What is the consensus mechanism in blockchain technology?
The blockchain is a decentralized data system that enables users to exchange and store value in cryptocurrencies. To manage and maintain such a decentralized system, members must agree on the system’s current state and who owns what at any time.
A consensus mechanism is the established method by which the blockchain’s nodes — the computers that administer the blockchain and keep track of all transactions — reach this agreement reliably.
What is the role of the Consensus Mechanism in Blockchain?
In the world of cryptocurrency, the purpose of a consensus mechanism is to prevent bad actors from intentionally cheating. “Double-spending” is a famous form of #cryptocurrency cheating.
Assume A, the bad actor in this situation, tries to cheat by sending ten tokens to B and then sending the same ten tokens to C. The challenge is to ensure that everyone is always aware of and agrees on who owns particular tokens. Based on that agreement or #consensus, C would already know that Anthony no longer owns the tokens he is trying to transmit.
To “double-spend,” a bad actor would need to persuade the nodes to accept a false history of the transactions, a scenario in which the bad actor did not spend the tokens and instead gave them to B.
Consensus techniques address the issue of double-spending by making it costly and challenging to propose a new block of verified #transactions, deterring bad actors from doing it.
At the same time, the algorithms encourage “good” nodes to submit blocks they genuinely believe will be accepted to collect lucrative incentives. As long as there are more good actors than evil actors, A will be unable to alter the blockchain records to fake his transaction with B.
How does Consensus Mechanism work?
Consensus mechanisms are the foundation of all cryptocurrency blockchains and are responsible for their #security. Before delving into the various consensus algorithms, we must first define what it means for blockchains to reach consensus.
A #blockchain is a distributed, #decentralized, and frequently public digital ledger that records transactions. All transactions is stored as a ‘block’ of data that peer-to-peer computer networks must independently validate before being added to the chain. This approach secures the blockchain against fraudulent activity and addresses the double-spending problem.
Blockchain networks such as #Bitcoin and Ethereum use consensus methods to ensure that all parties (‘nodes’) in a blockchain ecosystem agree on a single version of history (also known as consensus protocols or consensus algorithms). These mechanisms are designed to make the system more fault-tolerant.
What is Consensus Mechanism?
Consensus is the method through which a set of network peers, or nodes, determine which blockchain transactions are valid and which are not. The approaches utilized to obtain this agreement are known as consensus procedures. These sets of rules aid in protecting networks from harmful behavior and hacking attacks.
Numerous consensus processes exist depending on the blockchain and its use. While they differ in energy consumption, security, and scalability, they all serve the same purpose: verifying that records are accurate and honest. Here’s a look at some of the most well-known consensus processes distributed systems use to establish an agreement.
Types of Consensus Mechanisms
Proof of Work (PoW)
Proof of work (PoW) was the first consensus method invented by Bitcoin, Ethereum, and many other public blockchains. It is often regarded as the most dependable and secure of all consensus processes, while questions about scalability abound. While the concept of “proof of work” was coined in the early 1990s, Bitcoin founder Satoshi Nakamoto was the first to apply it in the context of digital currencies.
In Proof-of-Work (PoW), miners compete against each other using high-powered computers to solve complicated puzzles. The first person to generate the 64-digit hexadecimal number (‘hash’) wins the ability to create the next block and confirm the transactions. The successful miner is also awarded a fixed quantity of crypto, known as a ‘block reward.’
The running expenses of PoW are notoriously high due to the massive amount of computational resources and energy required to generate new blocks. This feature creates a barrier to entry for new miners, raising concerns about centralization and scalability.
And it’s not just the expenditures that are too expensive. The most prevalent objection towards PoW is the environmental impact of power use. As a result, many people are looking for more sustainable, energy-efficient consensus methods, such as proof of stake (PoS).
Proof of Stake (PoS)
As the name implies, this popular way of reaching an agreement depends on a procedure called staking. In a proof of stake (PoS) system, miners must promise a stake of digital money to be picked randomly as a validator. The procedure is similar to a lottery in that the more coins you stake, the more increased your odds.
In contrast to the PoW system, where miners are rewarded with block rewards (newly produced currencies), individuals that contribute to the PoS system merely get a transaction fee.
PoS is seen as a more environmentally friendly and sustainable option to PoW, as well as one that is safer against a 51% attack. However, because the system favors entities with more tokens, PoS has been criticized for its propensity to lead to centralization.
Delegated Proof of Stake (DPoS)
Delegated proof of stake (DPoS), a version of the PoS consensus process, achieves consensus through a reputation-based voting system. The network’s users ‘vote’ for ‘witnesses’ (also known as ‘block makers’) to secure the network on their behalf. Only the highest tier of witnesses (those with the most votes) can validate blockchain transactions.
To vote, users add their tokens to a staking pool. Votes are then weighted based on each voter’s stake value, with more skin in the game equaling more voting power. Elected witnesses who successfully verify transactions in a block are rewarded, and this payment is frequently shared with people who voted for them.
Top-tier witnesses are always at risk of being replaced by those judged more trustworthy and receiving more votes. They can only be voted out if they carry out their duties or attempt to approve fraudulent transactions. This step incentivizes witnesses to be truthful at all times, maintaining the blockchain’s integrity.
Proof of Activity (PoA)
Proof of activity (PoA) is a consensus process that combines the PoW and PoS consensus mechanisms. In PoA systems, mining begins similarly to PoW, with miners vying to solve an intricate mathematical problem utilizing massive processing power. However, once the block has been mined, the system changes to PoS mode, with the successfully created block header broadcasting to the PoA network.
A group of validators is then chosen randomly to sign on the hash, for validating the new block. As with PoS, the more crypto the validator owns, the more likely it will be chosen. After each validator has signed the block, it is introduced to the blockchain Proof of Authority (PoA)
Proof of Authority (PoA)
Proof of authority (PoA), not to be confused with proof of activity (also ‘PoA’), operates by selecting validators based on reputation. It is a modified version of PoS proposed in 2017 by Ethereum co-founder and former CTO Gavin Wood.
Validators do not stake coins in PoA. Instead, they must risk their reputations to validate blockages. This feature contrasts with most blockchain protocols, which often do not require exposing your identity to participate.
This approach is significantly less resource-intensive than some of its predecessors, including PoW, because it requires little computing power. It is also one of the least expensive choices, making it a popular choice for private networks.
Although very scalable, it falls short in the decentralization department, as only a few can join the network. Furthermore, the requirement that validators be recognizable raises the possibility of corruption and third-party manipulation.
Proof of Burn (PoB)
Proof of burn is another sustainable alternative to Bitcoin’s PoW algorithm (PoB). Miners earn the ability to mine a block in PoB by ‘burning’ (destroying) a predetermined amount of tokens in a verifiable manner, notably by transmitting them to an ‘eater address’ where they cannot be reclaimed or spent. The more coins are destroyed, the more likely it is that you will be chosen at random.
Unlike PoS, where miners can recover or sell their locked coins if they quit the network, burned coins are irreversibly destroyed. This strategy of asking miners to forego short-term income to obtain the lifetime privilege of creating new blocks encourages miners to commit long-term. Burning coins also causes coin scarcity, curbing inflation and increasing demand.
n network and is ready to record transactions. The block rewards are subsequently distributed to the validators and miners.
Though the PoA system was supposed to combine the most significant characteristics of PoW and PoS while avoiding their flaws, it has received criticism for its energy-intensive mining phase and natural preference for validators with larger coins.
Proof of Elapsed Time (PoET)
Proof of elapsed time (PoET), typically employed on permissioned blockchain networks (those that require participants to identify themselves), uses trusted computing to enforce random waiting times for block construction.
PoET is a time-lottery-based consensus mechanism that allocates specific wait times to each node in the network at random. Each node enters into ‘sleep’ mode during the waiting period for the duration provided. The mining rights are awarded to the first person to wake up (the one who has waited the least amount of time). This randomization ensures that each player has an equal chance of winning, providing network fairness.
The PoET consensus process is highly efficient, requires fewer resources, and is scalable.
PoC allows the typical individual to engage in the network because it does not require expensive or specialized equipment. As a result, it is a less energy-intensive and more decentralized alternative to some of the more common consensus processes discussed in this tutorial. However, few developers have yet decided to use the system, and there are concerns regarding its vulnerability to virus assaults.
Proof of Importance (PoI)
Proof of Importance (PoI) selects its miners based on particular criteria in a process termed ‘harvesting.’ The quantity and size of transactions in the last 30 days, the amount of vested currency, and network activity are all common considerations. Nodes are assigned a significance score based on these variables. The higher the score, the more likely you will be chosen to harvest a block and get the associated transaction fee.
Though comparable to PoS, PoI’s usage of extra measures eliminates the former’s inclination to naturally favor the wealthy by considering members’ total network support. As a result, staking high in POI does not ensure a chance to win the block.
To summarise
There is no one-size-fits-all solution to confirm the legitimacy of distributed blockchain networks. Each consensus technique has its own set of benefits and drawbacks. While PoW and PoS are the most common, new and developing algorithms are constantly emerging.
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