
<p>By <a href="mailto:mario@colossus.digital" target="_blank" rel="noreferrer noopener">Mario Barbantini Scanni</a>, Expert Analyst at <strong><a href="https://www.stakingrewards.com/savings/colossus/">Colossus</a></strong></p>



<h1 class="wp-block-heading">Introduction</h1>



<p><em>Validators, the foundation of Proof-of-Stake networks, safeguard the blockchain&#8217;s sanctity and integrity. As staking gains traction</em><strong><em>, understanding slashing is vital.</em></strong></p>



<p><a href="https://www.stakingrewards.com/" target="_blank" rel="noreferrer noopener">As of August 2023</a>, 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.</p>



<p>This paper provides an in-depth exploration of slashing by using <a href="https://www.stakingrewards.com/earn/ethereum-2-0/" target="_blank" rel="noreferrer noopener">Ethereum</a> as a case study. We incorporate the latest advancements in consensus mechanisms, slashing conditions, and the aggregation process found in ETH2.0.</p>



<h2 class="wp-block-heading">1. The Essence of Slashing</h2>



<p><strong>In PoS, slashing deters malicious actions.</strong> Validators, by staking cryptocurrency, risk losing these stakes under slashing conditions. Ethereum 2.0&#8217;s <a href="https://eips.ethereum.org/EIPS/eip-3074">EIP-3074</a>, as an example, underscores validator accountability:</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1800" height="214" src="https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_1800x214_2a943d4198.png" alt="" class="wp-image-13142" srcset="https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_1800x214_2a943d4198.png 1800w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_360x43_622ad741f5.png 360w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_80x10_f8c9e1bd5a.png 80w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_768x91_d60daf2fcc.png 768w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_1536x182_e7a0032aab.png 1536w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_23_42_5e565c8107.png 1920w" sizes="(max-width: 1800px) 100vw, 1800px" /></figure>



<h3 class="wp-block-heading">1.1 Sharding in Ethereum 2.0 and Implications for Slashing</h3>



<p>Ethereum&#8217;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. <strong>Sharding divides the Ethereum network into multiple smaller chains</strong>, called shards, each capable of processing its transactions and smart contracts:</p>



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/k1zvUSwyO0JTXKpIhtI5B8cIw5uxeEE8pbHmwFB4PSj_fByLa030tgJMrFeGD8UTj6ynP0x7zMgQZYmjWNtNt9L84GTFk1jyNxjHa2e78rPKnfXi_9KdxH2rW_YOFLSG3FdjchsL0dI0Da01YLaseeI" alt=""/></figure>



<p><em><strong>Figure 1:</strong>&nbsp; ETH2&#8217;s sharding mechanism, visualised.</em></p>



<p>However, <strong>with sharding, slashing conditions became more intricate</strong>. 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.&nbsp;</p>



<p>Validators might confirm a transaction on one shard, dependent on another shard&#8217;s transaction. If the latter transaction is found to be invalid, it could lead to complications, and<strong> the validator might be slashed for endorsing an invalid cross-shard transaction</strong>.</p>



<h2 class="wp-block-heading">2. Common Slashing Conditions and Aggregation Challenges</h2>



<p>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:</p>



<ul>
<li><strong>Double Attestation:</strong> 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&#8217;s integrity.</li>



<li><strong>Surround Vote:</strong> A more complex condition where a validator&#8217;s vote surrounds or is surrounded by previous votes.</li>
</ul>



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/rYuMAL7dn0pvku2ZF6yqIekV6xorNFSRSU3cpwlyBzlW080cFl31Tq7FMkeyhXkJLA8anHZxFqT0PThj48IWMDqfasOhl3JVnE-4iJOnYF_c3t8FWREigushiBtJ8H2kS0etP9bxaDrTQlah9IO-PSg" alt=""/></figure>



<p><em><strong>Figure 2:</strong> On-chain representation of an aggregate attestation format.</em></p>



<h3 class="wp-block-heading">2.1 Consensus Achievement and Aggregation in Ethereum 2.0</h3>



<p>To comprehend slashing, one must understand <strong>how consensus is achieved in Ethereum 2.0:</strong></p>



<ol>
<li>Validators broadcast their votes on the chain&#8217;s state.</li>



<li>These votes are aggregated and passed to the block producer for inclusion.</li>



<li>Votes have components like the target slot, committee index, source checkpoint, and target checkpoint.</li>



<li>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&#8217;s <strong>state finalisation.</strong></li>
</ol>



<h3 class="wp-block-heading">2.2 Slashing Rules in Detail:</h3>



<ul>
<li><strong>Double Vote:</strong> 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.
<ul>
<li>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&#8217;s security and trustworthiness.</li>
</ul>
</li>



<li><strong>Surround Vote:</strong> This condition is a bit more complex than the Double Vote. A surround vote occurs when a validator&#8217;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 <strong>a validator is trying to attest to multiple, conflicting versions of the blockchain&#8217;s history.</strong>

<ul>

<li>The Ethereum community has been actively researching this condition, given its intricacy and the potential challenges it poses for the network&#8217;s stability.</li>

</ul>

</li>
</ul>



<h3 class="wp-block-heading">2.3 Aggregation Efficiency</h3>



<p>During Ethereum 2.0&#8217;s development, particularly in its testing phases, <a href="https://www.coinbase.com/cloud/discover/dev-foundations/eth2-insights-slashings" target="_blank" rel="noreferrer noopener">challenges related to aggregation efficiency were observed.</a> 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 &#8220;singles&#8221; 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.</p>



<p>To address this, Ethereum 2.0 introduced the concept of &#8220;<a href="https://www.coinbase.com/cloud/discover/dev-foundations/eth2-insights-aggregation-performance" target="_blank" rel="noreferrer noopener">aggregators</a>.&#8221; 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.&nbsp;</p>



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



<h2 class="wp-block-heading">3. Technical Insights into Slasher and Gasper</h2>



<p><a href="https://blog.ethereum.org/2014/01/15/slasher-a-punitive-proof-of-stake-algorithm" target="_blank" rel="noreferrer noopener">Buterin&#8217;s Slasher algorithm</a> addresses the &#8220;nothing at stake&#8221; problem in PoS. Gasper, a consensus mechanism, ensures block finalisation. The &#8220;nothing at stake&#8221; problem addressed by Buterin&#8217;s Slasher algorithm remains relevant, especially with the increasing value and volume of staked assets.</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1800" height="300" src="https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_1800x300_f05d8bcac7.png" alt="" class="wp-image-13144" srcset="https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_1800x300_f05d8bcac7.png 1800w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_360x60_fa4b3b1aa8.png 360w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_80x13_f9d48295ab.png 80w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_768x128_41bb873616.png 768w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_1536x256_474c08dd34.png 1536w, https://tidy-ball-c49dc59f59.media.strapiapp.com/Screenshot_2023_08_24_at_15_24_04_2_fc486ca156.png 1920w" sizes="(max-width: 1800px) 100vw, 1800px" /></figure>



<p><strong><em>Innovative Insight: </em></strong><em>Modern consensus mechanisms, like </em><a href="https://tendermint.com/" target="_blank" rel="noreferrer noopener"><em>Tendermint</em></a><em>, offer instant finality, reducing the need for complex slashing conditions related to fork resolution.</em></p>



<h2 class="wp-block-heading">4. Decentralised Cryptocurrency Protocols Without PoW</h2>



<p>Transitioning from PoW to PoS offers environmental and security benefits. <a href="https://medium.com/coinmonks/formally-verifying-finality-in-gasper-the-core-of-the-beacon-chain-86e0ee40ad49" target="_blank" rel="noreferrer noopener">Gasper&#8217;s formal verification techniques</a> highlight the significance of mathematical rigour in blockchain protocols. The Proof-of-Stake market cap has grown to approximately <a href="https://www.stakingrewards.com/" target="_blank" rel="noreferrer noopener">$330 billion</a>, further highlighting the shift away from energy-intensive PoW mechanisms.</p>



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



<h2 class="wp-block-heading">5. Implications of Slashing</h2>



<ul>
<li><strong>Validator Deterrence:</strong> Harsh slashing conditions might deter potential validators.</li>



<li><strong>Network Centralization: </strong>High risks might push smaller validators to larger staking pools.</li>



<li><strong>Economic Impacts: </strong>Major slashing events can cause market volatility.</li>
</ul>



<p></p>



<h2 class="wp-block-heading">6. Innovations in Slashing Mechanisms</h2>



<ul>
<li><strong>Adaptive Slashing: </strong>Slashing severity depends on the number of malicious validators.</li>



<li><strong>Partial Slashing:</strong> Only part of the staked value is slashed.</li>



<li><strong>Insurance and Hedging: </strong>Validators can hedge against slashing.</li>
</ul>



<p><strong><em>Innovative Insight: </em></strong><em>With the rise of DeFi, slashing conditions might also incorporate DeFi protocols&#8217; health. Validators might be penalised for endorsing faulty DeFi platforms.</em></p>



<h2 class="wp-block-heading">7. Qualitative Features in Slashing</h2>



<ul>
<li><strong>Self-custody: </strong>Validators holding their private keys reduce risks.</li>



<li><strong>Audited Smart Contracts:</strong> Audits ensure staking security.</li>



<li><strong>Slashing Insurance: </strong>Insurance products shield validators from slashing.</li>
</ul>



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



<h2 class="wp-block-heading">8. Key Indicators in Slashing Mechanisms</h2>



<ul>
<li><strong>Validator Effectiveness:</strong> Indicates a validator&#8217;s profitability and performance.</li>



<li><strong>Validator&#8217;s Key Management:</strong> Efficient key management safeguards against various threats.</li>



<li><strong>Client Diversity:</strong> Multiple Ethereum clients enhance security.</li>
</ul>



<h2 class="wp-block-heading">9. Conclusion</h2>



<p>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&#8217;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&#8217;s crucial for stakeholders to stay updated and adapt to these evolving conditions to ensure network security and integrity.</p>



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



<h2 class="wp-block-heading">Resources</h2>



<ol>
<li><a href="https://www.stakingrewards.com/" target="_blank" rel="noreferrer noopener">Staking Rewards</a></li>



<li><a href="https://www.stakingrewards.com/journal/how-to-set-up-reliable-staking-node/" target="_blank" rel="noreferrer noopener">How to Set Up a Reliable Staking Node</a></li>



<li><a href="https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/rewards-and-penalties/" target="_blank" rel="noreferrer noopener">Rewards and Penalties in Ethereum&#8217;s PoS</a></li>



<li><a href="https://benjaminion.xyz/eth2-annotated-spec/phase0/beacon-chain/" target="_blank" rel="noreferrer noopener">The Beacon Chain Ethereum 2.0 explainer you need to read first</a></li>



<li><a href="https://medium.com/prysmatic-labs/eth2-slashing-prevention-tips-f6faa5025f50" target="_blank" rel="noreferrer noopener">Eth2 Slashing Prevention Tips</a></li>



<li><a href="https://arxiv.org/pdf/1903.04205.pdf" target="_blank" rel="noreferrer noopener">Decentralized Slashing for Proof-of-Stake</a></li>



<li><a href="https://medium.com/coinmonks/formally-verifying-finality-in-gasper-the-core-of-the-beacon-chain-86e0ee40ad49" target="_blank" rel="noreferrer noopener">Formally Verifying Finality in Gasper: The Core of the Beacon Chain</a></li>



<li><a href="https://arxiv.org/pdf/2003.03052.pdf" target="_blank" rel="noreferrer noopener">Gasper: A Proof-of-Stake-Based Consensus Protocol</a></li>



<li><a href="https://arxiv.org/pdf/1710.09437.pdf" target="_blank" rel="noreferrer noopener">Casper the Friendly Finality Gadget</a></li>



<li><a href="https://tendermint.com/" target="_blank" rel="noreferrer noopener">Tendermint</a></li>
</ol>



<p><a href="https://github.com/ethereum/consensus-specs/blob/dev/specs/phase0/beacon-chain.md#slash_validator" target="_blank" rel="noreferrer noopener">consensus-specs/specs/phase0/beacon-chain.md at dev</a></p>



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/-MUVYa6rs8lHyI8aizclf09Kuwm88--O1LRCMQSuOoqgZ3gAPwB765yMCzUUQJ6nMCCn2vZQsgDwW75TSevZR9aTrlmvXgQvJ4asM-8zqUnxn4sa8zGOxp6kxM__xCnpfueoPu3FpdPbwcOONWUzcXI" alt=""/></figure>



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/CqLn9LEAm2qGI43eRuSMtcCfgDgmqm8lgA9X9y5r6fC5O7XZ78urQdSKciUaAwM9hiEc1SKQSBn7-K1KLLfPoZKxu8_fOkvGJQikicbjGw7qUlq7VpQFm7xSbt0WlQ6-iY7UCh0Qkum4KJtsLnd4qNY" alt=""/></figure>


Exploring Slashing Conditions: Ensuring Honesty in Blockchain Validators