Consensus Algorithms Used by Top Blockchain Networks
A quick overview of the most widely used blockchain consensus algorithms
While knowing how a blockchain works, in general, is common knowledge to many people today, understanding the techniques used to enforce integrity and security is something less common — yet it is at the core of every blockchain network. The very mechanism that enforces this is called the consensus algorithm.
First, let’s talk about what a consensus is. In definition, consensus is a general agreement between a group of entities.
A blockchain consensus is the means that computers on a blockchain network use to reach an agreement on the present state of its data (known as the transaction ledger). Since a blockchain has no centralized authority to govern the transaction ledger, it relies on its own network to enforce data integrity and truthfulness.
A blockchain consensus is the means that computers on a blockchain network use to reach an agreement on the present state of its data.
It is important to note that while different blockchain networks may use the same consensus algorithm, they may each have their own implementation. Ripple, for example, is using their own version of Byzantine Fault Tolerance (BFT).
This guide is meant to give you a quick overview of the different consensus algorithms in use today, so I won’t dive into details.
Here are the most widely used blockchain consensus algorithms
Proof-of-Work (PoW)
The proof-of-work was the first mechanism to be used as a consensus protocol in a blockchain. While blockchain is a relatively new technology, the proof-of-work mechanism itself has been around since 1993 as a means to prevent denial of services (dos) or spam attacks. Its application in blockchain was first described in the Bitcoin white paper by Satoshi Nakamoto.
The mechanism works by requiring some processing or computation work done from a machine requesting for a service. The completed work will then be verified by the service provider before granting access to the requested resource. Hence, the computational work is designed to be time-consuming, but the verification can be carried out in a short amount of time.
In blockchain, proof-of-work is applied as a consensus protocol and is used to confirm transactions and produce new blocks to the chain. With PoW, special nodes on the blockchain network called miners compete against each other to solve a complex mathematical problem by repeatedly executing a hashing algorithm until a solution is found. The solution is then cross-checked by other nodes on the network to determine its validity. Once verified, the miner who produced the solution is able to create the next block containing all the new transactions and receive a reward for the computation work.
The reward, in the case of Bitcoin — are newly mined coins.
Who is using proof-of-work (PoW): Bitcoin, Ethereum, Litecoin, Monero
Proof-of-Stake (PoS)
Being widely accepted as a faster alternative to the proof-of-work algorithm, the proof-of-stake (PoS) consensus is able to confirm transactions in a much shorter time. So much so that Ethereum 2.0 is leveraging on this consensus algorithm.
In contrast to proof-of-work, the proof-of-stake mechanism work by giving block creation rights to network nodes with the highest account balance (the stake amount). These nodes are called validators instead of miners. Validators that stake a higher value have a higher chance of forging the next block. On some networks, dishonest validators can risk losing their stake if it is found introducing fraudulent transactions to the network.
The idea is that any party who is heavily invested in a blockchain’s native currency would have in their best interest to uphold the validity of the blockchain network.
Since the algorithm does not use computational power for mining, it is considered cleaner to the environment as a result of using much lesser electricity.
Who is using: Ethereum 2.0, Cardano, Binance Chain (Hybrid PoW/PoS),
Delegated Proof-of-Stake (DPoS)
While the name suggests similarities to proof-of-stake — in DPoS, network nodes with the highest account balance will instead vote for other nodes (called witnesses) to run the network. Witnesses who get the most votes will be able to confirm transactions and create new blocks.
The voting process is conducted on a real-time election system, and each voted witness are subject to upholding their reputation by approving transactions which are consistent to the results of other witnesses.
DPoS is said to be an improvement over PoS and is able to confirm transactions faster. It is considered more decentralized than other consensus protocols because community members have more governance rights to run the network.
Who is using: EOS, Tron, Bitshares, Steem
Byzantine Fault Tolerance (BFT)
Byzantine fault tolerance is a term used to describe a distributed system that can continue to operate even if certain network participants drop out or give conflicting signals on the network.
Even though this is more a characteristic of a consensus than an algorithm itself, there are successful blockchain implementation which employs BFT as the consensus protocol.
In the simplest form, BFT relies on the majority vote to reach consensus. If more than 2/3 of network nodes agree on a certain state, then it is accepted as the truth and committed to the chain.
BFT protocol is said to have scaling issues past a certain number of nodes due to the need for heavy communication between participating nodes – although several different implementations have surfaced to improve upon BFT, namely Federated BFT (Stellar’s consensus protocol) and Delegated BFT (NEO’s consensus protocol).
Who is using: Ripple, NEO, Stellar
Some others to note
Aside from the popular consensus algorithms mentioned here, there are a few others that are notably interesting. Proof of Burn, Proof of Capacity, Proof of Authority and Proof of Elapsed Time are some of the recent consensus protocols to exist.
