By Mario Barbantini Scanni, Expert Analyst at Colossus

Introduction

Validators, the foundation of Proof-of-Stake networks, safeguard the blockchain’s sanctity and integrity. As staking gains traction, understanding slashing is vital.

As of August 2023, the global staked value in Proof-of-Stake networks is approximately $100 billion, with an average interest rate of 6.4%. The number of global stakers has reached approximately 8.5 million, emphasising the widespread adoption of staking and the importance of ensuring that slashing conditions are well-understood by a large audience.

This paper provides an in-depth exploration of slashing by using Ethereum as a case study. We incorporate the latest advancements in consensus mechanisms, slashing conditions, and the aggregation process found in ETH2.0.

1. The Essence of Slashing

In PoS, slashing deters malicious actions. Validators, by staking cryptocurrency, risk losing these stakes under slashing conditions. Ethereum 2.0’s EIP-3074, as an example, underscores validator accountability:

1.1 Sharding in Ethereum 2.0 and Implications for Slashing

Ethereum’s transition to Ethereum 2.0 brought with it the concept of sharding, a method to increase the number of transactions the blockchain can process. Sharding divides the Ethereum network into multiple smaller chains, called shards, each capable of processing its transactions and smart contracts:

Figure 1:  ETH2’s sharding mechanism, visualised.

However, with sharding, slashing conditions became more intricate. Validators are now responsible for ensuring consistency not just within a single shard but also across shards. Cross-shard communication is vital for the seamless operation of the network, and any inconsistencies can lead to significant issues. 

Validators might confirm a transaction on one shard, dependent on another shard’s transaction. If the latter transaction is found to be invalid, it could lead to complications, and the validator might be slashed for endorsing an invalid cross-shard transaction.

2. Common Slashing Conditions and Aggregation Challenges

Slashing is a fundamental protocol function in proof-of-stake networks, serving as a deterrent against malicious actions by network participants. It contrasts the positive incentive of block rewards. In the initial phase of Ethereum 2.0, validators faced slashing under specific conditions:

• Double Attestation: Validators are slashed if they attest or propose twice. This indicates a validator might be trying to support multiple versions of the blockchain, compromising the protocol’s integrity.
• Surround Vote: A more complex condition where a validator’s vote surrounds or is surrounded by previous votes.

Figure 2: On-chain representation of an aggregate attestation format.

2.1 Consensus Achievement and Aggregation in Ethereum 2.0

To comprehend slashing, one must understand how consensus is achieved in Ethereum 2.0:

1. Validators broadcast their votes on the chain’s state.
2. These votes are aggregated and passed to the block producer for inclusion.
3. Votes have components like the target slot, committee index, source checkpoint, and target checkpoint.
4. Once enough validator votes are on-chain for a pair of source and target checkpoints related to an epoch, they become justified, leading to the chain’s state finalisation.

2.2 Slashing Rules in Detail:

• Double Vote: This slashing condition is triggered when a validator attests to two conflicting blocks within the same slot. In simpler terms, it means that a validator has provided two different votes for the same target checkpoint, which is a direct violation of the protocol.
  • Such behaviour is indicative of a validator trying to manipulate the system or operate in a way that could harm the integrity of the blockchain. ETH 2.0 is designed to detect and penalise such actions swiftly to maintain the network’s security and trustworthiness.
• Surround Vote: This condition is a bit more complex than the Double Vote. A surround vote occurs when a validator’s current vote surrounds or is surrounded by a previous vote. To understand this, consider that each vote has a source and target epoch. A vote (S1, T1) surrounds another vote (S2, T2) if S1 < S2 and T1 > T2. This kind of voting pattern is problematic because it indicates that a validator is trying to attest to multiple, conflicting versions of the blockchain’s history.
  • The Ethereum community has been actively researching this condition, given its intricacy and the potential challenges it poses for the network’s stability.

2.3 Aggregation Efficiency

During Ethereum 2.0’s development, particularly in its testing phases, challenges related to aggregation efficiency were observed. The on-chain attestations, which are essentially votes from validators, were significantly higher than the number of validators. This discrepancy was primarily due to a large number of “singles” attestations, where each attestation included only one validator vote. Such inefficiencies could lead to state bloat, consuming valuable space on the blockchain that could be used for more pertinent data.

To address this, Ethereum 2.0 introduced the concept of “aggregators.” These aggregators are special nodes responsible for collecting multiple attestations and combining them into a single aggregate attestation. This process significantly reduces the number of individual attestations that need to be stored on-chain, ensuring a more efficient use of space and resources. 

In 2023, with Ethereum 2.0 fully operational, the system has been optimised to handle these challenges, ensuring a streamlined and efficient consensus process.

3. Technical Insights into Slasher and Gasper

Buterin’s Slasher algorithm addresses the “nothing at stake” problem in PoS. Gasper, a consensus mechanism, ensures block finalisation. The “nothing at stake” problem addressed by Buterin’s Slasher algorithm remains relevant, especially with the increasing value and volume of staked assets.

Innovative Insight: Modern consensus mechanisms, like Tendermint, offer instant finality, reducing the need for complex slashing conditions related to fork resolution.

4. Decentralised Cryptocurrency Protocols Without PoW

Transitioning from PoW to PoS offers environmental and security benefits. Gasper’s formal verification techniques highlight the significance of mathematical rigour in blockchain protocols. The Proof-of-Stake market cap has grown to approximately $330 billion, further highlighting the shift away from energy-intensive PoW mechanisms.

Innovative Insight: Quantum-resistant algorithms are emerging to ensure blockchain security in a post-quantum world. PoS systems must adapt to these changes to remain secure.

5. Implications of Slashing

• Validator Deterrence: Harsh slashing conditions might deter potential validators.
• Network Centralization: High risks might push smaller validators to larger staking pools.
• Economic Impacts: Major slashing events can cause market volatility.

6. Innovations in Slashing Mechanisms

• Adaptive Slashing: Slashing severity depends on the number of malicious validators.
• Partial Slashing: Only part of the staked value is slashed.
• Insurance and Hedging: Validators can hedge against slashing.

Innovative Insight: With the rise of DeFi, slashing conditions might also incorporate DeFi protocols’ health. Validators might be penalised for endorsing faulty DeFi platforms.

7. Qualitative Features in Slashing

• Self-custody: Validators holding their private keys reduce risks.
• Audited Smart Contracts: Audits ensure staking security.
• Slashing Insurance: Insurance products shield validators from slashing.

Innovative Insight: AI-driven smart contract audits can predict potential slashing conditions, offering a proactive approach to staking security.

8. Key Indicators in Slashing Mechanisms

• Validator Effectiveness: Indicates a validator’s profitability and performance.
• Validator’s Key Management: Efficient key management safeguards against various threats.
• Client Diversity: Multiple Ethereum clients enhance security.

9. Conclusion

Slashing conditions are pivotal in PoS networks. As staking evolves, refining these conditions is essential. Striking a balance between network safety, validator participation, and efficient consensus is the future’s challenge. As new networks like Polkadot, Solana, Skale, Oasis, Celo, and Near continue to launch, they bring with them novel staking mechanics and slashing conditions. It’s crucial for stakeholders to stay updated and adapt to these evolving conditions to ensure network security and integrity.

Innovative Insight: Interoperability between blockchains might introduce new slashing conditions. Validators endorsing invalid cross-chain transactions might face penalties, ensuring multi-chain integrity.

Resources

1. Staking Rewards
2. How to Set Up a Reliable Staking Node
3. Rewards and Penalties in Ethereum’s PoS
4. The Beacon Chain Ethereum 2.0 explainer you need to read first
5. Eth2 Slashing Prevention Tips
6. Decentralized Slashing for Proof-of-Stake
7. Formally Verifying Finality in Gasper: The Core of the Beacon Chain
8. Gasper: A Proof-of-Stake-Based Consensus Protocol
9. Casper the Friendly Finality Gadget
10. Tendermint

consensus-specs/specs/phase0/beacon-chain.md at dev