How to Set Up a Validator

Now that you’re determined to become a cryptocurrency staker, it’s time to set up a validator. By running a validator node, not only do you contribute to the security and infrastructure of the blockchain, but you also receive financial rewards. For this article, we’ll be focusing mostly on solo staking. By staking independently, you help achieve the true vision of blockchain decentralization.

What is a Validator?

Validators participate in blockchains that operate on a staking consensus mechanism.  Validators run hardware and software as nodes that help the blockchain’s infrastructure. They then stake the required cryptocurrency to validate and verify transactions. As compensation, validators earn rewards from the network. Blockchains like Ethereum work on the Proof of Stake (PoS) consensus, while Solana and Cosmos utilize the Delegated Proof of Stake (DPoS) consensus.  PoS differs from DPoS as the latter allows a staker to delegate votes to a validator. Meanwhile, in PoS, validators stand alone with their staked crypto. 

How to Set Up a Validator Node

Before committing to a validator node, make sure you’re aware of the pros and cons of staking. You will have complete control of your cryptocurrency while receiving crypto rewards. However, you will have to commit time, effort, and capital.    Building your own validator node is a highly technical process. We’ve simplified the steps to guide you through it.

1. Choose the blockchain network

You’ll have to choose which network to stake on. This determines the consensus mechanism, hardware requirements, minimum number of votes, and staking capital. Here’s a simple comparison of different staking requirements per network (Ethereum vs. Cosmos for example): *Cosmos has a maximum of 180 validators based on total staked amount. The indicated staking requirement is the minimum amount to rank within the top 180 validators. Prices are as of November 9, 2023.   While Cosmos staking provides significantly higher returns versus Ethereum staking, the former also needs more starting capital. 32 ETH pales in comparison to the required ATOM.   Knowing these prerequisites lets you decide which network to build around.

2. Choose a hosting provider

Given the heavy computer requirements, many stakers choose to host the node on a cloud server. Google Cloud and Amazon Web Services (AWS) allow stakers to run a node from their respective cloud accounts. Such companies guarantee higher staking uptime while reducing validator software computer requirements. Aside from traditional cloud services, companies such as All That Node offer a dedicated node through their node-as-a-service program.

Nodes per network type, from Ethernodes

  Over 50% of nodes operate through cloud services such as AWS. To have a decentralized network, more validators are needed. But if everyone’s operating through the same centralized services, then there’s a centralization concern.   Ethereum co-founder Vitalik Buterin has criticized node centralization as it creates a single point of failure. If AWS shuts down, then so would many nodes.    Moving forward, we’ll be discussing how to set up a validator on a local computer. 

3. Set up a node

A blockchain node is a physical computer that maintains a blockchain network’s software. Furthermore, a node is connected to other similar computers, forming a decentralized network infrastructure.   To set up a node, a staker needs a physical machine set up with the corresponding technical requirements. Then, he or she downloads and installs the client (network software). Depending on the blockchain, more than one client may be needed.   Ethereum validator nodes require 2 clients: an execution client and a consensus client.    The execution client facilitates transactions and implements smart contracts. Meanwhile, the consensus client verifies and validates the transactions. The two work together to make the Ethereum network operate properly.   Cosmos nodes require just 1 client called the Gaia Client.

4. Acquire Tokens to Deposit Into the Validator Node

Once you have the software running, you need to acquire the crypto to deposit into the node. This is required to turn your node into a validator. As a validator, you will validate transactions and earn rewards. The different methods come with their advantages and disadvantages.  

Centralized Exchanges 

A staker can open an account with crypto exchanges such as Coinbase, Kraken, and Gemini. Customers should be able to fulfill KYC (the due diligence process) and access their account within the same day.   Customers can fund their exchange accounts using bank accounts or credit cards. Afterward, customers send out the crypto to the designated staking wallet (typically a decentralized crypto wallet such as Metamask).   Do note that cryptocurrency held with an exchange can be at risk. Especially if the exchange operators act maliciously.

Over-the-counter (OTC)

Crypto exchanges also offer OTC trading for institutions and premium clients.   OTC trading provides a single quote for large orders, ensuring the best pricing. OTC also comes with personalized 1:1 service and settlement flexibility. Customers can choose to transact using bank accounts and receive crypto directly into their staking wallet.   Kraken Exchange offers OTC trading for single quotes of USD100,000 to USD1,000,000. While this is larger than 32 ETH (USD 57,600), OTC can be used for 98,110 ATOM (USD 703,000).

Decentralized Exchanges

Crypto stakers may choose to remain in full control of their crypto through a decentralized exchange.   Uniswap is the largest decentralized exchange that offers trading for Ethereum-based tokens. Customers need to connect via a non-custodial wallet such as Metamask or Phantom Wallet. Once connected, the platform executes the trade and sends the tokens directly to the wallet.   Decentralized exchanges can also facilitate trades from a user’s bank account. Uniswap is integrated with Moonpay, a crypto service that allows users to purchase crypto directly from a bank account or credit card.

MoonPay service, as found on Uniswap.

Generate a Validator Key Pair

For Ethereum, software, and command line prompts can generate the validator key pairs. Two types of keys are generated. The keystore file dictates the validator’s ability to sign transactions. On the other hand, the deposit data file contains public information about your validator. 

Sample Key Generation Success

  Note that this is a very simplified process for generating keys. Make sure to research how to generate  and store keys and the key phrases securely. Should a malicious actor access your keys, your staked crypto can be taken away. 

How to Manage Ongoing Operations

Once your validator is up and running, you will need to manage operations to ensure your validator node is running properly.  Monitoring and Alerts Staking requires platforms and software to make sure they’re fully synced to the network. Keep an eye on both connections to the blockchain and hardware performance.   Prometheus and Grafana monitor node performance regardless of which blockchain your validator runs. Prometheus is a free and community-driven software that collects and stores data. It is widely used for monitoring systems. Meanwhile, Grafana is an open-source data visualization application that is often used alongside Prometheus.

Sample monitoring dashboard, from Grafana

  Stakers also set up notifications in case their validator goes offline. Grafana can provide such alerts through Telegram and Discord.   Backup and disaster recovery Your node hardware or software may encounter issues. This would cause your validator node to go offline. While it’s fairly easy to build a node again, there are a few items that you should keep secure:  

1. 1. Crypto wallet seed phrase - your crypto rewards and, ultimately, your staked crypto will be deposited here.
   2. Validator key mnemonic - the validator key is responsible for validator operations. Furthermore, it allows you to exit your crypto from the validator.
   3. Keystore and deposit data files -  both JSON files contain important information regarding your validator.

  As an initial disaster recovery practice, equip your physical node with an uninterruptible power supply (UPS). A UPS powers your equipment for a few minutes until electricity can be restored. Frequent electricity failure can also damage your hardware.  

How to Attract More Delegators into Your Staking Operation

Anyone with the proper technical skills and capital can stake on Ethereum. However, some of you may want to run a node on a Delegated Proof of Stake (DPoS) blockchain. If so, you’ll have to grow your reputation within the community. You must rank highly among other validators to attract sufficient voting power.   Active Community Involvement Coinbase Custody runs the largest validator on Cosmos with USD120M worth of Atom staked. Other players in the top 10 include - Binance, Stakefish, and Kraken. As a solo staker, you cannot compete with the name recognition of such big players. However, you can crack the ranks of other validators.   Participate in online discussions on forums, Discord servers, and social media such as X. You won’t be the top validator on the blockchain, but you can be in the top hundred or so validators.   Marketing and Branding To increase your reputation with the community, you can brand yourself as a professional validator. This can entail creating a website or landing page, a corporate entity, and creating content.   The community will recognize you through your publication and educational material. As a thought leader in the industry, you will build trust. Eventually, you’ll attract the delegators.  

Take control of your crypto investments and become a validator

By becoming a validator and staking, you can earn income on your crypto investments. Furthermore, you can participate in a blockchain network’s operations and become a valuable community member.

The content of solostakers.com is for informational purposes only and should not be considered financial advice. It represents the personal views and opinions of the author(s) and is not endorsed by any financial institution or regulatory body. Cryptocurrency and staking investments carry inherent risks and readers should conduct their own research and consult with a financial professional before making any investment decisions. The owner and author(s) of solostakers.com will not be liable for any losses, damages, or consequences arising from the use of the information on this site. By accessing solostakers.com, you agree to bear full responsibility for your investment decisions.