In the ever-evolving world of blockchain technology, economic security remains a cornerstone of trust and functionality. However, misconceptions about economic security can lead to misunderstandings about how blockchain networks operate. Sreeram Kannan, a prominent figure in the blockchain space, recently took to X (formerly Twitter) to debunk several myths surrounding economic security. Let's dive into his insights and unravel the truth behind these misconceptions.

Understanding Economic Security

Before we delve into the myths, it's crucial to understand what economic security means in the context of blockchain. Economic security refers to the idea that the cost of attacking a blockchain network should be prohibitively high compared to the potential gains. This principle is often achieved through mechanisms like proof of stake (PoS), where participants stake their assets to secure the network.

Kannan's thread here provides a comprehensive breakdown of common myths and offers a clearer picture of how economic security works in practice.

Myth 1: Delegation Implies No Security

One of the first myths Kannan addresses is the notion that "delegation" in proof-of-stake systems implies a lack of security because it essentially creates a non-staked committee. This misconception arises from the belief that delegating stakes to operators reduces the overall security of the network.

However, Kannan clarifies that delegation, when combined with slashing mechanisms, actually enhances security. Slashing is a penalty mechanism where staked assets are forfeited if a validator acts maliciously. This means that users must choose their operators carefully, as mismanagement can lead to significant losses. Therefore, delegation does not undermine security but rather shifts the responsibility to the user to select trustworthy operators.

Myth 2: Forking Solves All Problems

Another common myth is that forking a blockchain can solve all security issues. Forking involves creating a new version of the blockchain, often in response to a security breach or consensus failure. While forking can be a useful tool, it is not a panacea.

Kannan points out that forking takes time—approximately a week—which means that transactions finalized before the fork can still be vulnerable. Economic security is essential to protect these transactions during the interim period. Without it, the network would be unable to guarantee the integrity of transactions in real-time, undermining the very purpose of a blockchain.

Myth 3: Users Don't Get Measurable Protection

A third myth is that economic security offers no measurable protection to users because slashed funds are typically burned rather than redistributed. This perspective suggests that the security mechanism does not directly benefit those who are harmed.

Kannan counters this by introducing the concept of users self-buying their security demand. In this model, users can specify how much security they require, and the network adjusts accordingly. This approach creates a market for economic security, where users who need more protection can pay for it, ensuring that the system remains fair and efficient.

Myth 4: Economic Security Doesn't Protect Against Liveness Attacks

Liveness attacks occur when a network is prevented from processing new transactions, effectively halting its operation. Some argue that economic security is irrelevant in such scenarios because it doesn't address liveness issues.

Kannan disputes this by explaining that well-designed chains, like Ethereum, incorporate penalties for liveness attacks. For instance, stopping chain growth or censoring transactions for extended periods can trigger mechanisms like the inactivity leak, which penalizes validators and restores network functionality. This demonstrates that economic security can indeed protect against liveness attacks when properly implemented.

Myth 5: Why Incentivize Stake at All?

If economic security is a meme, why not just use a committee-based system instead of incentivizing stake? This question leads to the fifth myth, which suggests that committee chains are a viable alternative.

Kannan argues that reverting to committee chains would essentially recreate systems like Libra (now Diem), but with committees chosen by internet anonymity rather than established institutions. This approach sacrifices the decentralization that is a core tenet of blockchain technology, potentially leading to centralized control and reduced trust.

Myth 6: Arbitrary Reward Curves Undermine Economic Security

Critics often point out that the reward curves in proof-of-stake systems are arbitrary, which they claim undermines the concept of economic security. Kannan's response is to highlight the potential of StakeSure, a system that allows users to declare and buy their own security against invalid behavior.

In this model, the amount of stake required is determined by market forces rather than arbitrary system design. This market-emergent approach ensures that economic security is both measurable and adaptable, addressing the concerns about arbitrary reward curves.

Myth 7: Return to Proof of Work

Some advocate for a return to proof of work (PoW) as a solution to economic security issues. However, Kannan argues that PoW is essentially staking by another name—participants stake their resources (mining devices) to secure the network.

The key difference is that in PoW, misbehaving miners cannot have their devices burned or redistributed to harmed parties, whereas in PoS, slashed funds can be redistributed. This makes PoS a more effective mechanism for maintaining economic security and compensating those affected by attacks.

Myth 8: Blockchains Charge for Compute, Not Security

The final myth Kannan addresses is the idea that blockchains charge for computational resources or MEV (Miner Extractable Value) rather than security. He argues that this perspective is misguided because security is a fundamental requirement for any blockchain network.

Without security, there would be no incentive to provision resources. Economic security pricing is what drives the provision of security, ensuring that the network remains robust and trustworthy. Once again, StakeSure plays a crucial role in this context, as it allows for a market-based approach to security pricing.

Conclusion: Self-Enforcing Chains vs. Committee Chains

Kannan's thread underscores the importance of understanding economic security properly. By debunking these myths, he highlights the distinction between self-enforcing chains, which embed slashing, security pricing, and punishment mechanisms, and committee-based chains, which rely on centralized control.

The market will eventually recognize and price the gap between these two approaches. Self-enforcing chains offer a path to true decentralization and robust security, while committee chains risk reverting to permissioned networks that undermine the core principles of blockchain technology.

For those interested in diving deeper, Kannan recommends reading about StakeSure here, which represents the cutting edge of proof-of-stake technology. Understanding these concepts is essential for anyone looking to navigate the future of blockchain and crypto economics.