What Is The Nothing-at-stake Problem And Why It Matters To Understand Blockchain Business Models

The nothing-at-stake problem argues that validators on a blockchain with a financial incentive to mine on each fork are disruptive to consensus. Potentially, this makes the system more vulnerable to attack. This is a key problem that makes possible underlying blockchain protocols, based on core mechanisms like a proof-of-stake consensus, a key consensus system, that together of the proof-of-work make up key protocols like Bitcoin and Ethereum.

DefinitionThe Nothing-at-Stake Problem is a concept in blockchain and cryptocurrency technology, particularly associated with Proof of Stake (PoS) consensus algorithms. It refers to a situation where validators or participants have no disincentive to support multiple conflicting blockchain branches during a fork or consensus process. In a PoS system, validators are chosen to create new blocks or vote on proposed blocks based on the number of cryptocurrency tokens they hold and are willing to “stake” as collateral. The Nothing-at-Stake Problem arises when validators can support multiple forks without facing any significant financial penalties or risks, potentially leading to network instability and security vulnerabilities.
Key ConceptsProof of Stake (PoS): The Nothing-at-Stake Problem is closely related to PoS consensus algorithms, where validators create new blocks and secure the network by staking their cryptocurrency holdings. – Forking: Forks occur when there is a disagreement in the network about the validity of a block or transaction. In a fork, two or more branches of the blockchain may temporarily exist. – Validator Behavior: The problem revolves around the behavior of validators who, in the absence of penalties, can support multiple forks simultaneously. – Security Risk: The Nothing-at-Stake Problem highlights the potential security risks associated with PoS-based blockchains if validators can act without financial consequences.
CharacteristicsLack of Disincentives: Validators are not economically penalized for supporting multiple forks during a consensus process. – Network Instability: The problem can lead to network instability, confusion, and difficulty in achieving consensus. – Security Concerns: If validators can support multiple forks, malicious actors may take advantage of this to undermine network security. – Risk-Free Strategy: Validators can pursue a “risk-free” strategy of supporting all potential forks, which could disrupt the intended consensus mechanism.
ImplicationsNetwork Security: The Nothing-at-Stake Problem raises concerns about the security of PoS-based blockchain networks, as validators may not have sufficient incentives to act in the network’s best interest. – Fork Resolution: It complicates the process of resolving forks in the blockchain, potentially leading to delays and conflicts. – Malicious Behavior: Malicious validators could exploit the problem to disrupt the network or execute double-spending attacks. – Incentive Design: Cryptocurrency networks must carefully design incentives to mitigate the Nothing-at-Stake Problem and ensure the integrity of the blockchain.
AdvantagesThere are no inherent advantages to the Nothing-at-Stake Problem. It is considered a challenge and potential vulnerability in PoS-based blockchain systems. However, awareness of the problem has led to discussions and research on how to address and mitigate it, contributing to the improvement of PoS consensus algorithms and network security.
DrawbacksSecurity Vulnerability: The primary drawback is the security vulnerability it poses to PoS-based blockchain networks. Validators may not have sufficient incentives to prevent or resolve forks in a way that benefits the network. – Network Instability: The problem can result in network instability and difficulty in achieving consensus. – Double-Spending Risk: Malicious validators could potentially engage in double-spending attacks, undermining the integrity of the blockchain. – Complex Incentive Design: Addressing the Nothing-at-Stake Problem requires complex incentive structures and mechanisms, which can be challenging to implement effectively.
ApplicationsThe Nothing-at-Stake Problem is specifically relevant to blockchain and cryptocurrency networks that utilize Proof of Stake (PoS) or similar consensus algorithms. It is a concept that blockchain developers, researchers, and validators need to consider when designing and securing PoS-based networks.
Use CasesEthereum 2.0: Ethereum, one of the largest blockchain networks, is in the process of transitioning to Ethereum 2.0, which employs PoS consensus. Addressing the Nothing-at-Stake Problem is a critical aspect of this transition. – Tezos: Tezos is a blockchain platform that utilizes PoS and addresses the Nothing-at-Stake Problem through an on-chain governance mechanism and penalties for misbehavior. – Algorand: Algorand is a PoS-based blockchain that incorporates cryptographic sortition to select validators, reducing the impact of the problem. – Cosmos: Cosmos uses a variant of PoS called Bonded Proof of Stake (BPoS) to mitigate the Nothing-at-Stake Problem. – Polkadot: Polkadot employs Nominated Proof of Stake (NPoS) to encourage validators to behave in the network’s best interest, addressing the issue.

Understanding the nothing-at-stake problem

The nothing-at-stake problem describes a theoretical security issue in proof-of-stake consensus systems.

A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of the security, reduced risk of centralization, and energy efficiency.

This issue can be explained by noting that block creators on these systems do not have anything at stake when the network forks. When a network such as Bitcoin forks, active miners are incentivized to use the Consensus Method to choose one chain.

Since a mining unit cannot create blocks on both chains simultaneously, the fork is theoretically forced to resolve itself because of a scarcity of hash power. However, the reality of a Proof-of-Stake (PoS) protocol is rather different.

Instead of hash power, token stake is the scarce block production resource. Participants deposit tokens into a pool from which a “winner” is selected to propose the next block.

However, forks sometimes occur because of malicious transaction reversal attempts. In some instances, two winners from the original pool are selected. 

In an ideal world, participants would choose only one of the two chains. But many miners choose both forks because the original deposit is valid on both chains. That is, it costs the miner nothing more to validate on both chains and collect the subsequent transaction fees and rewards.

The nothing-at-stake problem and opportunity cost

Opportunity cost can be used to explain the behavior of a miner and how it contributes to the nothing-at-stake problem.

In general terms, the miner can follow both chains indefinitely without any cost. In fact, this is the optimal strategy. If the miner chooses one chain, he or she risks losing the transaction fees from the orphaned chain.

If the miner chooses both, he or she has to do nothing more than wait for one chain to become the winner. The rewards, of course, are collected either way.

The opportunity cost here is much different from the costs associated with quitting a job, for example. A person that decides to quit their job may miss out on an impending pay rise or bonus. Proof-of-stake effectively allows that person to have two full-time jobs at no expense. If they don’t get promoted in the first job, they will in the second. There is nothing to lose, which gives the nothing-at-stake problem its name.

Ramifications of the nothing-at-stake problem

The nothing-at-stake problem is similar to the tragedy of the commons, an economic theory arguing that individuals who act in their self-interest neglect the well-being of society.

When a miner chooses both chains to maximize their returns, the integrity of each chain and the network as a whole is compromised. A malicious actor can intentionally fork the chain and double-spend tokens in a very subtle and covert way.

First, the actor continues to validate on both chains like everyone else. Then, they wait for confirmation of a bad transaction and stop validating on the first chain. The balance of voting power then shifts and the second chain begins to outpace the original. Eventually, the chain with the bad transaction becomes accepted officially while the first is orphaned.

Key takeaways:

  • The nothing-at-stake problem describes a scenario where block creators on generic proof-of-stake protocols have nothing to lose when the network forks.
  • The nothing-at-stake-problem can be explained by opportunity cost. Miners can follow both chains and reap the rewards at no additional cost to their original deposit.
  • The nothing-at-stake-problem has some similarities to modern economic theory. When each miner acts in their own self-interests, they neglect the integrity and security of the network as a whole.

Related Blockchain Business Frameworks


Web3 describes a version of the internet where data will be interconnected in a decentralized way. Web3 is an umbrella that comprises various fields like semantic web, AR/VR, AI at scale, blockchain technologies, and decentralization. The core idea of Web3 moves along the lines of enabling decentralized ownership on the web.

Blockchain Protocol

A blockchain protocol is a set of underlying rules that define how a blockchain will work. Based on the underlying rules of the protocol it’s possible to build a business ecosystem. Usually, protocol’s rules comprise everything from how tokens can be issued, how value is created, and how interactions happen on top of the protocol.

Hard Fork

In software engineering, a fork consists of a “split” of a project, as developers take the source code to start independently developing on it. Software protocols (the set of rules underlying the software) usually fork as a group decision-making process. All developers have to agree on the new course and direction of the software protocol. A fork can be “soft” when an alteration to the software protocol keeps it backward compatible or “hard” where a divergence of the new chain is permanent. Forks are critical to the development and evolution of Blockchain protocols.

Merkle Tree

A Merkle tree is a data structure encoding blockchain data more efficiently and securely. The Merkle tree is one of the foundational components of a Blockchain protocol.


The nothing-at-stake problem argues that validators on a blockchain with a financial incentive to mine on each fork are disruptive to consensus. Potentially, this makes the system more vulnerable to attack. This is a key problem that makes possible underlying blockchain protocols, based on core mechanisms like a proof-of-stake consensus, a key consensus system, that together the proof-of-work make up key protocols like Bitcoin and Ethereum.

51% Attack

A 51% Attack is an attack on the blockchain network by an entity or organization. The primary goal of such an attack is the exclusion or modification of blockchain transactions. A 51% attack is carried out by a miner or group of miners endeavoring to control more than half of a network’s mining power, hash rate, or computing power. For this reason, it is sometimes called a majority attack. This can corrupt a blockchain protocol that malicious attackers would take over.

Proof of Work

A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.

Application Binary Interface

An Application Binary Interface (ABI) is the interface between two binary program modules that work together. An ABI is a contract between pieces of binary code defining the mechanisms by which functions are invoked and how parameters are passed between the caller and callee. ABIs have become critical in the development of applications leveraging smart contracts, on Blockchain protocols like Ethereum.

Proof of Stake

A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.

Proof of Work vs. Proof of Stake


Proof of Activity

Proof-of-Activity (PoA) is a blockchain consensus algorithm that facilitates genuine transactions and consensus amongst miners. That is a consensus algorithm combining proof-of-work and proof-of-stake. This consensus algorithm is designed to prevent attacks on the underlying Blockchain.

Blockchain Economics

According to Joel Monegro, a former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum).

Blockchain Business Model Framework

A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.


Blockchain companies use sharding to partition databases and increase scalability, allowing them to process more transactions per second. Sharding is a key mechanism underneath the Ethereum Blockchain and one of its critical components. Indeed, sharding enables Blockchain protocols to overcome the Scalability Trilemma (as a Blockchain grows, it stays scalable, secure, and decentralized).


A decentralized autonomous organization (DAO) operates autonomously on blockchain protocol under rules governed by smart contracts. DAO is among the most important innovations that Blockchain has brought to the business world, which can create “super entities” or large entities that do not have a central authority but are instead managed in a decentralized manner.

Smart Contracts

Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.

Non-Fungible Tokens

Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.

Decentralized Finance

Decentralized finance (DeFi) refers to an ecosystem of financial products that do not rely on traditional financial intermediaries such as banks and exchanges. Central to the success of decentralized finance is smart contracts, which are deployed on Ethereum (contracts that two parties can deploy without an intermediary). DeFi also gave rise to dApps (decentralized apps), giving developers the ability to build applications on top of the Ethereum blockchain.

History of Bitcoin

The history of Bitcoin starts before the 2008 White Paper by Satoshi Nakamoto. In 1989 first and 1991, David Chaum created DigiCash, and various cryptographers tried to solve the “double spending” problem. By 1998 Nick Szabo began working on a decentralized digital currency called “bit gold.” By 2008 the Bitcoin White Paper got published. And from there, by 2014, the Blockchain 2.0 (beyond the money use case) sprouted out.


An altcoin is a general term describing any cryptocurrency other than Bitcoin. Indeed, as Bitcoin started to evolve since its inception, back in 2009, many other cryptocurrencies sprouted due to philosophical differences with the Bitcoin protocol but also to cover wider use cases that the Bitcoin protocol could enable.


Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.

Ethereum Flywheel

An imaginary flywheel of the development of a crypto ecosystem, and more, in particular, the Ethereum ecosystem. As developers join in and the community strengthens, more use cases are built, which attract more and more users. As users grow exponentially, businesses become interested in the underlying ecosystem, thus investing more in it. These resources are invested back in the protocol to make it more scalable, thus reducing gas fees for developers and users, facilitating the adoption of the whole business platform.


Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.


In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.


Launched in October 2020, Filecoin protocol is based on a “useful work” consensus, where the miners are rewarded as they perform useful work for the network (provide storage and retrieve data). Filecoin (⨎) is an open-source, public cryptocurrency and digital payment system. Built on the InterPlanetary File System.


BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.

Decentralized Exchange

Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.

Read Next: Proof-of-stakeProof-of-workBitcoinEthereumBlockchain.

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