diff --git a/Cargo.toml b/Cargo.toml
index da5d1b9050..55bd4de532 100644
--- a/Cargo.toml
+++ b/Cargo.toml
@@ -42,5 +42,6 @@ members = [
 	"beacon_chain/utils/ssz",
 	"beacon_chain/utils/ssz_helpers",
 	"beacon_chain/validation",
+	"beacon_chain/validator_induction",
 	"lighthouse/db",
 ]
diff --git a/beacon_chain/types/src/lib.rs b/beacon_chain/types/src/lib.rs
index a00e904e94..887a2b1cee 100644
--- a/beacon_chain/types/src/lib.rs
+++ b/beacon_chain/types/src/lib.rs
@@ -12,6 +12,7 @@ pub mod crosslink_record;
 pub mod shard_and_committee;
 pub mod special_record;
 pub mod validator_record;
+pub mod validator_registration;
 
 use self::ethereum_types::{
     H256,
@@ -30,6 +31,7 @@ pub use crosslink_record::CrosslinkRecord;
 pub use shard_and_committee::ShardAndCommittee;
 pub use special_record::{ SpecialRecord, SpecialRecordKind };
 pub use validator_record::{ ValidatorRecord, ValidatorStatus };
+pub use validator_registration::{ ValidatorRegistration };
 
 pub type Hash256 = H256;
 pub type Address = H160;
diff --git a/beacon_chain/types/src/validator_registration.rs b/beacon_chain/types/src/validator_registration.rs
new file mode 100644
index 0000000000..384f2dc729
--- /dev/null
+++ b/beacon_chain/types/src/validator_registration.rs
@@ -0,0 +1,20 @@
+use bls::{
+    Keypair,
+    PublicKey,
+    Signature,
+};
+use super::{
+    Address,
+    Hash256,
+};
+
+
+/// The information gathered from the PoW chain validator registration function.
+#[derive(Debug, Clone, PartialEq)]
+pub struct ValidatorRegistration {
+    pub pubkey: PublicKey,
+    pub withdrawal_shard: u16,
+    pub withdrawal_address: Address,
+    pub randao_commitment: Hash256,
+    pub proof_of_possession: Signature,
+}
diff --git a/beacon_chain/utils/bls/Cargo.toml b/beacon_chain/utils/bls/Cargo.toml
index eef0ec0aac..1199efc154 100644
--- a/beacon_chain/utils/bls/Cargo.toml
+++ b/beacon_chain/utils/bls/Cargo.toml
@@ -5,3 +5,4 @@ authors = ["Paul Hauner <paul@paulhauner.com>"]
 
 [dependencies]
 bls-aggregates = { git = "https://github.com/sigp/signature-schemes" }
+hashing = { path = "../hashing" }
diff --git a/beacon_chain/utils/bls/src/lib.rs b/beacon_chain/utils/bls/src/lib.rs
index ff9a0919aa..0578eb0959 100644
--- a/beacon_chain/utils/bls/src/lib.rs
+++ b/beacon_chain/utils/bls/src/lib.rs
@@ -1,4 +1,5 @@
 extern crate bls_aggregates;
+extern crate hashing;
 
 pub use self::bls_aggregates::AggregateSignature;
 pub use self::bls_aggregates::AggregatePublicKey;
@@ -8,3 +9,21 @@ pub use self::bls_aggregates::PublicKey;
 pub use self::bls_aggregates::SecretKey;
 
 pub const BLS_AGG_SIG_BYTE_SIZE: usize = 97;
+
+use hashing::proof_of_possession_hash;
+
+/// For some signature and public key, ensure that the signature message was the public key and it
+/// was signed by the secret key that corresponds to that public key.
+pub fn verify_proof_of_possession(sig: &Signature, pubkey: &PublicKey)
+    -> bool
+{
+    let hash = proof_of_possession_hash(&pubkey.as_bytes());
+    sig.verify_hashed(&hash, &pubkey)
+}
+
+pub fn create_proof_of_possession(keypair: &Keypair)
+    -> Signature
+{
+    let hash = proof_of_possession_hash(&keypair.pk.as_bytes());
+    Signature::new_hashed(&hash, &keypair.sk)
+}
diff --git a/beacon_chain/utils/hashing/src/lib.rs b/beacon_chain/utils/hashing/src/lib.rs
index 8e2bd37a9e..7c349e39d0 100644
--- a/beacon_chain/utils/hashing/src/lib.rs
+++ b/beacon_chain/utils/hashing/src/lib.rs
@@ -6,3 +6,12 @@ pub fn canonical_hash(input: &[u8]) -> Vec<u8> {
     let result = blake2b(64, &[], input);
     result.as_bytes()[0..32].to_vec()
 }
+
+pub fn proof_of_possession_hash(input: &[u8]) -> Vec<u8> {
+    let result = blake2b(64, &[], input);
+    let mut hash = result.as_bytes()[32..64].to_vec();
+    // TODO: this padding is not part of the spec, it is required otherwise Milagro will panic.
+    // We should either drop the padding or ensure the padding is in the spec.
+    hash.append(&mut vec![0; 18]);
+    hash
+}
diff --git a/beacon_chain/validator_induction/Cargo.toml b/beacon_chain/validator_induction/Cargo.toml
new file mode 100644
index 0000000000..9a443133e9
--- /dev/null
+++ b/beacon_chain/validator_induction/Cargo.toml
@@ -0,0 +1,9 @@
+[package]
+name = "validator_induction"
+version = "0.1.0"
+authors = ["Paul Hauner <paul@paulhauner.com>"]
+
+[dependencies]
+bls = { path = "../utils/bls" }
+hashing = { path = "../utils/hashing" }
+types = { path = "../types" }
diff --git a/beacon_chain/validator_induction/src/inductor.rs b/beacon_chain/validator_induction/src/inductor.rs
new file mode 100644
index 0000000000..e025d0d437
--- /dev/null
+++ b/beacon_chain/validator_induction/src/inductor.rs
@@ -0,0 +1,281 @@
+use bls::{
+    verify_proof_of_possession,
+};
+use types::{
+    ValidatorRecord,
+    ValidatorStatus,
+    ValidatorRegistration,
+};
+
+/// The size of a validators deposit in GWei.
+pub const DEPOSIT_GWEI: u64 = 32_000_000_000;
+
+/// Inducts validators into a `CrystallizedState`.
+pub struct ValidatorInductor {
+    pub current_slot: u64,
+    pub shard_count: u16,
+    validators: Vec<ValidatorRecord>,
+    empty_validator_start: usize,
+}
+
+#[derive(Debug, PartialEq, Clone)]
+pub enum ValidatorInductionError {
+    InvalidShard,
+    InvaidProofOfPossession,
+}
+
+impl ValidatorInductor {
+    pub fn new(current_slot: u64, shard_count: u16, validators: Vec<ValidatorRecord>)
+        -> Self
+    {
+        Self {
+            current_slot,
+            shard_count,
+            validators,
+            empty_validator_start: 0,
+        }
+    }
+
+    /// Attempt to induct a validator into the CrystallizedState.
+    ///
+    /// Returns an error if the registration is invalid, otherwise returns the index of the
+    /// validator in `CrystallizedState.validators`.
+    pub fn induct(&mut self, rego: &ValidatorRegistration)
+        -> Result<usize, ValidatorInductionError>
+    {
+        let v = self.process_registration(rego)?;
+        Ok(self.add_validator(v))
+    }
+
+    /// Verify a `ValidatorRegistration` and return a `ValidatorRecord` if valid.
+    fn process_registration(&self, r: &ValidatorRegistration)
+        -> Result<ValidatorRecord, ValidatorInductionError>
+    {
+        /*
+         * Ensure withdrawal shard is not too high.
+         */
+        if r.withdrawal_shard > self.shard_count {
+            return Err(ValidatorInductionError::InvalidShard)
+        }
+
+        /*
+         * Prove validator has knowledge of their secret key.
+         */
+        if !verify_proof_of_possession(&r.proof_of_possession, &r.pubkey) {
+            return Err(ValidatorInductionError::InvaidProofOfPossession)
+        }
+
+        Ok(ValidatorRecord {
+            pubkey: r.pubkey.clone(),
+            withdrawal_shard: r.withdrawal_shard,
+            withdrawal_address: r.withdrawal_address,
+            randao_commitment: r.randao_commitment,
+            randao_last_change: self.current_slot,
+            balance: DEPOSIT_GWEI,
+            status: ValidatorStatus::PendingActivation as u8,
+            exit_slot: 0,
+        })
+    }
+
+    /// Returns the index of the first `ValidatorRecord` in the `CrystallizedState` where
+    /// `validator.status == Withdrawn`. If no such record exists, `None` is returned.
+    fn first_withdrawn_validator(&mut self)
+        -> Option<usize>
+    {
+        for i in self.empty_validator_start..self.validators.len() {
+            if self.validators[i].status == ValidatorStatus::Withdrawn as u8 {
+                self.empty_validator_start = i + 1;
+                return Some(i)
+            }
+        }
+        None
+    }
+
+    /// Adds a `ValidatorRecord` to the `CrystallizedState` by replacing first validator where
+    /// `validator.status == Withdraw`. If no such withdrawn validator exists, adds the new
+    /// validator to the end of the list.
+    fn add_validator(&mut self, v: ValidatorRecord)
+        -> usize
+    {
+        match self.first_withdrawn_validator() {
+            Some(i) => {
+                self.validators[i] = v;
+                i
+            }
+            None => {
+                self.validators.push(v);
+                self.validators.len() - 1
+            }
+        }
+    }
+
+    pub fn to_vec(self)
+        -> Vec<ValidatorRecord>
+    {
+        self.validators
+    }
+}
+
+
+#[cfg(test)]
+mod tests {
+    use super::*;
+
+    use bls::{
+        Keypair,
+        Signature,
+    };
+    use types::{
+        Address,
+        Hash256,
+    };
+    use hashing::proof_of_possession_hash;
+
+    fn registration_equals_record(reg: &ValidatorRegistration, rec: &ValidatorRecord)
+        -> bool
+    {
+        (reg.pubkey == rec.pubkey) &
+        (reg.withdrawal_shard == rec.withdrawal_shard) &
+        (reg.withdrawal_address == rec.withdrawal_address) &
+        (reg.randao_commitment == rec.randao_commitment) &
+        (verify_proof_of_possession(&reg.proof_of_possession, &rec.pubkey))
+    }
+
+    /// Generate a proof of possession for some keypair.
+    fn get_proof_of_possession(kp: &Keypair) -> Signature {
+        let pop_message = proof_of_possession_hash(&kp.pk.as_bytes());
+        Signature::new_hashed(&pop_message, &kp.sk)
+    }
+
+    /// Generate a basic working ValidatorRegistration for use in tests.
+    fn get_registration() -> ValidatorRegistration {
+        let kp = Keypair::random();
+        ValidatorRegistration {
+            pubkey: kp.pk.clone(),
+            withdrawal_shard: 0,
+            withdrawal_address: Address::zero(),
+            randao_commitment: Hash256::zero(),
+            proof_of_possession: get_proof_of_possession(&kp),
+        }
+    }
+
+    #[test]
+    fn test_validator_inductor_valid_empty_validators() {
+        let validators = vec![];
+
+        let r = get_registration();
+
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+
+        assert_eq!(result.unwrap(), 0);
+        assert!(registration_equals_record(&r, &validators[0]));
+        assert_eq!(validators.len(), 1);
+    }
+
+    #[test]
+    fn test_validator_inductor_valid_all_active_validators() {
+        let mut validators = vec![];
+        for _ in 0..5 {
+            let (mut v, _) = ValidatorRecord::zero_with_thread_rand_keypair();
+            v.status = ValidatorStatus::Active as u8;
+            validators.push(v);
+        }
+
+        let r = get_registration();
+
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+
+        assert_eq!(result.unwrap(), 5);
+        assert!(registration_equals_record(&r, &validators[5]));
+        assert_eq!(validators.len(), 6);
+    }
+
+    #[test]
+    fn test_validator_inductor_valid_all_second_validator_withdrawn() {
+        let mut validators = vec![];
+        let (mut v, _) = ValidatorRecord::zero_with_thread_rand_keypair();
+        v.status = ValidatorStatus::Active as u8;
+        validators.push(v);
+        for _ in 0..4 {
+            let (mut v, _) = ValidatorRecord::zero_with_thread_rand_keypair();
+            v.status = ValidatorStatus::Withdrawn as u8;
+            validators.push(v);
+        }
+
+        let r = get_registration();
+
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+
+        assert_eq!(result.unwrap(), 1);
+        assert!(registration_equals_record(&r, &validators[1]));
+        assert_eq!(validators.len(), 5);
+    }
+
+    #[test]
+    fn test_validator_inductor_valid_all_withdrawn_validators() {
+        let mut validators = vec![];
+        for _ in 0..5 {
+            let (mut v, _) = ValidatorRecord::zero_with_thread_rand_keypair();
+            v.status = ValidatorStatus::Withdrawn as u8;
+            validators.push(v);
+        }
+
+        /*
+         * Ensure the first validator gets the 0'th slot
+         */
+        let r = get_registration();
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+        assert_eq!(result.unwrap(), 0);
+        assert!(registration_equals_record(&r, &validators[0]));
+
+        /*
+         * Ensure the second validator gets the 1'st slot
+         */
+        let r_two = get_registration();
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r_two);
+        let validators = inductor.to_vec();
+        assert_eq!(result.unwrap(), 1);
+        assert!(registration_equals_record(&r_two, &validators[1]));
+        assert_eq!(validators.len(), 5);
+    }
+
+    #[test]
+    fn test_validator_inductor_shard_too_high() {
+        let validators = vec![];
+
+        let mut r = get_registration();
+        r.withdrawal_shard = 1025;
+
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+
+        assert_eq!(result, Err(ValidatorInductionError::InvalidShard));
+        assert_eq!(validators.len(), 0);
+    }
+
+    #[test]
+    fn test_validator_inductor_shard_proof_of_possession_failure() {
+        let validators = vec![];
+
+        let mut r = get_registration();
+        let kp = Keypair::random();
+        r.proof_of_possession = get_proof_of_possession(&kp);
+
+        let mut inductor = ValidatorInductor::new(0, 1024, validators);
+        let result = inductor.induct(&r);
+        let validators = inductor.to_vec();
+
+        assert_eq!(result, Err(ValidatorInductionError::InvaidProofOfPossession));
+        assert_eq!(validators.len(), 0);
+    }
+}
diff --git a/beacon_chain/validator_induction/src/lib.rs b/beacon_chain/validator_induction/src/lib.rs
new file mode 100644
index 0000000000..e1f5ef09d1
--- /dev/null
+++ b/beacon_chain/validator_induction/src/lib.rs
@@ -0,0 +1,10 @@
+extern crate bls;
+extern crate hashing;
+extern crate types;
+
+mod inductor;
+
+pub use inductor::{
+    ValidatorInductor,
+    ValidatorInductionError,
+};