Polkadot operates a Nominated Proof of Stake (NPoS) consensus mechanism. Proof of Stake has risen to prominence within the blockchain industry due to its inclusiveness, environmental sustainability, and scalability. The two key parties involved in NPoS are validators and nominators. The NPoS system relies on nominators with stake in the system (DOT token holders) to nominate people to be responsible for minting blocks, known as validators.
These validators play a vital role in the continuation of the Polkadot ecosystem, as they process transactions for all parachains. They are responsible for building reputations with good performance and also commit their own stake to the system as a pledge that they will behave well. The reward for participating in consensus is the native DOT token as the block reward, which can be traded and exchanged for other currencies, bought and sold, and traded for other forms of value.
Nominators are responsible for publishing a list of validators they trust and then putting up the amount of stake they would like to allocate to these validators. If a validator they have selected is chosen to produce a block, they share in the block rewards. Rewards are paid out equally to validators regardless of stake. Having more stakes does not change the amount of block reward a validator receives.
As the block reward remains the same, validators with fewer nominators will therefore be able to distribute higher rewards to each of their small group of nominators, encouraging the spread of nomination to be higher among smaller validators. In each era, an election takes place in which validators are selected to participate in the “active set”. This is the selection of those validators who get to mint blocks in the blockchain. The goal of every validator is to be in the active set.
Each nominator can submit a list of up to 16 validators that they support with their stake. In the following epoch (a standard timeframe for block production, lasting 4 hours), validators with the most amount of DOT staked to them become elected for block production. Anyone can help secure the network by running their own validator node, while there are no particular requirements to become a nominator. Polkadot aims for proportional justified representation, meaning no validators and their associated nominators are over or under-represented. To achieve this, Polkadot gives elected validators equal voting power in the consensus protocol.
Updated 4 days ago