Nominators in Proof-of-Stake Systems: Selecting Validators

Nominators are one of the two main participants in a blockchain network that uses the proof-of-stake consensus algorithm (NPoS).

What are Nominators?

Nominators are one of the two main participants in a blockchain network that uses a consensus proof-of-stake (NPoS) algorithm, the other being validators. In conventional Proof-of-Stake (PoS) networks, the power of the entity that mines or validates network transactions depends entirely on the number of network tokens it owns. The more network tokens a miner or validator owns, the more power it has to mine. The same power applies in other decision-making scenarios and is widely used in governance functions: for example, validators vote on proposals for the future development of the network.

However, in most environments, as some implementations of decentralised autonomous organisations (DAOs) show, not all validators or miners use their voting power in every decision-making scenario. This may be because they cannot actively vote on every event. They may also simply not vote because they are unable or unwilling to spend the time or resources to understand the often complex technical aspects required to make some decisions.

One solution to this problem is a variation of PoS called NPoS, which involves a process of selecting (or nominating) validators who are allowed to participate in the consensus protocol. NPoS is best known in substrate-based blockchains such as Polkadot and Kusama. As mentioned earlier, validators and nominators perform critical roles in NPoS.

Validators shape and protect the network, ensuring that the services it provides work by creating new blocks and validating parachain blocks. They act indefinitely, using the network’s own tokens that support them as validators and incentivise them to comply with protocol rules at all times. They are penalised for breaking the rules (usually called a “slash”), and for complying with the rules they receive a share of the fees they receive from using the network’s services.

In NPoS, validators must be elected to participate in each active network, which is a certain period of time, usually getting longer at the height of the last block. This is where nominators come to the rescue.

Nominators also own tokens but, for the reasons outlined above, do not actively participate in the consensus. Instead, they use their economic support (in the form of tokens they own) to nominate their chosen validators for active seats. The incentive for nominators is the reward they receive for the validators they nominate to active slots. Like the validators, they must also comply with the rules of protocol, otherwise they face fines.

Validators receive active slots in proportion to their nominations. Thus, validators who get more nominations and more tokens for them have a better chance of being selected for the next active validator set.

As the awards are ultimately distributed in proportion to the total share of validators, nominees are rewarded more for nominating perhaps lesser known validators who may have a smaller share of support. This encourages nominators to seek out a more diverse group of validators rather than nominating the same ones in each set.

On the other hand, unscrupulous validators are penalised, which reduces the rewards for nominators. This encourages nominators to carry out validator checks to find bona fide ones.
In this way, NPoS can increase the decentralisation of blockchain networks, maximising decision-making power and preserving fairness through proportional and reasonable representation.

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