What is Slashing in Crypto?

The unique offering of blockchain is that it provides an autonomous system for managing value. Despite blockchain being decentralized, and having no central managing entity or middleman, this value remains completely secure. It does so, thanks to the internal rules of the blockchain, otherwise known as its consensus mechanism.

To simplify, consensus mechanisms ensure that malicious, damaging or fraudulent behavior within a blockchain system is either impossible or simply “not worth it”. Slashing is a prime example of this dynamic in action.

Slashing is a central security element of the proof-of-stake consensus mechanism. So, how does it deter bad behavior and enable blockchains to remain efficient, autonomous and secure?

Before that, let’s attack the basics.

What Is Crypto Slashing?

Slashing is part of a proof-of-stake consensus mechanism’s method of punishing validators with bad intentions. But that’s on a basic level, so let’s explore how that works.

How Does Crypto Slashing Work?

Consensus Mechanisms: How Blockchains Stay Secure

A consensus mechanism is a system of rules underpinning a given blockchain, determining how it functions. It governs the rules of how that blockchain operates, how users can interact with it, and how to prevent manipulations of the network – an outcome that would be catastrophic to the whole blockchain. Normally, this is possible by ensuring network nodes have “skin in the game”. Doing this means that in order to achieve the best outcome personally. Network nodes must also act in the interests of the network, aligning their incentives.

The concept of aligned incentives is incredibly powerful, and central to keeping blockchains secure.

So let’s look now at where slashing fits within this logic.

How Validators Work on a Proof-of-Stake Blockchain

In a proof-of-stake blockchain, “validator nodes” are active participants who keep the network running. These nodes keep records of the network’s transaction history and determine consensus on new blocks of transactions. In return for their efforts, time, and computing power, the validators receive rewards from the network – this is their incentive.

But there’s another side too. In order to be sufficiently reliable (after all, a blockchain is supposed to handle huge amounts of value, meaning a security glitch would be catastrophic) it must not only incentivize good behavior but also actively deter bad behavior. This is where slashing comes into play.

Validators Put Up Collateral To Prove Their Loyalty

In many proof-of-stake networks, validator nodes must “buy in” to their position by initially locking up a significant amount of their own coins on the blockchain. This is known as crypto staking. The logic behind this is simple: with a personal investment in the blockchain, the consensus mechanism of that blockchain can deter bad or inefficient behavior via a punishment. And this is slashing.

Slashing Punishes Crypto Validators That Cheat The System

Having made a personal investment in the network in order to start participating, validator nodes in proof-of-stake-based blockchains face the threat of a deduction in coins (slashing) for conduct detrimental to the blockchain.

The specifics of slashing are different from one protocol to another. By and large, slashing it tends to punish a couple of key behaviors:

Downtime

Downtime is when a validator node is offline for any period of time. Therefore not available to take part in the consensus process for the network. This lack of reliability is detrimental to the network’s functioning, which is why it’s typically a slashable offense.

Double-Signing

In order to avoid downtime, many validator nodes set up backup rigs in case anything goes wrong with their principal equipment. But this carries a slashing risk of its own: if the network detects the same validator keys running from two different servers, it can determine this as a risk (since this behavior deviates from what it expected, and might even result in conflicting information from the node). As such, this is also an offense likely to be punished by slashing.

Manipulating the Network

And finally, any perceived attempt to manipulate the process of reaching consensus – such as signing two different blocks for the same slot – will also face a slashing penalty.

The bottom line is that, beyond simply taking an active hand in consensus, validators within proof-of-stake protocols must actively avoid any bad behaviors that undermine or delay the network’s consensus process. Understanding the specifics of this mechanism is absolutely essential for anyone hoping to act as a validator node.

Beyond Crypto Slashing

Blockchain is a relatively new technology and it is, without doubt, redefining the limits of what we can do with our value. But at its heart, the logic it uses to secure itself is nothing new: the concept of incentives and punishments is as old as human consciousness. If you are interested in getting involved with blockchain, or just want to know a little more about why it’s such a revolutionary force, understanding those dynamics is a great starting point.

Enjoyed your reading? Check out this article all about staking to learn more about the mechanics of proof-of-stake.

Knowledge is Power.