What Are Nominators?
In a blockchain network that utilizes the nominated proof-of-stake (NPoS) consensus algorithm, nominators are one of the two main actors, the other being validators.
In traditional proof-of-stake (PoS) networks, an entity’s mining or validation power is determined by the number of network tokens they hold.
More tokens increase mining power and influence decision-making processes, such as government functions and voting on network proposals.
However, not all validators or miners actively participate in every decision-making event.
They may be unavailable or choose not to vote for various reasons, including a lack of time or resources to understand complex technical considerations.
Enhancing Network Participation
The nominated proof-of-stake (NPoS) algorithm, used by blockchains like Polkadot and Kusama, addresses this challenge.
NPoS introduces the concept of nominators to enhance network participation and decision-making.
In NPoS, validators and nominators have complementary roles:
- Validators: Validators secure the network by producing new and validating parachain blocks. They continuously operate and use native tokens to back their validator status. Validators are incentivized to follow the protocol rules, as violations can result in penalties (slashing) or rewards based on their adherence to the rules.
- Nominators: Nominators are token holders who, for various reasons, do not actively participate in the consensus process. Instead, they use their tokens to nominate validators they trust or believe will perform well. Nominators are motivated to nominate validators because they earn a share of the rewards received by their nominated validators in active slots. Like validators, nominators must abide by the protocol rules or face penalties.
Validators are elected to participate in every active set, a specific period that can increase as the blockchain progresses.
Nominators play a crucial role in this process by selecting and nominating validators.
Validators who receive more nominations and have a higher value of tokens backing them are more likely to be elected into the active set of validators.
Promoting Decentralization
In NPoS, the distribution of rewards is proportional to the validator’s overall stake.
This incentivizes nominators to consider a diverse group of validators instead of repeatedly nominating the same ones.
Additionally, nominators are incentivized to conduct due diligence on validators to ensure they behave appropriately, as misbehaving validators can result in reduced rewards for them.
Overall, the NPoS algorithm promotes decentralization in blockchain networks by maximizing decision-making power while ensuring fairness through proportional representation and incentivizing nominators to select validators thoughtfully.