Fraud Proof
In short: A fraud proof is a technical method used in an Optimistic Rollup (OR) that works together with a bond to keep a decentralized system honest.
A fraud proof is a technical method used in an Optimistic Rollup (OR) that works together with a bond to keep a decentralized system honest. Whoever posts results to the main chain locks up a deposit, and a valid fraud proof showing those results are wrong can cost them that deposit.
Why it matters
An optimistic rollup is a Layer 2 network that processes transactions away from a main chain such as Ethereum and then posts the results back to it. It is called "optimistic" because the results are assumed to be correct instead of being proven up front. During a challenge period, anyone who re-runs the transactions and finds an error can submit a fraud proof. If the proof holds, the incorrect result is thrown out and the dishonest party loses its bond. A single honest watcher is therefore enough to catch fraud, and the main chain does not have to re-run every transaction. The challenge period is also why withdrawals from an optimistic rollup through its native bridge usually take several days. Zero-knowledge rollups work differently: they post a validity proof with every batch.
Example
A rollup operator posts a batch claiming that an account received tokens it was never sent. A watcher re-runs the batch, spots the mismatch and submits a fraud proof to the main chain. The batch is rejected, the correct state stands, and the operator's bond is slashed, with part of it often paid to the watcher as a reward.