What is Validation?

One of the fundamental elements of cryptocurrencies' blockchains is their decentralized nature. Due to this nature, there is no central entity that verifies each and every transaction - and that's the beauty of it. This also comes with the downside that no single one entity makes sure that everyone is playing by the same rules. Outgoing (spending) transactions in crypto blockchains are usually signed by a private key only known to the owner of any given address, so they can sign and therefore prove their intent to perform a transaction. The blockchain itself is just a long list of blocks housing transactions. To make sure all transactions submitted to the blockchain are actually signed with the right keys, validators come into play - they double-check whether a transaction's signature matches the sender address, and reject it otherwise.

Without validation, any rogue transaction could be applied to the blockchain, undermining its integrity. A simple example:

• In a fictional cryptocurrency network that does not use validation, Alice sends 100 BUCKs to Bob.
• The transaction is signed by Alice, who believes that everything is alright. She tells Bob that the money is underway.
• Mallory is also interested in Alice's money. She sends her own transaction, claiming she transfers Bob's BUCKs to her own address.
• Mallory's transaction is signed by herself.
• The network does not have any validation, so it accepts all of the transactions. Mallory now owns the BUCKs Alice gave to Bob.

Now this may sound naive when looking at this simple example, but the point is: Validation is simply the checking of transaction validity. If the BUCKs network used validation, Alice's transaction would have gone through, but Mallory's wouldn't have. The reason is simple: Alice owns the private signing key to her BUCKs address, while Mallory does not own Bob's private key. Validators would have approved Alice's transaction, and rejected Mallory's.

Validation is a fundamental building block of any blockchain network to maintain integrity. The only way to have a transaction pass the network is by signing a transaction from an address with the correct private signing key, as otherwise network validators reject it.

Validation in Major Blockchains

What is described above is the central mechanism in many blockchains. The most notable, popular examples for this are:

• Bitcoin (see their documentation on Full Validator Nodes): It requires 6 confirmations by validators before a transaction becomes valid. This can take up to an hour to happen.
• Ethereum (see their documentation on Staking): It requires 12 confirmations by validators before a transaction becomes valid. This usually just takes a few minutes.
• Monero (see their documentation on Transactions): It requires 10 confirmations by validators before a transaction becomes valid. This usually takes around 26 minutes.
• Solana (see their documentation on Validators): This chain is significantly faster than many others, and full confirmation usually only takes between 5 and 20 seconds.

The amount of time it takes for transactions to be fully confirmed depends on the block mining time of the network (for PoW chains). For example, Bitcoin averages at around 10 minutes per block and requires 6 confirmations, hence around 60 minutes. Other blockchains could be structured more complex. For Bitcoin, transactions are being added to blocks by miners as long as they are present in the mempool. The mempool holds unconfirmed transactions as long as they haven't gotten enough confirmations.

Some services do not require you to have full 6 confirmations to speed up operations. Most exchanges await only 2 confirmations for Bitcoin transactions, as that is generally considered safe for Bitcoin.

Malicious Validators

In a perfect world, the above proves that validation solves the trust problem. Now let's assume there are not only well-meaning players on the network, but also rogue validators. The job of validators is to reject any transaction into the blockchain that does not meet signature requirements. Let's stay with the above players and assume that Mallory has significant resources available and wants to game the BUCKs blockchain:

• Mallory owns a miner node that creates bogus transactions in mined blocks.
• Her node mines a block that contains therein a transaction that steals BUCKs from Bob. She does not own Bob's private key.
• The BUCKs blockchain network is built similar to the Bitcoin network - transactions are sent to multiple random validators for verification.
• Mallory also owns a large number of validators on the BUCKs network that are all specifically tailored to accept her bogus transaction, ignoring the signature requirement on it.
• If, by coincidence, all validation requests are sent to Mallory's validators, she can force her bogus transaction onto the BUCKs blockchain, making it the truth for the rest of the network.
• Mallory has now stolen Bob's BUCKs without owning his private signing key.

How safe a validation mechanism is depends on how many validators are present on the network: The more validators that are present, the more resources Mallory would need to invest to gain control over a significant portion of validators on the network and launch her attack on Bob's BUCKs. For Bitcoin, the number of validators is so large that attacks of this type are simply impractical. Plus, validators are written in a way so that they can identify rogue validators and ignore them either for a while or permanently. This further decreases the probability of Mallory's attack to succeed, and prevents her from trying multiple times.

Incentivizing Validators

While validators are a desirable feature on any blockchain network, they don't come for free. Ideally, each validator is controlled by a different entity, and they don't all run on the same server. This means that in an ideal setting many people would run their own independent validators on the network, which in turn costs money and requires time to set up and maintain the validator nodes.

In order to incentivize individuals to run validator nodes, they are reimbursed on many networks. The notable exception here is Bitcoin, which works purely on voluntarily supported validator nodes. For most people, the greatest gain from running validators on the Bitcoin network is that it adds to the safety of their own funds.

For other networks, validators get paid from transaction fees: When a validator validates a transaction, they get a fraction of those fees. The more transactions a validator gets to verify, the more they gain. Now while this sounds like easy money, it comes with the prerequisite of staking an amount of crypto currency of the network the validator is running on. These can be significant amounts, such as:

• Ethereum: 32 ETH
• Sapphire: 200,000 SAPP
• Birake: 20,000 BIR

You can find a nice comprehensive list at masternodes.online. Validators are also called Masternodes on a number of networks. The staking amounts they require are rather high and usually out of range for small-scale investments. But here's an alternative: There are services that allow sharing Masternodes (which shares the rewards by the same fraction, minus some operating fee). Popular services for this are:

• ihostmn: Offers a rather large list of coins you can run a (portion of a) masternode for. They handle all technicalities, and you basically just send them the coins of the specific network. They also automatically compound any wins, so your masternode fraction grows over time automatically.
• Yieldnodes: Simplifies the masternoding process by distributing your BTC or ETH over masternodes of their choice. They claim a long-standing rate of 5-15% per month of profits.

I've had good experience with both platforms. ihostmn does not have a real minimum investment amount, and you can start off with a very, very small amount of coins. I have shares of a few Altcoins masternodes on there. Yieldnodes has a minimum invest of 500€, but if you email them and ask nicely they may set you down to 100€. I did that initially, and after very good results increased my invest.

Proof of Work vs. Proof of Stake Blockchains

The above examples described how transactions are confirmed in a Proof of Work (PoW) blockchain, where blocks are mined by dedicated miner nodes. On Proof of Stake (PoS) chains, the validation process is very similar - incentives for validators are also paid via transaction fees. There are more conceptual differences between PoW and PoS, but from the validator point of view, they can be compared that way.

Conclusion

Validators are an important building block in any blockchain - and without them the chain cannot maintain integrity against attacks or bad players. Validators or masternodes that require staking usually yield rewards that long-term can be an investment and passive income. Whether this kind of venture is for you is up to you and how much funds you have available. It is definitely a long-standing concept, and supports the safety and integrity of today's and tomorrow's cryptocurrencies.