In the simplest terms, a blockchain is a time stamped collection of unchangeable data records controlled by a group of computers, which do not belong to a single entity. All these data blocks (i.e. blocks) are protected by cryptographical concepts (i.e. chains) and are bound to each other.
Of course, we all know that.
However, have you ever wondered how all this can be achieved?
Who manages this network and reviews every payment if there is no centralized authority?
Okay, it’s just Blockchain consensus algorithms–the core part of Blockchain’s development world that we’re going to discuss in this comprehensive guide. So let us start exploring the Blockchain consensus algorithm theory without a delay.
What Blockchain Consensus Algorithm is about?
A consensus algorithm can be defined as the process by which consensus is achieved by a blockchain network. Public (decentralized) blockchains are built as distributed systems and the distributed nodes need to agree on the validity of transactions, as they do not depend on a central authority. This is where the algorithms of consensus come into play. They ensure that the rules of the protocol are observed and ensure that all transactions take place in a trustless manner, so that the coins can only be spent once.
A consensus mechanism allows the network of blockchain to achieve reliability and build a level of trust between different nodes, while ensuring environmental security. That’s why it’s a vital part of any app development guide and any dApp project in the decentralized leader world.
These algorithms operate based on different goals, some of which we will cover in this article’s next section.
Why Consensus Algorithms Connected with Cryptocurrencies
As described above, consensus algorithms are crucial to preserving a cryptocurrency network’s integrity and protection. They provide a means of reaching consensus on which version of the blockchain is the real one for distributed nodes. Agreement on the current state of blockchain is necessary for proper functioning of an electronic economic system.
The Consensus Proof of Work algorithm is considered one of the best solutions to the problem of Byzantine Generals, which allowed Bitcoin to be developed as a Byzantine Fault Tolerant system. It means the Bitcoin blockchain is highly resistant to threats, such as the attack (or plurality attack) of 51 %. Not only due to the decentralization of the network, but also due to the PoW algorithm. It is very difficult and unlikely that miners will invest their resources to disrupt the network due to the high costs involved in the mining process.
Complete List Objectives of Blockchain Consensus Mechanism
- Fair & Equitable
The Mechanisms of consensus allow anyone to participate and use the same basics in the network. It thus supports the blockchain system’s open-source and decentralization property.
- Prevent Double Spending
Consensus processes operate based on certain algorithms to ensure that the public ledger only contains certain transactions that are checked and legitimate. This solves the traditional double-spending issue, i.e. the issue of twice spending a digital currency.
- Unified Agreement
Achieving common understanding is one of the primary goals of consensus processes.
Unlike hierarchical structures where it is important to have trust in the authority, users can work in a distributed manner even without building confidence on each other. The protocols implemented in the Distributed blockchain network ensure that the information involved in the process is true, accurate, and up-to-date status of the public ledger.
- Align Economic Incentive
Aligning the interests of network members is a must when it comes to building a trustless framework that governs on its own.
In this case, a blockchain consensus protocol provides incentives for good behavior and punishes the wrong actors. This also means that economic incentives are governed.
- Fault Tolerant
Another advantage of the Consensus approach is that it ensures that the blockchain is tolerant to faults, consistent and secure. Which means, even in the case of failures and risks, the controlled system would work indefinitely.
There are already plenty of Blockchain consensus algorithms in the ecosystem, and many more are coming into the marketplace. This makes it important for each Blockchain App Development Company and enthusiastic Entrepreneur to familiarize themselves with the factors that determine a successful consensus protocol and the potential effect of going with a bad one.
So let’s start by figuring out what makes a good Blockchain consensus.
Characteristics of a Perfect Blockchain Consensus Mechanism
Another feature of a good mechanism is that every vote received from the node is given equal value and weight.
With this in mind, let’s find out what happens if you don’t take these factors into account and introduce your development process to a poor consensus model.
All nodes are capable of generating results that are true according to protocol rules in a good consensus system.
A successful consensus mechanism ensures that each network node is active in the voting process.
A consensus process in which all nodes are actively involved and contribute to updating the Blockchain database is considered a model of strong consensus.
Results of Choosing a Poor Consensus Protocol Mechanism
- Lack of Performance
If contemplating a poor consensus process, the node either is unstable or suffers from partitioning the network. It slows the node-to-node transfer cycle and increases the application’s latency, which eventually reduces the performance level.
- Consensus Failure
Another effect of incorporating your business model with a bad consensus mechanism is the failure of consensus. In this case, a fraction of nodes does not engage in any system and thus fail to deliver correct and desirable outcomes in the absence of their votes.
With the basics of Blockchain consensus methods now covered, let’s delve into the subject more thoroughly and look at common consensus mechanism forms.
- Blockchain Forks
Choosing a poor consensus blockchain method increases the chain’s vulnerability. Blockchain Forks is one such weakness facing blockchain enthusiasts and developers.
In a layman language, blockchain forks are a condition or situations in which a single chain splits into two or more. The software starts to work in an unpredictable manner when a Blockchain fork occurs, generating two or more divergent nodes ahead.
Most Trusted and Popular Blockchain Consensus Algorithms in Market
There are several types of algorithms for consensus. PoW and PoS are the most frequent implementations. When trying to balance security with functionality and scalability, each has its own advantages and disadvantages.
- Proof of Work (PoW)
PoW was the first algorithm to be developed for consensus. Bitcoin and many other cryptocurrencies use it. A key part of the mining process is the Proof of Work algorithm.
Most hashing attempts are involved in PoW mining, so more computational power means more trials per second. In other words, miners with a high hash rate are more likely to find a valid solution for the next block (including block hash). The PoW consensus algorithm guarantees that miners can only verify a new transaction block and add it to the blockchain when the network’s distributed nodes reach consensus and agree that the miner’s block hash is a valid work proof.
- Proof of Stake (PoS)
Proof of Stake is the PoW consensus protocol’s most simple and environmentally friendly solution that was created as an alternative to PoW in 2011. Despite sharing similar goals with PoS and PoW, they pose some fundamental differences and specificities and especially when new blocks are reviewed and validated.
In a few words, proof of Stake’s consensus algorithm replaces PoW mining with a process in which participants monitor the frames. Block’s validator (also called a forger or minter) is determined by the cryptocurrency’s own investment and not by the amount of computational power allocated. Every PoS framework can implement the algorithm in different ways, but the blockchain is usually protected by a pseudo-random election process that takes into account the wealth of the node and the age of the coins (how long the coins are locked or staked)–along with a randomization variable.
At present, the Ethereum blockchain is based on a PoW algorithm, but eventually releases the Casper protocol, which switches the network from PoW to PoS in an effort to make the network more scalable.
- Delegated Proof of Stake (DPoS)
The participants stake their coin in the case of Delegated Proof of Stake (DPoS) and vote for a certain number of delegates so that the more they spend the more weight they get. For instance: if user A spends 10 coins for a delegate and user B invests 5 coins, A’s vote will get more weight than B’s.
In the form of transaction fees or a certain sum of coins, delegates are also paid.
Thanks to this stake-weighted voting mechanism, DPoS is one of the fastest and widely favored blockchain consensus frameworks as a decentralized democracy. Some of these blockchain confidence systems in their real lives are Steem, EOS and BitShares.
- Leased Proof of Stake (LPoS)
LPoS is an enhanced version of the PoS consensus system running on the platform Waves.
Unlike the standard proof-of-stake approach where each node with a certain amount of cryptocurrency has the right to add the next blockchain, in this consensus algorithm, users may lease their balance to complete nodes. In addition, the one who leases the larger amount to the full node is more likely to generate the next frame. In addition, the leaser is then rewarded with a percentage of the transaction fee that the entire node has collected.
This version of PoS is an efficient and safe choice for the production of public cryptocurrencies.
- Byzantine Fault Tolerance (BFT)
Byzantine Fault Tolerance, as the name suggests, is used to deal with Byzantine fault (also known as Byzantine Generals Problem)–a situation in which the actors of the system have to decide on an appropriate strategy to avoid catastrophic system failure, but some of them are uncertain.
The two key variants in the Blockchain domain of the BFT consensus model are PBFT and DBFT.
- Practical Byzantine Fault Tolerance (PBFT)
PBFT is a lightweight algorithm that solves the problems of the Byzantine General by allowing users to validate the messages they received by carrying out a calculation to determine the validity decision of the text.
Then the group declares its decision to other nodes that eventually take a vote on it. The final decision thus depends on the decisions taken from the other nodes.
Some of the use cases of this blockchain consensus system are Stellar, Ripple, and Hyperledger Fabric.
- Delegated Byzantine Fault Tolerance (DBFT)
The Delegated Byzantine Fault Tolerance Mechanism, developed by NEO, is close to the concept of DPoS consensus. The NEO token owners also get the chance to vote for the delegates here.
This is, however, regardless of the amount of currency that they spend. Anyone who meets the basic requirements, i.e. a checked identification, proper equipment, and 1,000 GAS, can become a delegate. One of those delegates is then randomly selected as speaker.
The speaker who is waiting to be validated creates a new block. He also sends a proposal to the elected delegates who are responsible for overseeing and recording all transactions on the network. Such delegates are free to share and evaluate the suggestions for testing the speaker’s information reliability and honesty. If, instead, it is approved by 2/3 of the members, the block will be added to the blockchain.
This form of Blockchain consensus protocol is also called’ Ethereum of China’ and by digitizing resources and providing smart contracts on the blockchain can be a useful resource in developing a’ digital economy.’
- Direct Acyclic Graph (DAG)
Another simple but prime blockchain collaboration template is that DAG is familiar with every mobile app development company that deals with Blockchain.
Each node itself prepares to become miner in this form of Blockchain consensus protocol. Now, when miners are eradicated and users validate transactions themselves, the associated fee is reduced to zero. Validating transactions between any two closest nodes becomes easier, making the entire process lighter, faster, and more secure.
IOTA and Hedera Hashgraph are the two best examples of the DAG algorithm.
- Proof of Capacity (PoC)
In the mechanism of Proof of Capacity (PoC), solutions are accumulated in digital storages such as hard disks for each complex mathematical puzzle. Users can use these hard disks to build blocks in a way that gives better chances to those who are quickest in assessing the solutions.
Burstcoin and SpaceMint are the two cryptocurrencies that depend on the PoC blockchain consensus protocol.
- Proof of Burn (PoB)
Considered an alternative energy consumption approach to PoW and PoS, the Proof of Burn (PoB) consensus model works on the principle of enabling miners to’ burn’ or’ ruin’ the digital cryptocurrency tokens, which also allows them the privilege of writing blocks in relation to the coins. The more coins they burn, the greater the chances for each coin they get to pick the new block.
However, they are required to send it to the address where it could not be spent to verify the block in order to burn coins.
In the case of shared consensus, this is commonly used. In addition, this consensus mechanism’s finest example is the slim coin.
- Proof of Identity (PoI)
PoI (Proof of Identity) definition is just like the official identity concept. It is a piece of cryptographic verification that is attached to each specific transaction for a private user key. Every identified user can create and manage a data block that can be presented in the network to others.
This consensus pattern ensures the reliability and validity of the data generated. Therefore, investing in smart cities is a good choice.
- Proof of Activity (PoA)
PoA is basically a hybrid approach based on the convergence of consensus models for PoW and PoS blockchain.
In PoA, miners use special hardware and electrical energy to solve the earliest cryptographic puzzle, just as in PoW. The blocks they come across, however, contain only the block winner identity information and reward transaction information. The process is changing to PoS here.
- Proof of Importance (PoI)
PoI is a variation of the PoS protocol introduced by NEM that takes into account the role of shareholders and validators in its operation. Nevertheless, it is not only determined by the scale and chance of their shares; it also plays a role in various other factors such as prestige, overall balance, and no.
The POI consensus model-based networks are expensive to attack and reward users for contributing to the security of the network.
The data that has been exchanged so far would have helped distinguish the various protocols of Blockchain consensus.
- Proof of Elapsed Time (PoET)
PoET was implemented by Intel with the intention of taking over cryptographic puzzles that are involved in the PoW process by considering the fact that the CPU architecture and the amount of mining hardware know when and at what rate a miner wins the block.
It is based on the idea that the chances for a greater fraction of participants should be equally distributed and extended. Therefore, each participating node is asked to wait to take part in the next mining process for a specific time. A block should be offered to the member with the shortest hold-up time.
At the same time, each node has its own waiting time, after which they go into sleep mode.
Therefore, that node is called the’ lucky winner’ as soon as a node is active and a block is available. This node can then disseminate the data across the network while preserving the decentralization property and earning the reward.
However, if you are interested in gaining more knowledge about blockchain consensus algorithms and seeing how to apply them to your app ventures, consult our Fusion Informatics Blockchain consultants for Blockchain Solutions and Services.