Learning Blockchain: Consensus Mechanisms
By on Altcoin Academy
In this ‘Learning the Block Chain’ series, I will briefly explain the core terminology and technology of the blockchain technology to those that do not possess expert knowledge regarding IT or investment. Today, I will explain one of the core concepts of blockchain: consensus mechanisms.
The main advantage of blockchain technology is that it uses a decentralized system to ensure security and integrity. What makes this possible is the various consensus mechanisms. In a nutshell, a decentralized blockchain network requires a set of algorithms to verify the input data before it is processed. The validity of the transactions is established when a set of different nodes in the decentralized network come up with a consensus. A centralized network does not need to have a different consensus system because all decisions go through the entire system. However, a decentralized system requires a separate consensus algorithm because no single entity has the authority to process a transaction; it only occurs when a set of nodes agree that the generated blocks are valid. Since there are multiple layers of verification, it is optimized to prevent corruption and attacks by hackers. Moreover, even if it gets attacked, as long as over 51% of the nodes meet a consensus, the transaction would be valid.
There are many types of consensus systems that could be used for blockchain technology. The first type is Proof of Work (PoW). Some of the cryptocurrencies using this method are Bitcoin (BTC) and Etherium (ETH). The Proof of Work method is the earliest mechanism to meet a consensus. It requires the process of mining, a concept which is widely known to even non-experts in the blockchain industry. Within Proof of Work, mining is a way to find solutions to blocks by conducting numerous hashing attempts. In short, it is the process of plugging in arbitrary values to the block until a solution is found. Since it is plugging in values, the miners with more computing power will have a better chance of creating and processing a block. Each time this happens, a miner would receive a coin as compensation for its computing power. That’s why many miners are trying to speed up operations and setting up many computers. The more they compute, the more coin they receive. In terms of security, it is the safest but is a significantly slower, and resource-intensive method for block-chain technologies that are new, compared to other consensus systems. For example, for the case of Etherium, the transaction per second (TPS) is only 25 and for the case of Bitcoin, it is only 6, which is even lower.
The second type is the Proof of Stake (PoS), which can be considered as an upgraded version of Proof of Work. The fatal disadvantage of the existing proof-of-work method was speed. The miners were mining based on their computing power and everyone had equal authority and power in verifying the transactions. However, the method of Proof of Stake determines how much of the transaction will be verified by each node based on the amount of coin it holds and the period of time it has been held for. Rather than requiring a computation, it is much faster because you have the right to verify based on your equity. In this system, if a hacker was trying to attack a node, the hacker should have control over 51% of the whole coin network. Moreover, there is also very little reason to threaten the existing ecosystem because the more equity one has in the network, the more they are dependent on the stableness of the network. A typical coin that uses this is Peer Coin (PPC).
The third type is the Delegated Proof of Stake (DPOS), which is a modification of the Proof of Stake mechanism. This technology makes the existing method of Proof of Stake even faster. Instead of allowing everyone in the system to participate in the direct verification process, it allows them to vote on the representative nodes. In this case, if the representative nodes meet a consensus, it speaks for everyone in the system. Those who have more stakes can get more power when voting. Choosing the number of representative nodes can be decided by the company or individual who developed the main net. While less representative nodes can provide a faster transaction speed, as it requires less number of verifications, it is recommended to keep a certain number of nodes to make it difficult for 51% percent of the nodes to be polluted. EOS claims that 21 representative nodes are the most balanced number of safety and speed.
The next technology is newly developed by a blockchain company and is patented, unique, fast and safe. It is the Dual Delegated Proof of Stake (DDPoS) of the Sigma Chain (PIA). This new consensus mechanism was able to speed up the Proof of Stake method, which is currently in use by many blockchain companies while improving its security. Setting up 21 representative nodes is the same as DPoS, but it has added a new security step to it. A total of 17 nodes are determined by voting for those who have a stake in the same way as before. However, four nodes are randomly designated and are called “sigma nodes”. At random times, these sigma nodes are changed and a new combination of representative nodes are determined. The advantage of this is that 51% of the nodes are very unlikely to be attacked and contaminated. The existing Proof of Stake method is likely to have its representative nodes exposed. In this case, over half of the nodes are attacked, there will be a huge problem. However, the double-delegated equity stakeholder approach in sigma chain is much safer on the security side because even if the 17 designated nodes are exposed, the four nodes change at random. A lot more than half of the designated nodes have to be contaminated so the probability is lower. Speed is also very fast compared to existing blockchain technologies. Sigma chain is certified to be capable of 300,000 TPS (number of transactions per second). For the case of bitcoin, it has TPS of 6 or less, and even EOS, which is considered to be fast, is staying at 4,000 TPS. This fast mechanism is advantageous in that the mainnet can accommodate more users and have more partners.
Writer: Yunsoo Kim
Re-(E)Think, COO | RichValley, Inc. Director | Yale NUS ’23
