# How Do "Fraud Proofs" Work and What Are Their Limitations? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

---

## How Do “Fraud Proofs” Work and What Are Their Limitations?

Fraud proofs are a security mechanism that allows network participants to challenge and prove the invalidity of a block. If a validator submits an invalid block, any other participant can submit a fraud proof to the network, which contains evidence of the invalidity.

If the fraud proof is valid, the invalid block is rejected and the validator who submitted it is punished. The main limitation of fraud proofs is that they rely on the assumption that there will always be at least one honest participant who is willing to submit a fraud proof.

If all participants are malicious or apathetic, an invalid block could be accepted by the network.

- [What Is the Primary Security Assumption for an SPV Client?](https://learn.greeks.live/path/what-is-the-primary-security-assumption-for-an-spv-client/)

- [How Does ‘Nakamoto Consensus’ Relate to the 51% Attack?](https://learn.greeks.live/path/how-does-nakamoto-consensus-relate-to-the-51-attack/)

- [What Is the Primary Difference between Optimistic Rollups and ZK-Rollups?](https://learn.greeks.live/path/what-is-the-primary-difference-between-optimistic-rollups-and-zk-rollups/)

- [How Does a “Validity Proof” Differ from a “Fraud Proof” in the Context of Blockchain Finality?](https://learn.greeks.live/path/how-does-a-validity-proof-differ-from-a-fraud-proof-in-the-context-of-blockchain-finality/)

- [How Does the Assumption of a Lognormal Distribution of Stock Prices Affect the Model’s Accuracy?](https://learn.greeks.live/path/how-does-the-assumption-of-a-lognormal-distribution-of-stock-prices-affect-the-models-accuracy/)

- [Who Are the Main Participants in the CDS Market and What Are Their Roles?](https://learn.greeks.live/path/who-are-the-main-participants-in-the-cds-market-and-what-are-their-roles/)

- [What Is the Difference between an Optimistic Rollup and a ZK-Rollup?](https://learn.greeks.live/path/what-is-the-difference-between-an-optimistic-rollup-and-a-zk-rollup/)

- [What Is the Difference between a ZK-Rollup and an Optimistic Rollup?](https://learn.greeks.live/path/what-is-the-difference-between-a-zk-rollup-and-an-optimistic-rollup/)

## Glossar

### [Fraud](https://learn.greeks.live/area/fraud/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Manipulation ⎊ Fraud in cryptocurrency markets often involves deceptive manipulation tactics designed to artificially inflate or deflate asset prices for personal gain.

### [Fraud Proofs](https://learn.greeks.live/area/fraud-proofs/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Attestation ⎊ Within cryptocurrency derivatives and options trading, attestation functions as a critical mechanism for fraud proofs, verifying the integrity of data and computations underpinning on-chain processes.

### [Fraud Proof System](https://learn.greeks.live/area/fraud-proof-system/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Detection ⎊ A Fraud Proof System is the mechanism, often cryptographic or game-theoretic, designed to identify and reject invalid state transitions or fraudulent transactions on a blockchain.

### [Network Participants](https://learn.greeks.live/area/network-participants/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Influence ⎊ Network Participants, within cryptocurrency, options trading, and financial derivatives, represent entities exerting agency over market state and price discovery; their actions directly impact liquidity provision and order flow dynamics.

### [Invalid Block](https://learn.greeks.live/area/invalid-block/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Rejection ⎊ An invalid block is a proposed block that fails to meet the specific consensus rules of the blockchain protocol.

## Discover More

### [Explain the Difference between Proof-of-Work and Proof-of-Stake](https://learn.greeks.live/path/explain-the-difference-between-proof-of-work-and-proof-of-stake/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Explain the Difference between Proof-of-Work and Proof-of-Stake](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Kinetic-Volatility-Surface-Articulation-Modeling-Secure-Custody-Mechanisms.webp)

PoW uses computational power for mining; PoS uses staked capital for validating blocks.

### [How Does the LP Factor in the Cost of Hedging into Their RFQ Price?](https://learn.greeks.live/path/how-does-the-lp-factor-in-the-cost-of-hedging-into-their-rfq-price/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the LP Factor in the Cost of Hedging into Their RFQ Price?](https://learn.greeks.live/wp-content/uploads/2025/10/Intersecting-Translucent-Hedging-Vectors-Over-Centralized-Decentralized-Finance-Wheel-Mechanism.webp)

By adding a premium to the theoretical options price that covers expected transaction costs, slippage, and the cost of capital for hedging.

### [Who Are the Main Participants in the CDS Market and What Are Their Roles?](https://learn.greeks.live/path/who-are-the-main-participants-in-the-cds-market-and-what-are-their-roles/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Who Are the Main Participants in the CDS Market and What Are Their Roles?](https://learn.greeks.live/wp-content/uploads/2025/10/Layered-Material-Abstraction-Modeling-Volatility-Skew-in-Cryptocurrency-Hedging-Instruments.webp)

Participants are buyers hedging risk, sellers earning premiums, and speculators betting on credit quality.

### [What Are the Limitations of the ERC-20 Standard?](https://learn.greeks.live/path/what-are-the-limitations-of-the-erc-20-standard/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Limitations of the ERC-20 Standard?](https://learn.greeks.live/wp-content/uploads/2025/10/Two-Planar-Blades-Intersecting-Supporting-Spherical-Assets-Across-Volatility-Surfaces.webp)

Requires a two-step approval process and risks permanent loss if tokens are sent to a wrong contract address.

### [Compare Proof-of-Work (PoW) and Proof-of-Stake (PoS) Consensus Mechanisms](https://learn.greeks.live/path/compare-proof-of-work-pow-and-proof-of-stake-pos-consensus-mechanisms/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Compare Proof-of-Work (PoW) and Proof-of-Stake (PoS) Consensus Mechanisms](https://learn.greeks.live/wp-content/uploads/2025/10/Conceptual-Abstraction-of-Decentralized-Autonomous-Organization-Governance-Token-Staking-Dynamics-and-Ring-Signature-Fidelity.webp)

PoW uses energy-intensive computing (mining); PoS uses staked cryptocurrency collateral (validating) for block creation.

### [What Are LP Tokens and What Is Their Primary Function?](https://learn.greeks.live/path/what-are-lp-tokens-and-what-is-their-primary-function/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are LP Tokens and What Is Their Primary Function?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Mechanism-Representing-Atomic-Swap-Liquidity-Pool-Convergence-Under-Quantum-Entanglement.webp)

LP tokens are receipts representing a user's share of a liquidity pool, used to redeem the original deposit and accrued fees.

### [How Do Market Makers Manage Their Inventory Risk Using Hedging Instruments?](https://learn.greeks.live/path/how-do-market-makers-manage-their-inventory-risk-using-hedging-instruments/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Market Makers Manage Their Inventory Risk Using Hedging Instruments?](https://learn.greeks.live/wp-content/uploads/2025/10/Geometric-Abstraction-Modeling-Intertwined-Digital-Asset-Hedging-Strategies-and-Volatility-Surface-Contours.webp)

They take offsetting positions in related assets or derivatives to balance exposure and mitigate price fluctuation risk.

### [Why Do Perpetual Futures Contracts Need a Funding Rate Component in Their Mark Price?](https://learn.greeks.live/path/why-do-perpetual-futures-contracts-need-a-funding-rate-component-in-their-mark-price/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Why Do Perpetual Futures Contracts Need a Funding Rate Component in Their Mark Price?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Engineering-of-Digital-Asset-Futures-Contract-Settlement-Mechanism-Visualization.webp)

To anchor the non-expiring perpetual contract price to the spot market and ensure fair liquidation pricing.

### [What Are the Limitations of Achieving DVP for Large, Off-Chain OTC Crypto Derivative Trades?](https://learn.greeks.live/path/what-are-the-limitations-of-achieving-dvp-for-large-off-chain-otc-crypto-derivative-trades/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Limitations of Achieving DVP for Large, Off-Chain OTC Crypto Derivative Trades?](https://learn.greeks.live/wp-content/uploads/2025/10/Tangible-Manifestation-of-Tokenized-Asset-Allocation-Within-High-Frequency-Trading-Architecture.webp)

Reliance on bilateral trust, off-chain legal complexity, and difficulty synchronizing large on-chain asset transfer with off-chain settlement.

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**Original URL:** https://learn.greeks.live/learn/how-do-fraud-proofs-work-and-what-are-their-limitations/
