Updated — March 2019
TLDR — It will cost you about $20,300 in equipment, $2,100 a month, and $37,000 in ATOMS (without delegated ATOMS) to be in the top 100.
The Cosmos Network is a new proof of stake (POS) blockchain that went live in March 2019. You came to this blog to learn if you can become a Validator. This post will give practical information on validating — such as cost, risks, and ROI.
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.
It is very important to understand the following, as it is one of the most confusing parts of the Cosmos Network. There will be multiple blockchains, known as zones, which connect to the Cosmos Hub. Each zone can be it’s own blockchain, and would have it’s own set of validators. This is known as a Sovereign Zone. The main Cosmos Hub currently has 100 validators. However, Sovereign Zones will have completely different validators, and completely different governance.
As of March 2019, there is still only the main Cosmos Hub, meaning there are only 100 available Validating spots in the Cosmos Network. In the future, the Validators of the Cosmos Hub will increase every year, and new Sovereign Zones may be created, opening up more opportunities to be a Validator.
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 let’s get into the physical equipment you will need. Setting up a validator node requires much more work than setting up a typical blockchain mining rig, as you will see below.
Purchasing 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. Having no backup server would be a red flag to Delegators considering staking their ATOMS to your node (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.
Operating Costs
- 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 have power outages, 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, 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.
Technical Knowledge
- You will need to know how to run the Cosmos software. Reviewing the Game of Stakes, and participating in Cosmos testnets can prepare you for this. You’ll also need to know how to vote on all governance issues.
- You need to know how to set up your server and firewall at the co-location centers. You could hire a consultant to do this, but take extreme precautions to ensure the consultant has no idea that you are staking cryptocurrency. They could maliciously try to infiltrate the node.
- You need to know how to set up sentry nodes on AWS.
Obtaining a network of Delegators to delegate stake to your node
- A key feature of the Cosmos Network is the fact that other ATOM owners can delegate their ATOMS to you. This increases your nodes overall stake.
- Serious contenders for validating create websites, post blogs, and make themselves available to the community to promote their node. This helps convince more users to delegate their ATOMS.
- 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 of equipment, and should be considered a ball park price. The ATOM price is based on the ATOM exchange rate on March 27th, 2019. All values are in USD, and North America equipment and rental prices.
Hardware
- Server with firewall= $ 10,000
- HSM = $150
- Backup Server with firewall= $10,000
- Backup HSM=$150
Operating costs
- Monthly cost for firewall and server operation = $900/month
- Backup location operation = $900/month
- 5 Sentry nodes on AWS = $300/month
ATOMS
This block explorer has detailed Validator information for the Cosmos Network. As we can see, on March 27th, 2019, there are about 105,000,000 atoms staked.
There are currently only 93 Validators. and many have a low ATOM count. To be the 75th Validator, you would have to have 10,000 ATOMs staked.
This is a decent amount to choose to earn income. You could be a Validator with 10 ATOMS today, but you likely won’t hold your position for long, and you wouldn’t make much money anyways!
Let’s assume you buy 10,000 ATOMs yourself. (Note, you can’t buy ATOMs until the network allows ATOM transfers, which is waiting on a governance proposal).
The average price of an ATOM is $3.70 USD. This equates to:
- 10,000 ATOMS = $37,000
TOTAL CAPITAL COSTS = $20,300
TOTAL ATOM COSTS = $37,000
TOTAL MONTHLY OPERATING COST = $2,100
Expected ROI
Here are all the main ways you can earn income, and lose income from running a validator node:
Income
- Validators commission between 0–20% — This is a number chosen by the Validators. The commission percentage is taken off the Delegators rewards and given to the Validator. 0–20% seems to be normal for most Validators today. This is the only way that Validators will make profit, outside of owning and staking their own ATOMs. 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.
Losses
- Lose for double signing — at launch 5% (Validator and Delegator stake)
- Lose for unavailability — at launch 0.01% (Validator and Delegator stake)
- Note — As long as you intend to act in good faith, and set up a robust node, none of these slashes should happen.
- Hardware costs.
- Operating Costs.
The current Cosmos annual inflation rate, as calculated by https://staked.us/, is 16.4%. Let’s figure out the breakeven point with these simple numbers, keeping in mind the network is dynamically changing everyday.
- ATOM s— Assume you sell them one year from now for the exact same price
- One year of operation= $20,300 + $ 2,100 *12 = $45,500
- Breakeven — $277,439 spent on ATOMS, or 74,984 ATOMS
This is pretty good! In only a year you would make $45,500 dollars, and if you got Delegators to delegate to you, it could give you a nice profit. The longer you operate, the better you should get at running the node at a good price.
However, you must remember the inflation rate of Cosmos can easily fluctuate, possibly below 10%, which would change the calculation significantly.
Major Risks
These are things to consider before you dive in head first for validating:
- Paying all the upfront capital costs and buying ATOMS, only to lose your spot in the top 100 a month later. 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. Make sure you invest what you can afford
Always remember, you can just delegate you ATOMs to another Validator. It will keep your life simple, and you will only lose out on the commission fee!
In Summary
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, go for it. Otherwise if you are uncertain, just delegate ATOMS at the launch of the network.
If you have any questions, reach out:
Twitter — @davekajpust
