Shorting attack: Predatory, destructive short selling on Proof-of-Stake cryptocurrencies

Suhyeon Lee, Seungjoo Kim

Research output: Contribution to journalArticlepeer-review

Abstract

Bitcoin introduced blockchain which is the transparent and decentralized way of recording the lists of digital currency transactions. Bitcoin's blockchain uses Proof-of-Work as a Sybil control mechanism. However, PoW wastes energy since it uses hash computing competitions to find a block. Hence, various alternative mechanisms have been proposed. Among them, Proof-of-Stake, which is based on the deposit, has been spotlighted. As opposed to Proof-of-Work, Proof-of-Stake requires nodes to have a certain amount of tokens (stake) in order to qualify to validate blocks. The “one-sentence philosophy” of proof of stake is not “security comes from burning energy,” but rather “security comes from putting up economic value-at-loss.” In this article, contrary to popular belief, we point out that this value-at-loss can be hedged by short selling or other financial products. We propose a “shorting attack,” which makes a profit by massive short selling and sabotage to a Proof-of-Stake-based cryptocurrency. The shorting attack implies that the security of Proof-of-Stake-based cryptocurrency can be vulnerable by a low stake ratio.

Original languageEnglish
JournalConcurrency Computation Practice and Experience
DOIs
Publication statusAccepted/In press - 2021

Keywords

  • blockchain
  • Proof-of-Stake
  • security
  • short selling

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Software
  • Computer Science Applications
  • Computer Networks and Communications
  • Computational Theory and Mathematics

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