What Is a Validator? How to Pick a Good Staking Validator

In the world of DeFi, staking has gained a lot of popularity. It offers a way to earn rewards by simply holding onto your crypto assets. The process of staking involves locking up your digital coins for a period, contributing to the validation of transactions across the blockchain network. This process improves security, making it challenging for malicious actors to intervene. Additionally, more validators within a blockchain network strengthen its integrity further.

Not only does staking contribute to network security, but participants also stand to earn rewards for their involvement. However, with the multitude of options available, selecting a reliable staking validator can become a little confusing. So, what are validators, how do they function, and how can you pick the right validator for staking? In this article, we will answer all these questions to get you started with staking. Let’s take a look:

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Staking Explained

Staking operates through the proof-of-stake consensus mechanism, a method employed by many blockchains to validate participants and confirm new data blocks. Validators play a key role in this process by purchasing and locking a designated number of tokens. This also discourages dishonest behavior within the network. Any criminal activity could significantly devalue the associated native token and the bad validators themselves would stand to lose their investment.

The stake represents the validator’s commitment as there stake in the process to ensure honest participation for the network’s benefit. In return for this commitment, validators earn rewards in the form of native cryptocurrency. The larger their stake, the greater the likelihood of proposing new blocks and collecting rewards. To put its simply, having a stake in the pool forces validators to act lawfully.

Validators often form staking pools, where funds are pooled from multiple crypto holders through delegation. This allows for broader participation in staking. Delegating coins to stake pool operators allows any holder to take part in the staking process without the need for hefty individual stakes.

Penalties are imposed for minor infractions like extended offline periods to maintain validator accountability. In extreme cases, validators may face suspension from the consensus process and the removal of their funds. This is known as “Slashing,” and it is quite rare. However, there have been instances in the past where slashing has been done on networks like Ethereum.

What Is a Staking Validator?

When it comes to blockchain, maintaining these expansive networks relies on consensus mechanisms such as Proof-of-stake (PoS) and Proof-of-work (PoW). These mechanisms operate through a massive network of computers, known as nodes or servers, each with an important role in verifying transactions. Within PoS blockchains, these computers take on the title of validators. These validators collectively form a barrier around the blockchain to uphold its security and validate transactions.

In a Proof-of-Stake blockchain, numerous validators compete for the opportunity to add the next block. However, only a selected few are chosen. The chance to contribute is determined by the amount of tokens they have locked up. The more tokens a validator has locked, the more likely they are to get that chance.

In return for their efforts, validators receive rewards in the form of new tokens and small fees from users for their transaction verification service. Validators must also follow strict rules and act honestly, as any attempt to deceive or disrupt the network results in penalties and possible loss of their own investment.

Tips for Choosing the Right Staking Validator

It is important to choose the right validator when you are planning to stake your cryptocurrency. Let’s take a look at some important tips that can help you make that decision.

Prioritize Security:

Choosing the right Proof-of-Stake (PoS) validator begins with prioritizing security. Evaluate their defense mechanisms against cyber threats and system failures before you join their pool. Node architecture, backup systems, encryption methods, and audit records are vital indicators. Tools like CertiK and Quantstamp can assist in this assessment. Additionally, take a look at if the validator has experienced any incident in the past and how they handled it.

Governance Alignment:

Validator governance plays an important role in network decisions. Select validators whose values align with the network’s vision. Assess their involvement in voting, proposing changes, and communication methods. Platforms like Polkadot Governance insights into their governance activities. Don’t forget to explore their mission statement and community engagement. You can learn a lot about the validator just by looking at how they govern their network.

Reward Estimation:

Earning rewards in the form of cryptocurrency is the main incentive for staking. Validator rewards depend on performance, commission rates, and how well they follow the rules. Use tools like the Staking Rewards Calculator to estimate potential returns. You should know how much you can expect to gain before locking up your tokens. Also, thoroughly go through the validator’s payout policy so you can paint a clear picture of how things will work out and at what time you will get paid.

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Don’t Ignore the Technical:

While Proof-of-Stake doesn’t require advanced and expensive hardware, validators should possess technical expertise for hassle-free node setup and operation. Uninterrupted uptime is important for ideal staking returns. Look for validators with top-tier internet and a commitment to regular updates. Such validators would usually keep you up to date with their social media pages and will also have a fast-functioning website.

Reliability Metrics:

An honest validator consistently validates blocks, maintains high uptime, and strongly follows ethical practices. You can get an idea of whether a validator is reliable or not by looking at their uptime, commission rate, self-bonded stake, and social media presence. Platforms like Staking Rewards and Staking Facilities offer metrics for comparing validators. You can also check the reviews of the validator you are choosing, as that can help greatly.

Staking on Cryptocurrency Exchanges

If your centralized cryptocurrency exchange supports staking, you can choose to stake with them. The convenience is a clear advantage and eliminates concerns regarding managing keys and the staking process. However, there are notable cons to consider as well. Staking on exchanges provides great convenience, but this ease comes at a cost. Your exchange will hold your private keys. This arrangement may cause you to miss out on potential project-related airdrops.

Another drawback is that staking through centralized platforms contradicts the very nature of decentralization. The concentration of staking power among a few exchanges raises questions about the network’s independence. On top of that, exchanges generally offer lower annual percentage yields (APYs) for stakes compared to independent validators. While the convenience cannot be denied, it may come at the expense of potentially higher earnings from staking with a validator directly.

Also, centralized exchange nodes could become clumsy and even pose risks to network security. Moreover, they are often excluded from airdrop distributions, and a lot of staking cryptocurrencies out there reward well with airdrops. Exchange nodes might also impose high commissions, impacting your overall staking earnings. So, if you are considering staking on a centralized cryptocurrency exchange keep all this in the back of your head.

What Happens When a Validator Is Penalized?

When a validator faces a penalty, their stake or collateral is locked and cannot be moved for a specific duration. Penalties are typically imposed in response to suspicious behavior, and the severity of the penalty can vary. This impacts the overall profits of the validator and does affect the returns generated through staking. Stakers should keep in mind that, in most cases, validator penalties only impact your rewards and not your principal staking amount. Your crypto remains unaffected during these instances.

Conclusion:

Choosing the right staking validator is a decision that aligns with your individual preferences and goals as the owner of a cryptocurrency. Whether you prefer convenience as a short-term trader or firmly believe in specific Proof-of-Stake coins, your choice of validator can impact your whole staking experience. You might opt for exchanges for their convenience or explore professional validators affiliated with protocol developers for long-term investments. It’s important to do thorough research and due diligence before making any decisions. Happy Trading!

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