The Cosmos Network is perhaps one of the most anticipated projects of this year and is actively preparing for launch. The goal of the project is to create an "Internet Blockchains," a global and scalable ecosystem of independent, parallel blockchains compatible with one another that will interact through the main blockchain of the Cosmos Hub. This network will be deployed on the basis of the Byzantine-fault-tolerant (BFT) Tendermint PoS (Proof-of-Stake) consensus protocol. The developers of the Tendermint protocol are also participating in the development of the Cosmos Network project. A key role in this consensus algorithm is played by validators, the network members who maintain its work efficiency, participate in voting and form new blocks in the blockchain.
Just like in the Tendermint PoW (Proof-of-Work), the node receives a reward for creating a new block. Unlike the PoW miners, where the right to create a block is proportional to the computing power of the node, in the Tendermint protocol, validators select the blocks to be added to the blockchain system during multi-stage voting. The right to add a block is received by the validator, whose block has been voted for by ⅔ or more of all validators. At the first stages in the Cosmos network, there will be 100 validators with the largest stake in Atoms, the internal tokens of the Cosmos network, but every year, the number of validators will grow until it increases to 300. Any network participant can offer their candidacy as a validator. Delegates will also take active participation in the development of the network, as they are the holders of Atom tokens who can choose one or any other validator and provide them with their tokens for a stake. In return, delegates will receive a percentage of the validator's reward.
Since the Cosmos Network will consist of a lot of parallel blockchains, the developers have decided to divide them into zones. All zones will be connected to a Cosmos Hub, or the main blockchain, which will work with 100 validators having the largest stakes. Individual zones will have their own validators and their own internal cryptocurrencies. For example, it is now known that the very first zone will be the Ethermint blockchain using the Photon token. To become a validator in the Ethermint blockchain, one will need to have a stake in Photon tokens.
Dave Kajpust, the developer of smart contracts in the Polymath network, figured out exactly how to become a validator in the Cosmos network after having reviewed the risks associated with this and even made conditional calculations about how much the prestigious title of the validator would cost to an ordinary member of the network.
What a Validator Needs
Server with the Cosmos Network software.
It is also recommended that one have a spare server ready for use on the network. Presumably, if the validator cannot prove that they have spare capacity, delegates can refuse such a validator and refrain from providing their Atoms tokens for the stake.
Firewall on both servers for protection against the unauthorized connection.
A hardware security module (HSM) is separate hardware with a digital signature that will allow one to sign each block. They can be a hardware wallet, such as Ledger Nano S. Keeping a private key on the server can potentially cost the validator all of their Atom tokens.
One will need to use the data center services for data storage and processing. It is desirable for the validator to conclude a contract for a long time with one of the larger data centers, since their protection level is an order of magnitude higher than the others, and they are in 100% continuous operation mode.
Protection of the validator node from DDoS attacks. Probably, it is necessary to connect a cluster of nodes with Sentry software for this purpose.
Currently, the Cosmos Network cannot work with cloud-based validator nodes; however, this option should appear already this year.
Atom Tokens for Stakes:
A high balance of Atom tokens is required by the validator for the stake. The more the stake in Atoms, the higher the chances of getting into the top 100 and becoming a validator. Just as in mining, the computational power plays a key role. In the Tendermint PoS, the size of the stake is important.
One needs to know how the server, firewalls, and data center will work and interact with one another. Perhaps one should hire a consultant if they do not want to understand it themselves. It is worth bearing in mind, however, that the consultant does not need to know why they are installing the equipment.
One needs to understand how to protect the validator node from DDoS attacks and configure the cluster with a Sentry node.
When all the equipment and software is installed, the validator must understand the voting process that will be required to maintain the Cosmos Network.
Working with Delegates and Their Stake:
One of the key benefits of the Cosmos Network is the ability to delegate Atom tokens to the validator.
Serious participants who want to become validators create separate sites for their nodes, where they promote themselves to get more tokens.
One can identify themselves on the network so that delegates trust them more as a validator. This step, however, will be associated with increased risks to the security of one's servers and the Atom balance.
This price list is very specific since it is compiled on presumptive calculations, according to available information about software and hardware.
Server with firewall = $5,000.
Hardware security module = $150.
Backup server with firewall = $5,000.
Spare hardware security module = $150.
Server operation with firewall = $675 per month.
The work of the data center = $675 per month.
Cluster work from nodes with Sentry = $200 per month.
The developers of the Cosmos Network do not specify the minimum or the maximum number of tokens required for the top 100 validators; however, it is already clear that the tokens for the stake will cost the most. Nevertheless, it is worth considering that now it is quite difficult to estimate their real value; therefore, this information is based on the following assumptions.
The number of tokens sold during the ICO = 168,475,963.
% of all tokens available at the ICO = 75%.
Total number of tokens = 224,634,617.
Number of participants in the ICO = 1,090.
We will suppose that 33% of the tokens will not be delegated at all.
We will suppose that 7% will be delegated, but not to the top 100 validators.
60% of all tokens remain for 100 validators, or 0.6% per validator. Some will have more, others less. We will assume that the validators from the top 100 will have from 0.3% to 3% of all Atom tokens.
Let us take the smallest amount of Atoms required by the validators, or 0.3%. We will suppose that the entire stake of the validator node consists of 10% of personal Atom tokens and 90% of delegated ones. This means that the user who works with the validator node must have 0.03% of all existing Atom tokens.
It turns out that 0.03% X 224,634,617 = 67,390 tokens will be needed by a network participant to become a validator.
As Kajpust stressed, it is now impossible to predict the real price for the Atom token. At the Cosmos Network ICO, the price of Ether was $40, and now it is 15 times higher and is $530. We will suppose that the Atom tokens will double this figure, because, in many cases, the tokens of successful ICOs cost more when they enter the common market. During the ICO, the price for one Atom was $0.10. Thus, it turns out that:
67.390 X 0.10 X 30 = $202,170
This is a very conditional price, especially if you take into account the inaccuracy in calculating the percentage of tokens required by the validator.
As a result, to become a validator, the network participant will have to spend:
Equipment = $10,300.
Atom tokens = $202,170.
Operating costs = $1,550 per month.
Estimated Return on Investment
Validation commissions can range from 1% to 20%.
Commissions from transactions and maintenance of blocks are received by validators as a reward; however, it goes to delegates as well. It turns out that in this case there is not much difference between the validators and the delegates.
Provided that the validator works immediately on several nodes in different zones of the Cosmos Network, then the revenue increases by several times. Note that this is possible only if the server allows you to work with several nodes at once. Otherwise, operating costs and equipment costs will increase.
The validator will incur losses and pay a fine in the event that they will not participate in voting, will use double signatures, or will often be offline.
Losses on equipment.
Losses on software.
It is impossible to calculate exact revenue since there is no complete data on how the validators will receive the commission and what penalties will be applied in their relation for violation of the rules. It is also unclear what losses might be incurred by the validators who would like to become delegates and provide their Atom tokens to another member of the blockchain.
The probability that you will not be among the first 100 validators.
The server or node validator can be hacked.
The likelihood that Atom will fall in price as a result of the bear market.
Kajpust recommends becoming a validator only if one is sure that they can collect from the delegates or invest in enough Atoms to get into the top 100. Otherwise, he advises simply to delegate Atoms to another member of the network and receive a commission from their work.