What Is Crypto Slashing?
Reading Time: 3 minutesCrypto slashing keeps validators in check. But how does it work?
The proof-of-stake consensus mechanism is used to validate transactions and generate new coins. The process requires a group of validators to be given token rewards for successful validations.
However, sometimes these validators may intentionally or unintentionally engage in activities that may harm the proper functioning of the blockchain—this is where the process of ‘slashing’ comes in. Crypto slashing keeps validators in check and ensures that the network’s validation processes continue to function properly.
For this reason, we’ll delve into slashing and its causes to let you know how to avoid it.
What Is Cryptocurrency Slashing?
The term ‘crypto slashing’ is commonly used to describe the process of disciplining or penalizing validators who break the crypto staking rule. The primary objective of slashing is to promote appropriate behavior, adherence to protocols, consistent availability, and accountability. It incentivizes participants in a blockchain network to act honestly and curb malicious behavior.
How Does It Work?
Slashing is a mechanism that is implemented to maintain the integrity of the blockchain network by penalizing participants who engage in fraudulent or malicious actions. It involves taking away a portion of a validator’s stake when they violate the network’s rules.
A validator is a key network participant who makes money by verifying transactions and creating new blocks in the blockchain. To participate, validators must stake a certain amount of the network’s cryptocurrency; this amount serves as collateral and incentivizes them to act honestly. If a validator engages in malicious behavior, such as double-spending or failing to validate transactions, they can lose a portion of their funds through slashing.
The execution of crypto slashing varies among different protocols, but the common principle remains the same i.e., a predefined percentage is deducted from the validator’s stake for every instance of negligence. In severe cases, the entire account may be slashed, resulting in the removal of the validator from the staking community.
Let’s take how slashing occurs on the Polkadot blockchain as an example. When any validator misbehaves by attacking the network, going offline, or running counterfeit software. Any slashed DOT won’t be burned or distributed as a reward; rather, it will be added to the Treasury. This is to make it easy to revert the slashed amount in the case of faulty slashes.
However, if the slashing is legitimate, the token will be distributed to those building the ecosystem. Validators backed by a large stake will be slashed more harshly than those with lesser stakes backing them.
In addition, the Polkadot block production mechanism does not slash until the number of offline validators in an active set is up to 10%. If that happens, then 0.02% of their stakes will be slashed. Slashing can be as much as 7% on more severe occasions.
The 2 Main Causes of Crypto Slashing
Below are the two main causes of crypto slashing:
Downtime
Validators are expected to be online and participate in the network continuously. If a validator’s node is offline for an extended period, it can cause delays in block production and decrease the network’s overall security. Validators can be slashed for prolonged periods of downtime. This period of absence differs from one protocol to another.
Double Signing
Double signing is more severe than downtime and incurs greater punishment. Double signing occurs when a validator signs two blocks simultaneously, intentionally or accidentally. This offense can be a result of validators running the backup and primary nodes at the same time to prevent downtime. However, an unexpected error may lead to double signing while trying to avoid downtime.
Double signing is handled differently by different blockchain protocols. For instance, CELO penalizes validators caught double signing by slashing up to 9000 CELO from their stakes, suppressing their future rewards, and ultimately ejecting them from the current group.
Every Protocol Has Its Own Slashing Rule
If you are interested in being a validator, you need to understand what slashing is and what the slashing penalties are for the protocol you are involved in. Understanding how slashing works and how it is interpreted in your preferred protocol can help you avoid being caught in a slashable offense.
Reference: https://www.makeuseof.com/what-is-crypto-slashing/
Ref: makeuseof
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