Peer Review Staking

A validator's influence is proportional to their stake. This economic commitment aligns incentives with network security. Key aspects include:

• Voting Power: Determined by the size of the staked deposit.
• Sybil Resistance: Makes it economically prohibitive to create many fake identities.
• Example: In many Proof-of-Stake networks, a validator with 1% of the total stake controls approximately 1% of the block production weight.

A cryptoeconomic penalty system that automatically confiscates a portion of a validator's stake for provably malicious or negligent behavior. Common slashing conditions include:

• Double Signing: Attesting to two conflicting blocks.
• Downtime: Being offline and failing to perform validation duties.
• Data Unavailability: Withholding transaction data in modular architectures. This disincentive is fundamental to enforcing honest participation.

Validators produce attestations—cryptographically signed votes on the validity and ordering of blocks. The aggregation of these votes leads to finality.

• Graded Finality: Systems may have probabilistic finality (e.g., Nakamoto Consensus) or absolute finality (e.g., Tendermint BFT).
• Finality Gadgets: Protocols like Casper FFG use a two-phase voting process to finalize checkpoints on top of a base chain.

The process of determining which stakers are active validators in a given epoch or slot. Methods include:

• Top-N by Stake: The entities with the largest stakes are selected.
• Randomized Selection: A verifiable random function (VRF) chooses validators, often weighted by stake.
• Committee-Based: Large validator sets are partitioned into smaller, randomly assigned committees for scalability (e.g., in sharded designs).

Validators earn rewards for honest participation, typically issued as new token issuance (block rewards) and/or transaction fees. Key dynamics:

• Inflation Rate: The protocol may define a target staking yield, adjusting issuance to incentivize a desired level of stake.
• Fee Distribution: Priority fees (tips) can be distributed to proposers, with a portion potentially burned (EIP-1559).
• Example: Ethereum's issuance is dynamically adjusted based on the total amount of ETH staked.

A system allowing token holders (delegators) to delegate their stake to a professional validator (operator) without transferring custody. This enables broader participation.

• Staking Pools: Operators run the node infrastructure; delegators share in rewards, minus a commission fee.
• Liquid Staking: Delegators receive a liquid staking token (LST) representing their staked position, which can be used in DeFi.
• Risk: Delegators are typically subject to the slashing penalties incurred by their chosen operator.

Slashing is the punitive mechanism that penalizes malicious or negligent validators by destroying a portion of their staked assets. Common conditions include:

• Double signing: Proposing or attesting to multiple, conflicting blocks.
• Downtime: Failing to perform validation duties (e.g., being offline).
• Censorship: Deliberately excluding valid transactions from blocks. This creates a direct financial disincentive for attacks, making them economically irrational.

Peer review staking provides Sybil resistance by tying voting power or influence to a scarce economic resource (staked tokens) rather than network identities. This prevents an attacker from cheaply creating many pseudonymous identities (Sybils) to gain disproportionate control. The high cost of acquiring and staking sufficient tokens to attack the network acts as a fundamental economic barrier, ensuring that consensus power is expensive to amass maliciously.

The Nothing at Stake problem occurs in Proof-of-Stake systems where validators can vote on multiple blockchain histories (forks) without cost, potentially preventing consensus. Peer review staking solves this by implementing slashing for equivocation (e.g., double voting). Since validators have significant assets at stake, they are financially incentivized to converge on a single canonical chain, as supporting multiple forks would lead to guaranteed penalties.

A long-range attack involves rewriting blockchain history from a point far in the past. In pure Proof-of-Stake, an attacker who once held a majority of stake could theoretically create an alternate chain. Defenses in peer review staking systems include:

• Checkpointing: Periodically finalizing blocks that cannot be reverted.
• Weak subjectivity: New nodes sync from recent, socially-verified "weak subjectivity checkpoints."
• Stake aging mechanisms that reduce the power of old, potentially compromised validator keys.

Unlike probabilistic finality in Proof-of-Work, many peer review staking systems achieve economic finality. Once a block is finalized through a multi-round voting process, reverting it would require attackers to destroy a large, predefined amount of staked value through slashing. This makes chain reorganizations economically prohibitive, not just computationally difficult. The cost to attack is quantifiable and directly tied to the total value staked securing the network.

While staking decentralizes control, risks of validator centralization persist and can undermine security:

• Pool Dominance: A few large staking pools or exchanges may control a majority of stake.
• Infrastructure Centralization: Validators relying on the same cloud providers or client software.
• Wealth Concentration: The rich-get-richer effect from staking rewards. Protocols mitigate this with inactivity leaks to penalize cartels, decentralized client teams, and by limiting the influence of individual validators.