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What is Slashing mechanism in POS?

By Inkarias - 2019-12-07

Since few years, the cryptocurrencies market has brought numerous possibilities to build a passive income. Among this solutions, Proof-of-Stake systems remain a primary choice for investors wishing to develop their portfolio in the long-term while ensuring a steady growth for a constant passive income. For reminder, Proof of Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins he or she holds in its wallet. Many variants have then been implemented, such as DPOS (BPOS and LPOS for examples) and more to avoid the necessity of leaving a wallet open online all the time (through validators/bakers) and thus, reducing energy costs related to staking. Furthermore, numerous pools and staking third-party sites have opened to offer that kind of services for the different communities.

Slashing mechanism

However, in POS-type consensus system where main actors are delegators/bakers, it is also essential to establish a control system to prevent and punish behaviours that could be detrimental to the system and investors as a whole and ensure a complete balance in the system. Slashing has therefore been put in place to solve this major problem in order to provide a durable solution while guaranteeing the integrity and durability of the system. In short, Slashing is the fact that the chosen validator or baker is punished for a fault he has committed and is a protection mechanism by which the network disrupts abnormal or fraudulent behaviour to ensure its complete integrity. This mechanism isn’t implemented in all POS systems and only concerns the LPOS/BPOS/DPOS types.
In short, a slashing is an event where the validator gives up a defined proportion of staked tokens, which are then burned or redistributed to other stakeholders proportionally.

When can that system be used?

Slashing is implemented in few currencies we have been introducing earlier such as Cosmos, Algorand, IrisNet and more and is used for several possible cases:
  • A liveness fault where the validator node does not participate in the network consensus for a long time and misses several blocks. We can quote IrisNet and Cosmos as examples for this case. We can quote a downtime as example: if the node is not signing transactions for a certain amount of time (native blockchain parameters are defined by the respective team at launch and depends on the setup), it will be considered inactive and may start losing out on block rewards. After a certain threshold is crossed, it might also be slashed, resulting in a permanent loss of stake and the potential suspension from the validator set. This can happen when a node’s cloud infrastructure goes down, or if the software becomes out of sync, for example.
  • A security fault which disturbs the network consensus by validating/verifying twice or more the same blocks. This case is also called double-baking or double-endorsing in the case of Tezos, or double-signing in the case of Cosmos & IRISnet. This is mainly the source of problems for a majority of currencies. Double signing or the action of signing two blocks at the same block height, is more severely punished by the different protocol parameters. This can either happen when an opposite validator is trying to attack the network or because of an unstable and not reliable infrastructure, leading to one key signing the same block twice.
  • A governance fault where the validator voted multiple times on the same consensus process, and these votes contradict each other, or he did not vote at all. Cosmos and IrisNet can also be quoted as examples. This is the same principle as double-signing, the validator will lose a part of its stakes or the entirety depending on the case.

What are the consequences?

The different penalties depend on the type of bad manner done and, on the rules surrounding a specific project. Most of the time, the validator/baker is punished with a certain percentage of token that he has under staking or within a safety deposit. In some protocols, the validator can also be “jailed”, a process prohibiting him from re-entering the networks for a certain period of time.
In Bonded Proof-of-Stake protocols, the delegators are also at risk of punishment for this kind of behaviour. Most PoS networks have a combination of slashing parameters and with varying degrees of severity. Some networks will not punish any of those actions and will rely on opportunity costs and validator reputation to create an efficient delegation market, while others will punish one or both violations. Although less frequent, we also see scenarios where delegators are not at risk of any of their chosen validator’s actions, leading to a safer environment for delegation, potentially at the cost of establishing and maintaining a robust validator ecosystem.

Some examples

Non punitive projects: Aion, Algorand, and Tezos stand out as they do not punish delegators at any time, although Tezos does include a variant of slashing for validators in order to protect the network. Tezos’ non-punitive approach to delegating is to require an initial 21-day period before generating rewards (with Tezos offering a high stake).
Punitive projects: Cosmos, Livepeer and ICON have chosen a higher degree of severity to make both delegators and validators accountable for protocol violations made by the validator. Cosmos is operating in a similar rewards environment as Tezos, despite having one of the highest double-signing slashing parameters.