Fraud Proof

A fraud proof is a dispute resolution protocol that allows a single honest participant to prove that a proposed state transition on a blockchain (like an optimistic rollup) is incorrect. It operates on the principle of optimistic execution, where transactions are assumed valid unless proven otherwise. During a predefined challenge period, any network participant can submit a fraud proof to the underlying layer-1 blockchain (e.g., Ethereum) if they detect invalid data, such as a double-spend or an incorrect computation. This mechanism enables high scalability by moving computation off-chain while preserving the base layer's security guarantees.

The technical process involves two key parties: the proposer (or sequencer) who submits a batch of transactions and a new state root, and the verifier who challenges it. To construct a fraud proof, a verifier must have access to the transaction data and the pre-state. They execute the disputed transaction locally and provide cryptographic evidence—often a Merkle proof of specific state elements—to the L1 contract. The contract then verifies this proof on-chain. If the challenge is successful, the invalid state update is reverted, and the malicious proposer's staked bond is slashed as a penalty.

Fraud proofs are fundamental to the security model of optimistic rollups like Arbitrum and Optimism. Their effectiveness relies on the presence of at least one honest and vigilant participant, a model known as the honest minority assumption. Compared to validity proofs (used in ZK-rollups), which cryptographically prove correctness for every batch, fraud proofs are typically less computationally intensive to generate but introduce a mandatory withdrawal delay due to the challenge window. This creates a trade-off between finality time and operational cost, making fraud-proof systems well-suited for applications where ultra-fast finality is not the primary concern.

A fraud proof is a core component of optimistic rollups, which operate on the principle of "innocent until proven guilty." After a rollup's sequencer publishes a new state root to the main chain (e.g., Ethereum), there is a predefined challenge period (often 7 days). During this window, any network participant can scrutinize the state transition. If they detect fraudulent or incorrect data, they can construct and submit a fraud proof to the L1. This proof is a compact, verifiable argument that demonstrates the specific computational step where the rollup's proposed state is invalid.

The technical execution involves an interactive dispute game, often structured as a bisection protocol. The challenger and the sequencer (or its defenders) engage in a multi-round challenge-response, narrowing down the dispute to a single, simple instruction. This process, known as fault proof or interactive verification, minimizes the computational load on the L1. The final step requires the L1 to execute only that one disputed instruction to adjudicate the entire batch. This design makes fraud proofs highly gas-efficient compared to verifying every transaction.

For a fraud proof to be constructed, the data availability of the rollup's transaction data on the L1 is absolutely critical. A challenger must be able to reconstruct the pre-state, the transactions, and the claimed post-state to identify and prove the fraud. Systems like Ethereum's calldata or blob storage provide this guarantee. If data is withheld (data withholding attack), fraud proofs become impossible, allowing invalid state roots to be finalized. Hence, secure data availability layers are a prerequisite for fraud proof systems to function correctly.

The successful submission of a valid fraud proof has definitive consequences. The L1 smart contract, acting as the final arbiter, will slash the sequencer's staked bond and revert the fraudulent state transition. All funds and assets are rolled back to the last known correct state, protecting user assets. This economic security model ensures that it is financially irrational for a sequencer to attempt fraud, as the cost of the slashed bond outweighs any potential gain from the invalid transaction.

It is important to distinguish fraud proofs from their counterpart, validity proofs (used in ZK-rollups). Validity proofs cryptographically verify the correctness of every state transition before it is posted, eliminating the need for a challenge period and offering instant finality. Fraud proofs, in contrast, provide economic finality after the challenge window expires. Each model represents a different trade-off between development complexity, transaction cost, and withdrawal latency for users.