A validator is a participant in the network responsible for verifying and validating new transactions and blocks. Validators play a pivotal role in preventing fraudulent activities, double-spending, and ensuring the reliability of the distributed ledger. Validators contribute to the decision-making process about which transactions are valid and which should be added to the blockchain. Validators do this by staking their crypto to support the network.^[1][2]

Overview

Validators are responsible for storing transaction data, processing and verifying transactions, and adding new blocks to the blockchain. This involves checking that blockchain transactions are valid according to the network’s rules and ensuring that the sender has enough funds to complete the transaction. In return for their work, validators receive transaction fees. ^[6]

To become a validator, a network participant must lock up a specific amount of the network’s native cryptocurrency. This is called crypto staking. They provide this amount as collateral to ensure their honesty. Validators are incentivized to play by the rules, as their stake, i.e. their funds, can be slashed if they attempt any malicious behavior.^[2]

Validator Roles

Different blockchain networks employ various consensus mechanisms, each with its unique approach to selecting and rewarding validators.

Proof-of-Work (PoW)

Validators on a PoW blockchain, often called miners, validate transactions on blockchains that use a Proof-of-Work consensus mechanism, such as Bitcoin. With this method, miners with specialized computers must work to solve complex mathematical problems. The miner that solves the puzzle first, receives a block reward as well as the transaction fee.^[2][4]

Proof-of-Stake (PoS)

Validators can validate transactions on Proof-of-Stake (PoS) blockchains without specific hardware. Instead, they prove their honesty by staking coins. Then they are rewarded in transaction fees after verifying the transactions.^[2][4]

Delegated Proof of Stake (DPoS)

DPoS takes PoS a step further by allowing coin holders to vote for delegates who will become validators. These delegates, often a smaller number than all coin holders, take on the responsibility of validating transactions and maintaining the network's integrity.^[5]

Byzantine Fault Tolerance

Blockchains that do not use PoW or PoS as consensus mechanisms can still employ validators. In this, some nodes provide inaccurate data for validation whereas, most validator nodes are honest and have an accuracy guarantee. As a result, it adds more data to the chain despite the malicious actions of some of its nodes.^[7]

Validators on Different Blockchains

Ethereum

Ethereum started as a Proof-of-Work, and later, slowly moved to a Proof-of-Stake consensus mechanism. The Merge took place on September 15, 2022. Once migration ended, participants on Ethereum became validators by staking no less than 32 ETH.^[7]

Solana

Solana uses Delegated-Proof-of-Stake (DPoS) as a consensus mechanism. Anyone holding the SOL can participate in the validating process. SOL can be delegated to a validator, i.e., it doesn't require to stake a minimum amount. A person can have only 1 SOL and still be an active part of Solana as a delegator.^[7]

Polkadot

Polkadot uses an eco-compatible Nominated Proof-of-Stake (NPoS) algorithm. NPoS works using validators and nominators, which maximize its security. The validators produce new blocks, validate parachain blocks, and ensure finality. On the other hand, nominators can choose to select validators with their stake in the form of DOT tokens.^[7]

Avalanche

Avalanche uses a variation of the Proof-of-Stake consensus mechanism to ensure the security and accuracy of its data. Avalanche is a voting protocol. On it, participants can take up the validator role by listening to transactions. Once they find one, they vote on its acceptance or rejection. Then it collaborates with the rest of the network to identify whether everyone agrees with its decision. Following “repeated random subsampling,” the network randomly selects other validators to ask and repeats several times until it builds enough data to determine the correctness of the validator’s decision.^[7]

Stellar

Stellar is a blockchain operating on the Byzantine Fault Tolerance consensus mechanism. In this, the validation process predicts that some messages may corrupt. However, data can receive validation as long as the messages exceed one-third of the total. Otherwise, the transaction would become invalid.^[7]

Validator Risks

Market Risks

Validators may face risks associated with the market conditions and demand for the blockchain's native token. A declining market can affect the value of their staked tokens and potential rewards.

Liquidity

To become a validator, each user must stake an asset for a certain period. This makes the asset inaccessible until the lock period ends. Consequently, users cannot sell their assets when their value has decreased or increased sharply.

Software Vulnerabilities

Validators run node software to participate in block validation and consensus. If their software has vulnerabilities or bugs, it can lead to security breaches, network instability, or loss of funds.

Network Attacks

Validators are susceptible to network-based attacks, including Distributed Denial of Service (DDoS) attacks, which can disrupt their operations and affect network stability.

Hardware Failures

Validators typically operate dedicated hardware or servers. Hardware failures or infrastructure issues can lead to downtime, affecting their ability to validate transactions and blocks.

Costs

The capital required for hardware staking can be expensive, which also includes the need for electricity and internet costs.^[3]

Validator Penalties

Slashing

Slashing is a severe penalty in many blockchain networks, particularly in the PoS consensus mechanism. It involves the confiscation or burning of a portion of a validator's staked tokens as a punishment for malicious behavior.

Validators can be slashed for actions like double signing- confirming two conflicting blocks or equivocation- attempting to compromise network security.

Downtime Penalties

Validators in PoS and Delegated Proof of Stake (DPoS) systems can be penalized for extended periods of downtime. Downtime penalties often result in a reduction of rewards earned by the validator, suspension from the network, or even removal from the validator set.

Performance Penalties

Validators may face penalties for not meeting performance requirements, such as failing to validate transactions promptly or accurately.

Low Quality or Invalid Blocks

Validators can be penalized if they propose low-quality or invalid blocks that do not conform to the network's rules.

Network Upgrade Compliance

Validators may face penalties for not complying with network upgrades or protocol changes in a timely manner. Non-compliance can lead to incompatibility and network disruptions.

Voting Misconduct

In DPoS systems, validators can be penalized for engaging in voting misconduct, such as bribery. Penalties can include the removal of voting rights or disqualification as a validator.

Governance Participation

Validators who do not actively participate in blockchain governance, such as voting on proposals or protocol changes, may face penalties, including reduced rewards or loss of voting privileges.^[8]