As proof-of-stake (PoS) networks gear up in an effort to compete with proof-of-work (PoW) blockchains, considerable attention has been placed on their validator mechanisms and incentive structures for preserving valid agreement. In specific, ethereum has been brewing the development milestones for its shift to PoS agreement as part of its ‘Serenity’ upgrade for numerous years.
Binance just recently released the information of its upcoming ‘decentralized’ exchange which will trust 11 validator nodes, all controlled by Binance, for verifying transactions on the exchange. The company has actually come under fire for even calling their exchange decentralized and has really gone on the defensive.
Interchain projects like Cosmos and Polkadot are getting traction among supporters of interoperability and fast-finality consensus blockchains utilizing Tendermint BFT and DPoS agreement designs, respectively. And Cosmos is preparing for the launch of its mainnet Cosmos Hub quickly. While PoS cryptocurrency networks offer better energy performance and faster finality than PoW, they have yet to be shown at scale and feature myriad issues in numerous attack vectors and misaligned incentives.
Further, though many interchain blockchain projects focus on utilizing validators for their network consensus, others have maintained the focus on utilizing PoW by means of nuanced techniques. Block Collider uses an optimized version of Nakamoto Consensus for an interoperable chain of numerous blockchains without the requirement to alter its security design to that of PoS or using validating nodes. PoW is the battle-tested and sustainable agreement algorithm that bitcoin launched a whole market with, so it is necessary to assess a few of the prospective quandaries with the rapid rise of PoS cryptocurrency networks.
The Myriad Forms Of Validating
Networks that release validator systems in their consensus utilize a range of names, from “hubs” to “masternodes”. Nevertheless, they all use comparable style models where validators guarantee the legitimate state of the network by “validating” or “producing” blocks in frequencies that correlate to their stake of the native token in the network.
Validators change the function of miners in a PoW blockchain network and are incentivized to act truthfully within the system because their stake is locked into the network while they perform their job. They are rewarded in the native token of the network for authentic verifying efforts, and their stakes are cut if they act maliciously.
If you’re looking for a deep dive into the mechanics of PoS confirming systems, Vitalik Buterin supplies information on ethereum’s CBC Casper (PoS) system and a preliminary style approach for PoS. Likewise, Cosmos supplies some helpful developer documents for how their interchain verifying works.
PoS systems are incredibly complex because they need sophisticated game logical techniques and their immutability is subjectively translated. The source of the recognition of the blockchain ledger originates from validator assurances of its stability, rather than the energy used up through mining where the primary attack vector is energy itself instead of human interpretation, a perfect social scalability construct for minimizing trust.
Additionally, numerous interchain structures need compatibility of blockchains that are plugging into the network. For instance, Cosmos needs subchains that use fast-finality consensus, precluding the capability of PoW blockchains to connect to the network. Correctly examining some of the pitfalls of validator networks needs to concentrate on two main areas:
Attacks Vectors Misaligned incentives
The leading concern of validator networks is their compromise of scalability for security. Expense cost savings through PoS networks and quicker finality that assists the network scale, come at an equivalent cost in long-lasting network stability, which is one of the basic value propositions of blockchains.
The misaligned incentives of validator networks typically correspond to the attack vectors that require complex engineering around to prevent. Two of the long-standing concerns with validator agreement are the attack vectors of Long-Range Attacks and Sour Milk Attacks.
Long-Range Attacks (LRA)
An LRA is where a malicious party could acquire the personal key of a large token balance that was used in confirming in the past. The party might then wield this balance to create an alternative history of the blockchain from when the private key held the balance, successfully allowing them to award themselves increasing rewards based upon the PoS validation.
The proposed aid to this problem is checkpointing, but checkpointing the state of the chain needs nodes constantly be online and has been slammed as a complex and central service. Moreover, LRAs show that in the long-run, PoS validator networks fail to guarantee the credibility of the ledger, particularly in past states of the blockchain. The outcome is that validator networks are not creating a permanent, immutable ledger with their agreement, but rather only a “momentary consensus” within a given context of time.
Sour Milk Attacks
A sour milk attack is where base validators push their peers to question truthful peers by releasing authentic and fraudulent blocks to peers concurrently. At the exact same time, these base nodes coordinate with other harmful peers to do the exact same, muddling the ability of truthful peers to determine between legitimate and void blocks. The requirements for performing these attacks are concerningly low, as just a fraction of the network validators can effectively freeze the network, develop forks and lock the consensus.
Other Attack Vectors
Some other popular attack vectors for PoS validating networks consist of the “Fake Stake attack,” stake grinding and DDOS attacks against validators that are required to remain online, requiring them to lose money.
In specifics, the fake stake attack exposes that PoS verifying is not as effective at scaling as viewed, due to the greater expenses of checking PoS blockchains compared to PoW blockchains. The attack vector was recently revealed and would make it possible for attackers with very little stakes to crash nodes running the network’s software application.
Among the main concerns with validator networks is their capacity for supplementing the wealth of the “crypto 1%” where only validators with substantial stakes will enjoy the rewards of staking. With the wealthiest stakeholders able to manage a considerable portion of the total supply, the reward for average stakeholders to take part in validating is reduced.
Reduced rewards are inextricably linked to one of the most cited and high-profile risks of validator networks, the low participation in staking by users. The downstream results of low participation are network centralization, front-running trades with price cartels, and many more adverse repercussions.
The game theory intricacy of validator networks is likewise frequently criticized. To the hammers– engineers in game theory and reward structures, whatever in PoS consensus style looks like a nail. As such, the design ends up being remarkably convoluted and comparable to crafting new solutions to issues that old solutions collaterally produced.
Even more, misaligned rewards draw from the large intricacy of such systems. In specific, the “Nothing at Stake Problem” is one of the primary issues of PoS validator networks. The Nothing at Stake problem is a well-documented concern in validator PoS networks where PoS agreement can not properly fix the issue of two blocks being produced at comparable times.
PoW solves this by means of a randomized mechanism involving the most worked chain of energy expense. Nevertheless, PoS passes this burden onto the validators, causing one block possibly having more stake than the other. The problem emerges when validators understand that staking on two completing chains is advantageous to them. By using their stake on both chains, it ends up being difficult to discern which chain is the valid chain.
Criticisms of proposed solutions to the Nothing at Stake problem once again highlight the layers of abstraction required to obfuscate the essential concern of staking without in fact addressing the issue itself, leading to a lot more design convolution.
As networks that trust validators continue to amass support among next-generation blockchain platforms, it is prudent to position the brand-new agreement designs into the context of practicality. PoW is the only proven distributed consensus for blockchain networks. Only time will apprise if PoS validators prove sustainable designs for scalable blockchains, and understanding their imperfections is the optimal method in a sea of blockchain development.
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