Fraud Proof

November 21, 2023 - Around 3 mins mins to read

Understanding Fraud Proof

The concept of “fraud” refers to any wrongful behavior aimed at gaining an illegal advantage by depriving someone of their rights. Examples of fraud include tax fraud, credit card fraud, wire fraud, and similar activities. Fraud can be carried out by individuals, groups, or companies.

In the world of blockchain, fraud proofs are a technical method that plays a crucial role in enabling on-chain scalability of blockchains, such as through sharding or larger blocks. The goal of fraud proofs is to ensure the availability and accuracy of on-chain data. Optimistic Rollups (ORs) are used in fraud proofs to reduce costs and lower latency levels for decentralized applications on a blockchain network.

To incentivize good performance, a sequencer responsible for processing ORs must provide a fraud-proof along with their work. Sequencers are financially compensated for executing rollups according to the consensus rules. If they violate these rules, they face monetary penalties and forfeit their fraud proof.

While state transition fraud proofs are effective, they rely on the assumption that all block data is accessible. If a miner only publishes the block header without the correct contents, it becomes impossible to determine the correctness of a block.

Even if 99% of the data is accessible, the remaining 1% may be necessary to establish the validity of a block. Complete data availability is crucial for block validation because data may be inaccessible for various reasons, not just due to malevolent nodes. Ensuring data availability is the appropriate solution to prevent a rogue node from causing data unavailability.

The scalability of public blockchains depends on the utilization of fraud proofs and erasure codes. These enable lightweight nodes to independently decide which blocks to reject without relying on a majority of trustworthy full-nodes.

Even if brief zero-knowledge proofs could be used to verify correctness, the problem of an intruder/scammer publicizing inaccessible blocks and having them included in the chain still persists. This prevents other validators from fully computing the state or creating blocks that interact with the part of the state that is no longer available.

Fraud proofs are used to demonstrate when a state transition has been executed incorrectly. The main advantage of fraud proofs is that they are not required for every state transition, but only when something goes wrong. This reduces the computing resources needed and makes them more suitable for scalability-constrained environments. However, the interaction between these protocols is their main drawback, as it requires a “dialogue” among multiple participants. This dialogue/interaction/communication relies on the presence of the involved parties, particularly the party alleging fraud, and allows other parties to disrupt the conversation in various ways.