A fraud proof in blockchain is a cryptographic mechanism used to detect and prove malicious or incorrect activity within a blockchain or Layer-2 scaling solution. It allows for the identification of invalid transactions or blocks, ensuring that misbehaviour can be caught and corrected if verifiers challenge the validity of a transaction by presenting a valid fraud proof.
Users, validators, or nodes can challenge a transaction or block if they believe it is invalid by submitting a fraud proof to show that a mistake or malicious action occurred. There is a designated period during which fraud proofs can be submitted after a batch of transactions is posted, and if no fraud proof is submitted, the batch is considered valid.
Fraud proofs allow for more scalable blockchains because they reduce the need to verify every transaction on-chain, relying on the community to submit proofs only when something goes wrong. This reduces computational overhead while still maintaining security.
Fraud proofs are particularly important in optimistic rollups, a type of Layer-2 scaling solution designed to increase the throughput of blockchains like Ethereum. In optimistic rollups, transactions are bundled together and submitted to the Layer-1 blockchain (e.g., Ethereum) under the assumption that transactions are valid by default, verifying them only if a fraud proof is submitted.
