum
Unlike Cardano, Ethereum does not currently offer a multi-level staking system consisting of different staking categories. The amount of rewards depends solely on the number of staked coins. However, it is possible to join Ethereum’s staking pool. A staking pool is a group of users who pool their ETH coins to participate together in the validation of transactions. The larger the pool, the higher the chances of rewards.
There are also some wallets that support Ethereum staking. These include MyEtherWallet and MetaMask, for example.
When Ethereum staking, users also need to ensure that their wallet is secure and that the platform they are staking on is reputable and trustworthy. It is important to be aware of the risks and to read up in detail about the staking system and the cryptocurrency in question.
One difference between Ethereum and Cardano is that Ethereum currently still uses the proof-of-work consensus mechanism, while Cardano has already implemented a pure proof-of-stake consensus mechanism.
Another difference is that Cardano offers a multi-level staking system, while Ethereum currently only awards rewards depending on the number of staked coins.
What rules apply to taxation?
In Germany, cryptocurrencies, including the rewards from staking, are generally subject to taxation. The same tax rules apply as for other assets, such as shares or gold.
Specifically, this means that the rewards from staking are treated as income from capital assets and must be declared accordingly in the tax return. If the rewards are sold within 12 months of the St aking, the gains must be taxed as private capital gains. If the rewards are held for longer than 12 months, they may be treated as tax-free speculative gains.
It is important to note that the value of the staked cryptocurrencies at the time of staking may also be relevant for calculating the tax liability. If the value of the staked coins increases during the staking, this may result in a taxable gain.
When filing the tax return, all income from capital assets, including the staking rewards, must be declared in the KAP annex. It is important to note the tax liability for staking and to declare the corresponding income in the tax return in order to avoid possible tax penalties.
In the event of incorrect taxation or omissions, there is usually a threat of back tax payments, interest on arrears and possibly also tax penalties. It is therefore important to inform oneself sufficiently in advance about the tax aspects of staking and other investments in cryptocurrencies and, if necessary, to consult a tax advisor.
Negative experiences from investors time and again
Although staking is an attractive way to generate passive income from cryptocurrencies, there are also many investors who have had negative experiences with staking.
Here are some of the most common problems and risks that investors can encounter:
- Volatility of the cryptocurrency market: The cryptocurrency market is extremely volatile and can experience significant fluctuations within a short period of time. If investors stake their Coins during a price correction, they may suffer significant losses when the price of the cryptocurrency falls.
- Scam coins and scam projects: There are many scam projects and scam coins that pretend to support a staking scheme but in reality only aim to cheat investors out of their money. Investors should therefore only invest in reputable projects and inform themselves comprehensively about the cryptocurrencies and the staking system in question.
- Loss of coins: If investors stake their coins in an insecure wallet or on a fraudulent platform, they can run the risk of losing their coins. It is important to choose a secure wallet and only stake on reputable platforms.
- Technical problems: Staking often requires technical knowledge and problems can occur when investors stake their coins. For example, there may be network problems that can affect the process.
- Inflation: Another risk of staking is inflation. If too many users stake their coins, this can lead to an increase in the amount of cryptocurrency in circulation, which in turn can lower the value of the coins.
Accounts like this, reach our office regularly:
“I invested in a supposed staking project and suffered high financial losses. I did not inform myself sufficiently about the project and the cryptocurrency in question beforehand and fell for a scammer. It was a painful experience, but I learned from it and in the future I will only invest in reputable projects that I have thoroughly researched.”
It is important to stress that investors who invest in staking need a high level of knowledge, experience and caution to be successful. Negative experiences can be avoided by investors being aware of the risks, choosing reputable projects and keeping themselves fully informed.
Compensation for fraud
If an investor has been the victim of a staking fraud, he may be entitled to compensation. In this case, investors should immediately seek legal advice and have their legal options examined.
Our law firm Herfurtner specialises in questions of capital market law and in particular in the protection of investors. We will be happy to assist you and examine your case comprehensively, including advising you on your legal options.
If you have become a victim of a staking fraud, we recommend that you contact our law firm immediately and seek legal advice. We are here for you and will assist you with our many years of experience in the field of capital market law.
Staking Scam: Lawyers help injured parties
There are cases where investors have got their money back after falling victim to such scams or other forms of cryptocurrency fraud. However, these cases are individual and there is no guarantee of a successful outcome.
In general, the success of a claim for damages depends on various factors, such as the nature and severity of the fraud, the evidence and the legal resources available. It is important that investors seek prompt legal advice in such cases and have their legal options examined.
Our Herfurtner law firm has successfully represented several investors who have been victims of cryptocurrency fraud. We work hard to represent our clients in the best possible way and to protect their interests.
If you have been a victim of staking fraud or other forms of cryptocurrency fraud, we recommend that you contact our firm immediately to have one of our attorneys review your legal options. We will do everything in our power to help you and represent your interests.