Staking Validators & Delegators. What are validators and delegators of a blockchain? Differences between validator and delegator. What is a token delegation and how they function. What are the requirements and incentives for validators and delegators? This post is everything you need to know about validator and delegator.
Many cryptocurrencies are based on blockchain technology. They are decentralized networks. Users of these networks are essential as they provide resources and service to maintain the ledger and enable smooth operation of the network.
Today there are several different blockchain types with each differing in the way they verify actions. One of the key component of any blockchain network is its consensus algorithm. The consensus mechanism ensures users of the network and machines coordinate with each other effectively and agree on a single source of truth. This part is crucial in securing the blockchain network from a malicious target.
The two most widely used consensus algorithm in the crypto space are Proof of Work (PoW mining) and Proof of Stake (PoS staking). Both mining in PoW and staking in PoS blockchains are essential in maintenance of the blockchain network.
Today there are more PoS networks compared to PoW blockchains. Also now that ETH has moved to PoS you often hear terms such as staking, validators and delegators. Anyways the term validator is not specific to PoS blockchains but also applies to PoW networks. The concept of miners, validators and delegators all supports the decentralization of a particular blockchain. Before we grasp this lets first understand PoW and PoS.
ETH 2.0 – PoS Staking
As you know ETH has switched from a proof-of-work (PoW) to proof-of-stake (PoS) to improve the security, speed, efficiency and scalability of its network.
After the upgrade the Ethereum’s mining process has been replaced by a staking model. Staking on the Ethereum network requires users to setup staking node clients that allow communication with other nodes on the Ethereum network. To become a validator you need a minimum of 32 ETH. If you don’t have enough ETH to become a validator or don’t have significant investments to maintain a node you can still stake ETH by delegating or joining staking pools.
After the introduction of Proof-of-Stake consensus; Staking replaced mining – Validators and delegate that stake ETH have replaced GPU miners and now they become responsible for creating blocks and ensuring the network security.
Here we’re not going to explain what Ethereum 2.0 is, how ETH staking works, requirements for ETH staking or how to stake your ETH. This we’ll cover in a separate article. To better understand the differences between validator and delegator let’s first learn PoW and PoS.
Proof of Work vs. Proof of Stake
On both PoW and PoS blockchains there is something called Tokenomics or network economics which is critical for almost every decentralized network. It rewards / incentivizes participants who provide services and resources in securing the network.
On PoW systems it’s the miners and on PoS blockchains it’s the validators. They operate and secure the network by establishing consensus, verifying and finalizing blocks. Without miners, validators and delegators there wouldn’t be a proper functioning blockchain. For their operational upkeep efforts, hardware investments and for providing overall support in maintaining the networks performance and security they are rewarded in native tokens of that particular blockchain.
Let’s understand the distinction between Proof-of-work (PoW) mining and Proof-of-Stake (PoS) validation.
In the earlier days large number of blockchain protocols used PoW mining to validate transactions and secure their network. Mining is a process where network participants use computer hardware such as (CPUs & GPUs) or purpose build ASIC (Application Specific Integrated Circuits) mining machines. These machines solves a complex mathematical puzzle to verify transactions and to generate new blocks. In exchange for securing and running the network miners are rewarded in the form of native coins.
To know more check out how Bitcoin mining block rewards work?
Proof of Stake is another consensus method that blockchains use to reach distributed consensus. On a PoS blockchain a process called staking is used. Similar to mining; staking is a process that actively works on transaction validation to secure the blockchain and to generate new blocks.
Validators, also known as “stakers” are responsible for maintaining the ledger, storing data, processing transactions, and adding new blocks to the blockchain.
While PoW miners operate a mining set-up, proof of stake participants operate and maintains a node on the network to validate transactions, create blocks and to keep the network secure. In return for this service, they earn block rewards and transaction fees from a block.
Anyone with a minimum necessary token balance can start staking on these blockchains to validate transactions and earn staking rewards. To become a validator on the network a set amount of tokens must be locked to the node. Once the node is active it’ll produce the necessary on chain work in exchange for rewards. Network picks a PoS based on the amount of tokens that a particular node is staking. The more the stake is the higher the likelihood it’ll be picked to validate a block and earn rewards.
This incentive model in both PoW and PoS blockchain network is designed so to reward participant for their honest service and to discourage malicious behavior on the network.
What are validator nodes?
What is a validator in crypto? Validator is a concept that applies to both Proof-of-Work and Proof-of-Stake blockchains. Every mining node is a validation node. In Bitcoin; miners are validators. In Ethereum’s PoS node operators are validators.
Validators are people (public volunteers) of the network who volunteers to run a computer to maintain the blockchain’s ledger. These computers aka nodes verify the integrity of the network by constantly computing the linkage from the genesis block (first block) to the present. For major blockchains such as Bitcoin and Ethereum 1.0 PoW there are thousands of validation nodes.
A validator node is a full node that validates all the network information and maintains the ledger. These validator nodes participates in the consensus. They communicate, verifies the integrity and passes the information along to the other nodes on the network. These nodes are responsible for voting, verifying and maintaining a record of transactions, thus enabling the transfer of money from point A to point B.
On PoW blockchains only miners who also runs a full node can be a validator. They are responsible for maintaining a ledger, storing data, processing transactions, and generating new blocks. Once a miner solves the puzzle, a new block is successfully mined. The block is then is validated by the network after a consensus between the nodes has been reached. Once the block is validated, the transactions that are bundled in to the block gets added to the chain.
On PoS blockchains such as Ethereum 2.0, BSC, Solana, Cardano stakers are responsible for producing a next block of transaction and is based on the amount of tokens that validators use as a collateral.
What is Staking?
Staking is a process of locking up your crypto holdings (tokens) to earn rewards. You are simply putting your holdings (money) to work which in return earns you interest and rewards. Thing of staking like putting your money in your bank account and earning interest.
Proof-of-Stake network protocol works by locking up investors (stakers) holdings and making them to agree not to withdraw their stake for a set period of time which in turn benefits the network. A stake consist of a set of native tokens of the blockchain that gets contributed to the network. It serve as a collateral to perform services on the network. Since these locked up tokens staking are servicing the ecosystem for a time period they make remaining tokens in circulation more rare.
In PoS blockchains participants of the network stake their coins to forge new blocks and to secure the blockchain. In return the participants are rewarded. Not just rewards but stakers also get voting rights for securing the ledger.
Compared to mining; staking is less resource intensive. You don’t need any expensive hardware and you don’t have to shell out on electricity costs like you do with crypto mining. Staking consumes less resources. Even though you don’t need to provide computing resources you still need to maintain and run a node yourself. Then you need to learn the crypto’s infrastructure and there are certain minimum requirements. All of this requires technical knowledge which many won’t have. Not to worry. This is only when you wish to run a validator node.
Many PoS protocols also allow for token delegation such as BSC, Cardano (ADA), Polkadot, Tezos, Solana, Celo, NEAR etc. Users who wish to stake but don’t know how to run a validator node can simply hold their tokens in their wallet and start staking. For token delegation there is no minimum quantity of tokens required since all one need to do is delegate their tokens to a public trusted active validator node who helps in conducting PoS validation.
Validators and delegators
On a Proof of Stake network both validators and delegators are stakers. They both are responsible for validating blocks, securing the network and the overall functioning of the blockchain.
While both are network participants who can stake and earn rewards validators have more weightage. Validators form the backbone of a Proof of Stake network. They ensure consensus by proposing and voting. By participating in consensus and by processing transactions validators help the network in achieving the censorship resistant and high performance blockchain status.
The main motive of both validators and delegators is to earn block rewards and transaction fees in return for their efforts and collateralization. For validating blocks and securing the network both validators and delegators are rewarded with native tokens of the blockchain.
On most PoS blockchains to stake and receive rewards you can either become a validator by setting up a staking node for the chain, or you can become a delegator by entrusting tokens to an active validator.
Anyone can run a validator node and start staking. However setting up your own node or staking system can be quite difficult as it requires technical expertise. On the other hand token delegation allows anyone even token holders with less amount to participate in the network consensus. They can delegate to a staking pool where stakers pool their holdings to meet the minimum token requirements.
What is a Validator?
Validator in PoS blockchains – Who is a Validator?
A Validator is a participant of the network who locks up chain-specific tokens to help run the network. This stake amount which the validators use to lock up in the network acts a collateral to keep validators active and honest within the network.
Validators are network node operators who has certain roles other than just locking up specific amount of tokens in the system. The role of validators is to operate a full node, validate transactions, produce blocks and participate in the network consensus.
What is Validating?
A validator runs a node is responsible for validating transactions and finalizing blocks. Validators are block producers of a PoS network.
Any participant can qualify as a validator by providing the minimum stake collateral and setting up a functional node. A validator node by participating in the consensus and verification of the block they receive block rewards and transaction fees in return.
All PoS blockchain relies on a set of validators to secure its network. Most blockchains only allows a maximum number of validators that can be simultaneously active at the same time. Each network incorporates a wide variety of validators such as individuals, communities, institutional etc. These validators increases security and stability, boosts diversity and also increases decentralization.
Becoming an active validator depends on the size of your stake. The minimum amount needed to stake as a validator is defined by the protocol. A node can become a validator only if the minimum amount needed for staking is met.
A validator that is chosen to produce block is selected deterministically and the frequency of being chosen is relative to their voting power. The greater the voting power of a validator (amount of staked tokens) the more likely they’ll be elected to produce the next block. The block rewards are distributed to all stakers (validators) proportionally to their voting power (stake amount) at every checkpoint.
Even though PoS is less resource intensive running a full node still requires more resource. Like Bitcoin miners; validators on PoS network also needed specific hardware and computing power to operate a full node. Full node is a software client that keeps a full record of all historic activity of the blockchain.
Like miners; validators are essential part of the PoS blockchain. They power the entire ecosystem and without them the network wouldn’t function. Only validators are able to validate transactions and commit new blocks in the blockchain. In return for supporting the network and processing network activity they receive rewards in the form of native tokens.
Let’s now understand how token delegation functions within a PoS protocol.
What is a Delegator?
In PoS systems there are two ways a holder can stake and earn rewards. You can be either be a validator by running your own staking node or become a delegator. What is a stake delegation? Delegation is a process by which token holders delegate their stake to a validator.
Who is a Delegator?
Delegators delegate their tokens to validators. Delegators are digital asset holders (can either be an individual or an entity) who cannot, or do not wish to run a validator node themselves. Instead, they delegate their stake to one of the active validator of the network and obtain part of their reward.
Token holders who do not have the minimum token requirements, necessary resources or possess the technical knowledge needed to operate a validator node, but still wish to earn rewards through staking may choose to delegate.
A delegator enters an agreement with a validator to place their STAKE on a validators staking pool. In return for providing collateral and for adding up to the total staking amount needed for the operation of a node delegators earn a percentage of rewards based on the number of tokens they delegated.
What is a delegator in staking?
Certain PoS networks allow for token delegation and is implemented on the protocol level. This allows a token holder to participate in the network and earn block rewards by adding, delegating their assets to an already staked tokens on someone else stake node. In exchange for locking up their tokens to a validator node, delegators earn a percentage of block rewards from validators in proportion to the amount of stake delegated. For running a validator node validators also takes a commission fee from delegators rewards as advised in the contract.
Even though a delegator does not host a full node to participate in the block verification they still play a crucial role in the system. By delegating their stake they‘re indirectly participating in the consensus process and securing the network. Also they are responsible for choosing the validators who build the network.
How do I become a validator or delegator?
To qualify as a validator each network has certain requirements.
Wondering how much ETH you need to be a validator? To become an ETH validator you need 32 ETH. On Ethereum 2.0, ETH holders who have 32 ETH can become a full validator by staking or locking up 32 ETH. You must deposit the funds (collateral stake) into the official staking deposit contract developed by the Ethereum foundation. But it is also possible to stake less through token delegation.
BSC / BNB Validator candidate: To become a BSC validator that is to participate in securing the BSC network and to get paid for the service you need to self stake at least 10,000 BNB.
How much SOL you need to be a Solana validator? To run a validator node on Solana there is no strict minimum amount of SOL required.
There are other networks such as Near, Polkadot, ADA, Tezos with each having different requirements.
Note: As a validator the staked amount which you put up as collateral makes you an investor on the network. This collateral amount involves in the block validation process and you receive rewards depending on how long your stake amount is locked up on the network. Your staked collateral amount can be programmatically forfeited (i.e. slashed) if at any instance it breaks or doesn’t obey the programmatic rules defined by the respective blockchain protocol.
Other than the stake amount there are many other requirements and not everyone can become a validator. Let’s see what are the requirements for validator and who can be a delegator?
Who can be a Validator?
Validators are the key members who maintain and operate the blockchain. Without them there is no functioning blockchain so there are many responsibilities for a validator. To become a validator one needs a steep learning curve with the blockchain ecosystem and a considerable knowledge with softwares and servers to keep the blockchain running, updated and to keep it stable.
Here are some of the requirements of a validator:
Running an effective node is the key to securing the network, ensuring the success of the protocol and the network as a whole. Validators must ensure that their servers that operate the validator node are always online. Validators must constantly ensure that they are running a current version of the software. They must be up to date with the ecosystem and should be ready to adopt to any changes.
To avoid any slashing, the network participants that is the validators need to ensure consistent uptime of a node. They must protect their servers from denial-of-service attacks (DDoS) and be immediately able to respond to any type of attacks or outages.
As the network becomes more heavily used, the bandwidth requirements also increases. You should be ready for Multi gigabyte per day bandwidth.
Once the server is deployed and the node is functional validators need to implement softwares that monitors and manages the node.
To keep the chain secure and up to date validators need to perform regular software updates whenever a new version gets released.
Other that these validators must also actively participate in governance and vote on every proposals.
In short as a validator to earn rewards you must be an active participant in the network. Also you must comply with the rules of protocol’s code base.
Operating a validator node is quite difficult and often time-consuming. Unfortunately, not every user can be a validator. Such users can delegate their stake.
Who can delegate their stake?
Anyone on the network with any amount of coins can become a Delegator. Usually there are no minimum requirements. To start staking all it takes is a few clicks from your wallet.
By delegating you are basically allocating your coins to a validator and this helps distribute the voting power. Remember not only validators control the network and participate in the consensus, but also delegators who control validators through their delegations. By delegating your stake you are voting for a validator and granting them voting power. So it is very important that you pick your validator wisely.
By delegating you are temporally locking / assigning your coins to that validator whose voting power increases. With more voting power that is the more stake is delegated to a stake pool the more likely it’ll be chosen to make the next block. The block rewards will be split between all the delegators of the stake pool proportional to their stake amount.
Just because you are assigning your tokens doesn’t mean that validators takes control of your coins. They don’t hold or own your assets. At any given time a delegator can un-delegate their stake and delegate with other validator. The coins will be held until the mandatory un-bonding period which varies from protocol to protocol. Usually the unbonding period is of 14 days. Once the unbonding period is over the coins will be released and is free to move anywhere. Back to your wallet or you can assign to a new validator.
Here are few considerations before you delegate your stake.
Choosing a Validator
Wondering how to pick a node to delegate or deciding on which validator to choose? Delegators play a crucial role in the system. They are as important as validators as they are responsible for choosing validators in the system.
Since validators have more weight in the networks consensus and governance process it is important that you carefully pick your validator to delegate your stake. More the stake, more the voting power you provide to the validator which means they have a greater influence on future blockchain development and updates.
By delegating your tokens to a validator you are getting a percentage of their rewards in exchange. Not only rewards but they also share risks. Do not worry. By picking a wrong validator your funds are not at risk. Validator cannot take custody of delegator’s funds and they cannot run away with your funds.
The only risks associated are your tokens getting slashed and you losing portion of your rewards when a validator behaves maliciously or poorly and suffers a slashing event.
What are the slashing conditions?
On PoS protocols there are slashing conditions. On most protocols these two faults can result in slashing of the validator and their delegators funds. 1. Node Downtime and 2. Double Signing or Double Spending.
Slashing is a condition which penalizes the operator (I.e. validator) and each of its delegators when the particular validator behave poorly or maliciously. Both validator and delegators funds are at risk of receiving penalties in proportion to their staked amount.
This is why it is important that delegators should perform due diligence when choosing a validator to stake. Carefully nominate a validator that you trust.
Considerations before Delegating
Delegating is not a passive role. As a delegator your must actively monitor your validators actions. Before choosing a validator here are few things to research and consider.
Delegators are free to choose the validators to delegate their tokens to. However you should choose the best validator depends on the following factors. Validators node performance, reputation of the validator and the commission rate set by the validator.
Choose more than one validator
Diversify and delegate your stake to as many trustworthy validators instead of going with one. Note that if a validator shuts down their node, it would also affect the delegators coins which gets slashed for being offline. In this case all delegators of that particular node will not receive reward.
Explore the validator page and make sure the validator is reliable and has verified their identity. Pay attention to their uptime. Review validators’ overall performance, track record till date and the commission charged.
Research on liquidity
The validators weight is determined based on the amount of tokens staked as collateral. A higher voting power shows that a large number of delegators (community members) trusts that validator. However you need to note that larger validators also are the cause of decrease in decentralization of the network.
Amount of self-delegated tokens
Self-delegation is the amount of token that a validator self delegates to themselves. There are validators with 100% self delegation or 100% commission rate. These validators take all of the rewards and they are not open for any delegators to join. They have enough tokens to self stake on their own.
Quoted commission rate & validators service fee
Be aware of the “most profitable” option. High APRs are too good to be true. Validators set a commission percentage for providing the service. This ensure that part of delegators reward goes as a fee to the validator. So view the commission rate of each validator and pick the one that has low fee and high reward rate.
You can re-delegate your tokens with other validator whenever you want. But take note that it is not instant to opt out. You have to wait for the unbonding period to end before you can withdraw or redelegate your stake.
What are the incentive to run a validator node?
Compared to delegators validators earn more in staking revenue because of the commission they take from delegators reward. A validator is free to decide on how much commission fee to charge from delegators for providing the service. Their higher return potential comes from delegators commissions.
Validators also play a major role in networks governance. The voting right gives validators a major responsibility in the ecosystem.