What is a validator in cryptocurrency?

One of the most important components in a cryptocurrency blockchain is its validators. They make transactions possible by verifying each one and adding them to the blockchain ledger — a distributed database. Also known as miners, validators compete against each other to solve complex mathematical problems, then receive new tokens as a reward for their efforts.

In this AAG Academy guide, we’ll explain what blockchain validators are and how they work in more detail. We’ll also look at the difference between validators in both proof-of-work (PoW) and proof-of-stake (PoS) systems, and answer some frequently asked questions.

What is a blockchain validator?

Before we explain validators in more detail, let’s briefly look at how a blockchain works. Each one is made up of a large collection of nodes — which are essentially computers — each of which holds a copy of the distributed database in which every single transaction is recorded. That database is split up into many blocks, each of which is tightly linked together.

Before transactions can be grouped together and added to a new block, they must be verified to ensure that they are genuine and plausible. This important and often incredibly difficult task is handled by validators, often referred to as miners of validator nodes, which analyze all of the incoming data to confirm it is correct and then add it to the blockchain database.

This process prevents double-spending, which is when the same tokens are used more than once, and helps ensure that bad actors cannot submit fake transactions for their own gain. One of the important things to note about validators is their roles are very different, depending on the consensus mechanism that the blockchain relies on for verifying its data.

Validators in proof-of-work and proof-of-stake

The biggest and most common consensus mechanisms in use today are proof-of-work (PoW) and proof-of-stake (PoS). PoW, which is still used by Bitcoin and lots of other cryptocurrency projects today, relies on specialized hardware. PoS, which has been employed by Ethereum since “The Merge” in 2022, relies on token staking instead.

Proof-of-work

In the PoW system, validators compete against each other to solve mathematical problems. These are so complex that they require incredibly powerful hardware, like high-end graphics processing units (GPUs), and consume lots of energy. The validator that successfully solves the problem first is given the responsibility of processing a new block and adding it to the chain.

This involves verifying all of the transactions that will be bundled into the block, and then adding it to the existing chain. As part of this process, new cryptocurrency tokens are created, which the validator receives as a reward for their efforts. As such, validating or mining can be an incredibly lucrative pursuit, especially with valuable cryptocurrencies like Bitcoin.

Due to the computational power required, and the amount of energy it consumes, very few possess the resources to be a successful validator. It’s worth noting that PoW is seen as a somewhat outdated system that is increasingly criticized for its negative impact on the environment. However, it has to be difficult to minimize the risk of being attacked.

Proof-of-stake

Proof-of-stake is completely different. Hopeful validators stake their cryptocurrency tokens to become a participant in the network, and then they are chosen — based on the number of coins they have staked and the length of time they’ve been a contributor — to verify transactions. Like in the PoW system, groups of transactions are bundled into a block, then added to the chain.

As a reward for staking and verifying transactions, validators in a PoS system receive a share of transaction or network fees. These aren’t usually as substantial as PoW rewards, but they can be much more frequent, and quickly add up over time. As a result, PoS and staking is becoming an increasingly attractive option for cryptocurrency investors looking to maximize their returns.

As we touched on above, PoW dissuades bad actors by making the mining process incredibly difficult. PoS achieves this with a process called slashing, in which validators that use harmful or irresponsible behavior have some or all of their staked tokens removed. Given that it’s often incredibly expensive to become a validator, slashing can lead to significant losses.

What is the purpose of blockchain validators?

Blockchains are the backbone of today’s decentralized cryptocurrency industry. Without them, we would likely have to rely on a centralized entity of some kind to verify transactions and maintain a ledger, which would essentially defeat the key purpose of cryptocurrency — which was originally created to address the flaws of the traditional financial industry.

Validators play what is arguably the most important role in the blockchain system. They not only ensure that the ledger of transactions is maintained, but they also keep it secure by ensuring that hackers cannot submit fake transactions or gain control of the blockchain for their own gain.

References

• Validator Definition
• What-is-validator
• What is a blockchain validator
• What is a validator node