What Is Slashing in Crypto?
Consensus mechanisms are vital for maintaining the integrity of a public blockchain, and an important part of these systems is ensuring that network validators fulfill their role without acting fraudulently. On proof-of-work (PoW)blockchains, miners are inherently disincentivized from acting dishonestly due to the significant costs – of both computer equipment and energy – required to validate transactions.
Proof-of-stake (PoS) networks do not share this same perk due to how they function. Rather than miners competing to solve hashes as they do on PoW blockchains, PoS networks pseudorandomly select validators based on factors like the size of their economic stake, and how long they have been staking. So then how do PoS blockchains discourage validators from acting in their own interest?
PoS networks employ a method known as slashing – an automatic deduction of a predetermined portion of a validator’s economic stake if they act in a way that may harm the network. In other words, the validator’s stake acts as collateral so that they have more to lose from fraudulent or malicious behavior.
Slashing happens when two different blocks are approved for the same slot, or a validator validates an invalid block. In most networks, it is often triggered by:
- Validator’s downtime – Downtime means a validator’s node has not participated in the validation process for a certain period or is offline. The network perceives downtime as a sign of a validator’s unreliability, which compromises the smooth functioning of the network.
- Double signing – To prevent the penalty from downtime, validators may run an identical backup rig to evade going offline if the principal equipment fails. However, this risks double signing, where the same validator keys sign the same block twice (from both the backup and primary nodes). Double signing could also be due to a malicious actor attempting to take over the network.
What Happens When a Validator Is Slashed?
When validators are slashed, they risk losing their validator status and staked tokens. However, the penalty imposed depends on whether the process was triggered by downtime or double signing. For instance, downtime results in the deduction of a small percentage of staked tokens. Double signing, on the other hand, risks the validator losing a higher percentage (or all) of their pledged tokens.
Disincentivizing validators is essential in safeguarding the interest of a PoS network. You can check out the full article on Ledger Academy for a more comprehensive look into Slashing.