Should we be afraid of Fake Stake attacks?

Some time ago a notion of Fake Stake attacks appeared in the crypto community, freaking out some of the Proof-of-Stake-related members. In this article, we will try to break down the basics of this threat and explain it in detail. Majority of the networks have already deployed mitigations and worked hard on eliminating the attack possibility.

Proof-of-Stake cryptocurrencies are there to make sure decentralisation takes place. The main idea is giving each member a chance of mining the next block. Usually, the right to mine is derived from the number of coins a user holds. To make this perfect decentralised world come to life, the hash depends both on the block header and on the number of coins involved in the staking transaction (which is inserted in the block by a stakeholder). PoS cryptos often use the UTXO model that you might have heard about when reading about Bitcoin. The difference is that the PoW is replaced with PoS.

Proof-of-Stake has many benefits, including much higher security against 51% attacks. However, not everything is bright and shiny in the PoS-ville — some design ideas implemented on the network may actually lead to the creating of new vulnerabilities, including the Fake Stake attacks.

Now, let’s see what these attacks are in detail.

The vulnerability itself occurs because the coins affected ( we will provide the list of coins further) fail to adequately validate network data and proceed to commit resources like the disk and RAM. Fake Stake attacks can be found on the networks using the PoSv3 — a modification of the Bitcoin code aiming to replace the hashing power with stakes. PoSv3 brings lots of good to the connecting the block creation rights to the stake but also puts the hash of the block and the staking transaction in need to be verified. The point of it is finding out whether the user actually owned the tokens involved in the staking transaction.

The Proof-of-Stake networks need to keep an eye on all the chains in progress, as there is always a chance that one of them will become the longest. The node, in this case, will follow it.

The problem is that validating these blocks is increasingly difficult. The resources required to participate in the network as a staking node increase and the nodes themselves might find no reason for the software failure when competing with the attacking node.

The Fake Stake attacks mechanism is quite simple, but finding the solution requires some serious design work from the development teams. As research performed by Sanket Kanjalkar, Yunqi Li, Yuguang Chen, Joseph Kuo, and our adviser Andrew Miller in the Decentralized Systems Lab states:

“The challenge is that on one hand, we want to reject invalid blocks as soon as possible, but on the other hand, we don’t want to get stuck on a chain split or get delayed in processing what’s actually the main chain. A systematic way to deal with this remains an open problem for future work.”

There are blockchains that have already implemented their fixes for the vulnerability, including Qtum, Emercoin and Nav Coin. In the latest release, Cardano proved that their network is secure against Fake Stake attacks, too.

In the original research performed on Fake Stake attacks, 26 networks were identified as vulnerable to Fake Stake attacks. For those interested in the material that started it all — you can see the research here