How to become a cosmos validator
TLDR — It will cost you about $11,300 in equipment, $1,575 a month, and $148,000 in ATOMS staked (all estimated).
The Cosmos Network is a new proof of stake (POS) blockchain being released sometime this year. You came to this blog to learn if you can become a validator for the network. This post will give more practical information that is left out of cosmos’ own website, such as cost, risks, ROI, and expected timeline.
To give the shortest description possible, Cosmos is a POS blockchain, and validators are nodes that keep the network secure. Validators get rewards in ATOMS for each block. A validator must stake a large amount of ATOMS in order to be a validator on the network.
It is very important to understand the following, as it is one of the most confusing parts of the Cosmos blockchain. There will be multiple blockchains, known as zones, which connect to the cosmos hub. Each zone can be it’s own blockchain, and have it’s own set of validators. This is known as a Sovereign Zone. The main cosmos hub will begin with 100 validators. However, Sovereign Zones will have completely different validators, and completely different governance.
There is also the possibility of Shared Security Zones. This would be a blockchain connected to the Cosmos Hub, but they wouldn’t need their own set of Validators.
Sovereign Zones will have their own native currencies. The first zone being created is Ethermint. This blockchain will have its own native coin, known as a Photon. These must be staked in order to be a validator of this blockchain. However, it should be noted that Ethermint will start off being validated by the main Cosmos Hub (a Shared Security Zone instead of a Soverign Zone). This is probably due to expectations that at network launch there will not be enough validators to organize two separate sets of 100 validators.
What you will need
Start by checking out this Cosmos Blog on what it is like to be a Validator. This will give you an idea of what to expect. Now lets get into the physical equipment you will need. Setting up a validator node requires much more work than setting up a miner, as you will see below.
Your own physical equipment
- You will need a server than runs the cosmos software. Cosmos is currently recommending medium grade equipment. Expect equipment upgrades as the network gets busier.
- It is highly recommended that you have a fully functional, equally powerful backup server. It can be assumed that not proving you have a backup would be a red flag to any delegators considering your validator node to delegate their ATOMS to (explained more below).
- Firewalls installed for both servers.
- Hardware Security Module (HSM) — An example of an HSM is the Ledger Nano S. It is a separate piece of hardware that allows for the signing of each block. This is absolutely required, as there is a huge risk to having the private key located on the server.
- You will need to co-locate at a Data Center. It is Highly recommended to do it at one of the top Data Centers in your city, as the high security is needed, along with 100% uptime. Keep in mind most co-location agreements are a minimum of 1 year. Cheaper co-lo’s will offer month to month, but be sure to vet them extensively for their services. They might be cheap because they lose power, which means you’ll get slashed!
- You will need to set up multiple sentry nodes to connect to your validator node. This is to prevent DDOS attacks on your main node. This involves spinning up multiple full nodes on AWS or a similar service, and allowing your validator node to only connect to these nodes.
- Unfortunately, there is no option to do cloud validator nodes. Cosmos mentions that cloud SGX could become available in 2018, but right now this is not possible.
ATOMS for Staking
- Your balance of staked ATOMS are what allow you to get in the top 100. You can imagine that the ATOMS have a similar role to a bitcoin miner. The larger your stake of ATOMS, the larger you get rewarded. Similar to how the more powerful your bitcoin miner is, the more bitcoin you get rewarded.
- This will be the largest upfront cost (see costing below).
- On other zones, you can create validators for that specific blockchain. However, at the start of the launch of the cosmos hub, zones like Ethermint will still be validated by the main hub validators.
- You will need to know how to run the cosmos software. Right now you should be participating in the testnet in order to get a feel for how it works and to prove you can run a node.
- You need to know how to set up your server and firewalls at the co-location center. You could hire a consultant to do this if you don’t want to learn this, but take extreme persuasions to ensure the consultant has no idea what you are doing and why. They could maliciously try to infiltrate the node.
- You need to know how to set up sentry nodes on AWS.
- You need to know how to vote on all governance issues when the network is live.
Obtaining a network of delegators to stake with you
- A big part of the cosmos network is the fact that other ATOM owners can delegate their ATOMS to you. This increases your nodes overall ATOM count, and pushes you closer into the top 100.
- Serious contenders for validating are creating websites to promote their node in order to get more users to delegate their ATOMS to their node. There is no doubt that validators will need to acquire large stakes from delegators to be in the top 100.
- You can be public or private when asking people to delegate to you. Publicly showing your identify is more trust worthy, but also puts a target on your back to be hacked.
What it will cost
This is a simple estimation based on the current available information. It is a ball park estimate and could change. All values are in USD, and North America equipment and rental prices.
- Server with firewall= $ 5000
- HSM = $150
- Backup Server with firewall= $5000
- Backup HSM=$150
- Monthly cost for firewall and server operation = $675/month
- Backup location operation = $675/month
- 5 Sentry nodes on AWS = $200/month
This is by far the highest cost, as well as the least accurate of the estimations. A breakdown is needed to explain the estimation:
- ATOMS sold in the ICO = 168,475,963
- % of ATOMS Released for ICO = 75%
- Total ATOMS in existence = 224,634,617
- Total Estimated ICO participants = 1090
Now lets do some very simple, back of napkin math (this is VERY rough, and if you want to really do a good estimate to run a Validator, do your own research):
- Assume 33% ATOMS will not delegated at all
- Assume 7% of the ATOMS are delegated in positions 100–150, which means they do not have enough stake to be in the top 100 and get rewards
- This leaves 60%, or on average 0.6% per validator. Some validators will have more, some will have less. We will assume a range of 0.3% - 3% of total ATOMS that each node in the top 100 will have.
- Lets take the lowest amount needed, 0.3% of total ATOMS. Lets now assume the validator node is 10% self bonded, and 90% delegator bonded. This means the person running the validator would need 0.03% of the total ATOMS in existence.
- 0.03% * 224,634,617 = 67,390 ATOMS
Now I have no idea what the price of ATOMS will be on launch, but I will give a conservative estimate so we can proceed. The ether price was about $40 around the Cosmos ICO, and today it is about $440, which is 11. Now lets estimate that ATOMS will give a 2x return on investment from the ICO, so we can say 22x from the initial ATOM price. We do this because Cosmos has a good reputation, and ICO’s for good projects have been known to give good returns. The original ATOM price was $0.10
- 67,390*0.10*22 = $148,258
Please keep in mind this is considered a conservative guess at the price. Also note the number of 67,390 is largely an estimate, so even if the price estimate is good, the ATOMS guess could be way off. I personally think neither will be accurate, but they will be in the same ballpark.
Obtaining a network of delegators to stake with you
- Pay someone to set up a validator website for you = $1000
- Monthly costs to run website = $25/month
TOTAL CAPITAL COSTS = $11,300
TOTAL ATOM COSTS = $148,258
TOTAL MONTHLY OPERATING COST = $1575
Here are all the main ways you can earn income, and lose income from running a validator node:
- Validators commission between 1–20% — This is a number chosen by the validators. The commission % is taken off the delegators rewards and given to the validator. There is really no indication of what these percentages could end up being, and a 1–20% guess is about the best I can do. This is the only way that validators will make profit if they are run an efficient node. In theory, the commission percent should naturally level out, with top validators competing to get more delegators by lowering their commission.
- Block provisions, transaction fees, and precommit bonus — These are all rewarded to the validator, but they are also rewarded to delegators. Basically there is no advantage between being a delegator and a validator for these rewards. As stated above, the only real advantage validators have over delegators is the validator commission percentage.
- Lose for double signing, unavailability, or not voting. Cosmos hasn’t been descriptive in how much you will lose, but double signing will result in a massive slash of your node’s stake. However, as long as you intend to act in good faith none of these slashes should really happen. And if you decide to delegate, you could also lose part of your delegator stack if the validator you delegated to screws up. So there isn’t a distinct disadvantage between delegating and staking here.
- Hardware costs.
- Operating Costs.
The ROI can’t be calculated now, as the information above is too incomplete. But you can assume that the validator % fee will dynamically change to make validating profitable, otherwise the network would fail because no one would want to validate.
The original release date was Q4 2017. Then it was moved to February 2018. Now it is delayed indefinitely, but there is a roadmap on their website. This is a smart team, and they will not rush out there product. Expect the network to go live sometime in late 2018. This is an estimate.
These are things to consider before you dive in head first for validating:
- Paying all the upfront capital costs and buying ATOMS, only to figure out on launch day you will not make the top 100. This is the worst case scenario because it is a loss of time and money
- Getting hacked
- Investing in a bunch of ATOMS, only to see the network fail or crypto in general to go into a bear market. Make sure you invest what you can afford
If you believe in the Cosmos project, and you believe you can be one of the top 100 validators in the world, and you can get a significant amount of ATOMS up front, go for it. Otherwise if you are uncertain, just delegate ATOMS at the launch of the network.
Continue paying attention, as Cosmos is releasing updates everyday and more information on validating is becoming available. I will continue to update this page as Cosmos updated information.
Please let me know if anything is wrong in this article as I want it to be as accurate as possible. If you have any questions about Cosmos and validating, reach out to me:
Email — email@example.com
Twitter — @davekajpust