As proof-of-stake (PoS) networks fix in an attempt to compete with proof-of-work (PoW) blockchains, significant attention has been placed on their validator mechanisms and incentive structures for maintaining valid consensus.
In particular, ethereum has been brewing the event milestones for its transition to PoS consensus as a part of its ‘Serenity’ upgrade for several years.
Binance recently released the small print of its upcoming ‘decentralized’ exchange which can depend on 11 validator nodes – all controlled by Binance – for confirming transactions on the exchange. the corporate has since come under attack for even calling their exchange decentralized and has gone on the defensive.
Interchain projects like Cosmos and Polkadot are gaining traction among proponents of interoperability and fast-finality consensus blockchains using Tendermint BFT and DPoS consensus models, respectively. And Cosmos is preparing for the launch of its mainnet Cosmos Hub soon. While PoS cryptocurrency networks offer better energy efficiency and faster finality than PoW, they need yet to be proven at scale and are available with myriad concerns in various attack vectors and misaligned incentives.
Further, though most interchain blockchain projects specialise in using validators for his or her network consensus, others have maintained the stress on using PoW via nuanced approaches. Block Collider uses an optimized version of Nakamoto Consensus for an interoperable chain of several blockchains without the necessity to vary its security model thereto of PoS or using validating nodes.
PoW is that the battle-tested and sustainable consensus algorithm that bitcoin launched a whole industry with, so it’s necessary to assess a number of the potential quandaries with the rapid onset of PoS cryptocurrency networks.
The myriad sorts of validating
Networks that deploy validator mechanisms in their consensus use a spread of names – from “hubs” to “masternodes.” However, all of them employ similar design models where validators guarantee the valid state of the network by “validating” or “producing” blocks in frequencies that correlate to their stake of the native token within the network.
Validators replace the role of miners during a PoW blockchain network and are incentivized to act honestly within the system because their stake is locked into the network while they perform their task. they’re rewarded within the native token of the network for authentic validating efforts, and their stakes are slashed if they act maliciously.
If you’re trying to find a deep dive into the mechanics of PoS validating systems, Vitalik Buterin provides clarification on ethereum’s CBC Casper (PoS) mechanism and an initial design philosophy for PoS. Similarly, Cosmos provides some useful developer documentation for a way their interchain validating works.
PoS mechanisms are exceptionally complex because they require advanced game theoretic approaches and their immutability is subjectively interpreted. The source of the validation of the blockchain ledger derives from validator assurances of its integrity, instead of energy expended via mining where the cardinal attack vector is energy itself instead of human interpretation — a perfect social scalability construct for minimizing trust.
Additionally, many interchain frameworks require compatibility of blockchains that are plugging into the network. as an example , Cosmos requires subchains that use fast-finality consensus, precluding the power of PoW blockchains to attach to the network.
Properly analyzing a number of the pitfalls of validator networks requires that specialize in two primary areas:
The leading concern of validator networks is their trade-off of scalability for security.
Cost savings via PoS networks and quicker finality that help the network scale come at an equal cost in long-term network integrity, which is one among the elemental value propositions of blockchains.
The misaligned incentives of validator networks often directly correspond to the attack vectors that need complicated engineering around to avoid. Two of the long-standing issues with validator consensus are the attack vectors of Long-Range Attacks and Sour Milk Attacks.
Long-Range Attacks (LRA)
An LRA is where a malicious party could purchase the private key of a sizeable token balance that was utilized in validating within the past. The party could then wield this balance to get an alternate history of the blockchain from when the private key held the balance, effectively enabling them to award themselves increasing rewards supported the PoS validation.
The proposed solution to the present problem is checkpointing, but checkpointing the state of the chain requires nodes continually be online and has been criticized as a posh and centralized solution. Moreover, LRAs demonstrate that within the long-run, PoS validator networks fail to ensure the validity of the ledger – particularly in past states of the blockchain.
The result’s that validator networks aren’t creating a permanent, immutable ledger with their consensus, but rather only a “temporary consensus” within a given context of your time .
Sour Milk Attacks
A sour milk attack is where base validators push their peers to doubt honest peers by publishing genuine and fraudulent blocks to peers concurrently. At an equivalent time, these base nodes coordinate with other malicious peers to try to to an equivalent , muddling the power of honest peers to discern between valid and invalid blocks.
The requirements for conducting these attacks are concerningly low, as only a fraction of the network validators can effectively freeze the network, create forks and lock the consensus.
Other attack vectors
Some other prominent attack vectors for PoS validating networks include the “Fake Stake attack,” stake grinding and DDOS attacks against validators that are required to stay online — forcing them to lose money.
In particular, the fake stake attack reveals that PoS validating isn’t as efficient at scaling as perceived, thanks to the upper costs of checking PoS blockchains compared to PoW blockchains. The attack vector was recently disclosed and would enable attackers with minimal stakes to crash nodes running the network’s software.
One of the most concerns with validator networks is their potential for supplementing the wealth of the “crypto 1 percent” where only validators with significant stakes will reap the rewards of staking. With the wealthiest stakeholders ready to control a sizeable portion of the general supply, the motivation for average stakeholders to participate in validating is diminished.
Reduced incentives are inextricably linked to at least one of the foremost cited and high-profile pitfalls of validator networks — the low participation in staking by users. The downstream effects of low participation are network centralization, front-running trades with price cartels, and lots of more adverse consequences.
The game theory complexity of validator networks is additionally often criticized. To the hammers — engineers in theory of games and incentive structures — everything in PoS consensus design seems like a nail. As such, the model becomes exceptionally convoluted and like engineering new solutions to problems that old solutions collaterally produced.
Further, misaligned incentives draw from the sheer complexity of such systems. especially , the “Nothing at Stake Problem” is one among the foremost concerns of PoS validator networks. The Nothing at Stake problem may be a well-documented issue in validator PoS networks where PoS consensus cannot adequately solve the matter of two blocks being produced at similar times.
PoW solves this via a randomized mechanism involving the foremost worked chain of energy expenditure. However, PoS passes this burden onto the validators, resulting in one block potentially having more stake than the opposite . the matter materializes when validators realize that staking on two competing chains is advantageous to them. By using their stake on both chains, it becomes challenging to discern which chain is that the valid chain.
Criticisms of proposed solutions to the Nothing at Stake problem again highlight the layers of abstraction needed to obfuscate the elemental issue of staking without actually addressing the matter itself – resulting in even more design convolution.
As networks that depend on validators still garner support among next-generation blockchain platforms, it’s prudent to put the new consensus designs into the context of practicality. PoW is that the only proven distributed consensus for blockchain networks. Only time will tell if PoS validators prove sustainable models for scalable blockchains, and being conscious of their shortcomings is that the optimal approach during a sea of blockchain innovation.