Blockchain 101: Consensus Mechanism
Learn about the different processes in how nodes reach an agreement in a blockchain system.
If you’re new to the space, you may commonly encounter this term, consensus mechanism. In this article, I’ll explain all about it in the simplest terms for you to understand, and its different types for you to be familiar with.
A consensus mechanism is a fault-tolerant and standardized process of how the nodes efficiently and reliably reach an agreement. Every blockchain systems rely on consensus mechanisms to do its work. This is the key function of a blockchain being decentralized, immutable, distributed, and transparent.
Types of Blockchain Consensus Mechanisms
The most common types of blockchain consensus mechanisms are the Proof of Work and Proof of Stake. But on top of that, there are more types of blockchain consensus mechanisms available, and I’ll also cover them in this article.
Proof of Work
This requires a participant node to solve a complex problem. And if your computer happens to be the first one to solve it, it is given the right to add a new transaction to the blockchain then a token reward is given. Basically, this is where the term mining is used. This has been the benchmark of almost every other blockchain built after Bitcoin, especially in the early days. But problems such as high energy consumption, longer processing time, as well as 51% attacks in which anyone who owns 51% of the network’s nodes has the power to control the blockchain arise. Cryptocurrencies that use proof of work (POW) consensus include Bitcoin, Ethereum Classic, Litecoin, and Dogecoin.
Proof of Stake
This requires a participant node to stake a significant amount of tokens to be given the right to add a new transaction to the blockchain. It’s low-cost, low-energy consuming, and was specifically designed to be an alternative to POW as it addresses energy usage, environmental impact, and scalability. Although it also has its cons such as token hoarding and the influence of larger stake-holding validators. It’s also costly and requires an extensive investment upfront. Cryptocurrencies that use proof of stake (POS) consensus include Ethereum, Cardano, Polkadot, and Avalanche.
Delegated Proof of Stake
This is somehow like the POS but with some modifications. Delegated Proof of Stake (DPOS) requires a token stake same as POS, and with an additional voting system for a particular number of delegates to achieve a consensus. For example, if user 0x1 stakes 10 tokens for a delegate and user 0x2 stakes 1 token, then user 0x1’s vote will weigh more compared to user 0x2. The delegate that receives the highest number of votes gets the grant to add a new transaction to the blockchain. It’s much faster and can handle more transactions compared to POS. As for the cons, it is the same with POS. Cryptocurrencies that use delegated proof of stake consensus include Solana, Tron, EOS, and Tezos.
Proof of Capacity
This requires a participant node to find the fastest solution to a complex puzzle. Once done, the node will be given the right to add a new transaction to the blockchain. Here, there is a process called plotting wherein solutions to complex puzzles are stored in digital storage like hard disks. Hence, the higher the storage capacity, the higher the chances of producing a new block. This is a new consensus, so there are only a few cryptocurrencies that use it. One of them is Signum, formerly Burstcoin.
Proof of Elapsed Time
This mechanism provides a random wait time for each participant node. The one whose wait time finishes the earliest will be given the right to add a new transaction to the blockchain. This only works if the system can verify that no users can run multiple nodes and that the wait time is truly random. For now, there’s no existing cryptocurrency that uses this consensus, but there’s a building platform that utilizes this, the Hyperledger Sawtooth.
Proof of Identity
This identifies a user’s private key if it is authorized hence it will be given the right to create a block of data that can be presented to anyone in the network. This is a consensus protocol for permission-less blockchains and ensures the integrity and authenticity of created data. In addition, smart cities can use this consensus mechanism to verify the identity of their citizens. Cryptocurrencies that use proof of identity consensus include Civic, Metadium, and Shyft Network.
Proof of Authority
This is another modified version of POS wherein the identities and reputations of validators in the network are at stake. Here, identity is the correspondence between validators’ personal identification and their official documentation to help verify their identity. The nodes that become validators are the only ones allowed to add new transactions to the blockchain and are incentivized to secure and preserve the blockchain network. Also, the number of validators is fairly small, around 25 or less. One notable cryptocurrency that uses the proof of authority consensus is the POA Network.
Proof of Activity
This is a combination of POW and POS. With this, miners attempt to find the solution to a puzzle and claim their reward. However, the blocks created in this consensus mechanism are simple templates with mining reward addresses and header information. Then the header information is used to select a random group of validators for signing a block. Validators with higher stakes have greater odds of being chosen to sign a new block. Signed blocks then become part of the network. As for the blocks that remain unsigned, it gets discarded and a new block is utilized. The network fees generated in the process are distributed between the winning miner and the validators. Cryptocurrencies that use proof of activity consensus include Decred and Espers.
Bottomline, there is no perfect blockchain. Each of the consensus mechanisms available executes and functions in its own unique ways to achieve the concept of a decentralized, immutable, distributed, and transparent system. But each also has its own compromise and shortcomings.
Thank you for your time reading this article. I hope you‘ve learned something.