Make Passive Income as a Crypto Validator On These 5 Blockchains
Validator nodes are the backbone of blockchain, and they make money whether the crypto market moves up, down or sideways. Do you have what it takes to become one?
Updated Nov 16, 2022
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Crypto
Passive Income
DeFi
Traditional investors earn dividends from stocks or collect rent on real estate properties, right? Well, there are many ways for crypto investors to generate passive income too, from lending crypto and staking crypto to running a validator node—with the latter being one of crypto’s most tried-and-true money makers.
In this article, we’ll explore exactly what a validator node is and which crypto projects offer the best opportunity for earning passive income as a validator node.
What is a validator node?
What is a validator node?
A validator node is a type of node that stores a copy of the blockchain’s history and verifies new transactions. Now if that dry definition doesn’t really excite you, let me explain the “why” behind validator nodes.
Source: nodes.com
Becoming a validator is a complicated topic, but we can boil it all down to three steps: choosing a blockchain network, acquiring the right hardware and software, and running and maintaining your node.
The key feature that makes blockchain technology so revolutionary is decentralization. In other words, public blockchains aren’t controlled by a central server but a group of servers called nodes. Now for decentralization to work, users have to be sure that all network transactions are valid. The more globally distributed these nodes are, the harder it is for an attacker to double spend tokens, reverse transactions, or shut the system down.
But requiring a group of servers to process every transaction introduces another problem: How do they all agree on a transaction’s validity? This process is called “achieving consensus.”
The original consensus algorithm is Bitcoin’s proof-of-work (PoW). Over the years, however, proof-of-stake (PoS) has come to be the most dominant consensus algorithm in use. When it comes to comparing proof-of-work vs proof-of-stake, PoW requires computers to solve energy-intensive puzzles to confirm transactions, while PoS only requires nodes—better known as validators—to lock up or “stake” tokens as collateral. These validators are, in turn, randomly selected to verify transactions.
And to make this system more democratic, most PoS networks let users (i.e. delegators) choose the nodes they want to validate the next block by adding tokens to their staking pools. This way, both validators and delegates share in the network’s block rewards.
Now onto some specific examples of running validator nodes on popular blockchain protocols.
The top 5 cryptos for validator nodes
The top 5 cryptos for validator nodes
A quick disclaimer before we dive into the list: The nitty-gritty details of running a validator node are way beyond the scope of this article. So for simplicity’s sake, we’ll only compare the challenges and rewards of setting up a single validator node for each network, according to their minimum specs. In other words, we’re not factoring in other requirements like internet subscriptions, security tools, backups, IT support, marketing and so on.
It’s also worth mentioning that the networks below share similar staking features, which I won’t be reiterating. These include:
- Making it permissionless to run a validator
- Automatically distributing rewards to validators and delegates
- Being trustless for delegates, so validators can’t steal their funds
- Randomly selecting nodes to validate the next block (though having a larger stake improves your odds)
- Incentivizing users to stake—otherwise, their holdings get diluted over time due to inflation
- Letting validators set their own fees
With that out of the way, let’s shine a beacon on the first network.
Ethereum ($ETH)
Key details:
- Total staked: $24,512,913,525
- Staking ratio: 10.28%
- Validators: 390,112
- Reward Rate: 1-18%
- Inflation: <1%
- Minimum stake: 32 ETH ($62k)
- Lockup: At least 365 days
- Slashing: Yes
*Accurate as of 5/25/2022