Consensus mechanisms are the systems that validate transactions and note them as genuine. These mechanisms substitute human verifiers and auditors that may cause untrustworthy or incorrect information.
The consensus mechanism gained more trust and security among the decentralized computer networks. Also, this mechanism helped cryptocurrencies, distributed ledgers, and blockchains to use this mechanism and benefit from it. Two of the most important consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS).
Consensus mechanisms use automated group verification that helps to secure the information. Other than the two mechanisms mentioned above (PoW and PoS) there are a few other consensus mechanisms available. All the consensus mechanisms work on different principles. Proof of Capacity (PoC), Proof of Activity (PoA), and Proof of Burn (PoB) are the other mechanisms available.
In this article, we will talk about consensus mechanisms, how Proof of Work(PoW) works, what is Proof of Stake (PoS) what are the alternatives to PoW and PoS, how Delegated Proof of Stake (DPoS) works, and what is Practical Byzantine Fault Tolerance(PBFT).
Future of Consensus Mechanisms in Blockchain
A consensus mechanism can be any method used to achieve agreement, trust, and security over a decentralized computer network. Proof of Work(PoW) and Proof of Stake(PoS) are two of the most important consensus mechanisms in cryptocurrencies. Still, there are a few consensus mechanisms available, and those are more suitable in other fields such as business, enterprise, or personal uses.
The world is becoming more digital and this reflects in the cryptocurrency as well. Consensus mechanisms are now becoming more important to distributed ledgers, blockchains, and databases.
Proof of Work (PoW)
Proof of Work is one of the most common consensus mechanisms used in blockchains like Bitcoin and Litecoin. PoW offers an unbiased way for all the Bitcoin network members to agree on the state of the Bitcoin transactions and blockchain.
There will be complex mathematical problems to solve. Also, it requires high-octane computer systems to come out from the complex mathematical problems. Individuals who solve this problem are known as miners. They require technical knowledge about the tools to use. The miner who solves the problem first will be rewarded with the coin. If it is Bitcoin, we have mined, the miner will get 3.125 bitcoins as a reward.
Proof of Stake (PoS)
PoS (Proof of Stake) is an alternative consensus mechanism to the PoW(Proof of Work). Proof of Stake(PoS) is mainly developed and used by alternative cryptocurrencies such as Ethereum, Tether, Dogecoin, Litecoin, etc. Here in this model, stakers are equal to miners in the Proof of Work(PoW). The funds will be locked up in smart contracts. Whenever a new block is required for the network, an exclusive opportunity is granted to a particular staker to publish the next block.
To select the staker, the algorithm will conduct a lottery pool. The chance of winning depends on the percentage of total staked funds a staker has. For example: If an individual staker has 25% of the funds staked on a network given, that individual staker has a 25% chance of mining the block next.
Alternatives to Proof of Work (PoW) and Proof of Stake (PoS)
A few other consensus mechanisms are available, below are mentioned are those.
- Proof of Capacity (PoC)
- Proof of Activity (PoA)
- Proof of Burn (PoB)
Proof of Capacity (PoC) allows mining devices to use the available storage space to figure out mining rights and verify transactions. Compared with Proof of Work (PoW) and Proof of Stake (PoS), Proof of Capacity (PoC) is more efficient. This is one of its best benefits.
Proof of Activity (PoA) is a consensus mechanism that uses proof of work (PoW) and proof of stake (PoS) concepts in its design. This mechanism was designed to address permanent sustainability against attacks on the Bitcoin blockchain after removing the block reward and the last Bitcoin mined.
Proof of Burn (PoB) is a method used by cryptocurrencies to verify data stored on the blockchains. This is the third attempt that is being created to daunt fraud activities on the blockchain.
How does Delegated Proof of Stake (DPoS) work?
DPoS (Delegated Proof of Stake) is a consensus algorithm. This is the advancement of the Proof of Stake concept. This consensus algorithm was developed in 2014 by the founder of Bitshares, Steemit, and EOS Daniel Larimer. The system of DPoS is maintained by the system of election to choose nodes that validate blocks. These nodes are known as ‘witness’ or ‘block producers’.
Only a smaller staking amount is required by a node and this helps the DPoS to be financially inclusive and more democratic. Also, DPoS is more sustainable because it doesn’t require lots of power to run. Transactions are also not dependent on the computing power and are more scalable.
Practical Byzantine Fault Tolerance (PBFT)
PBFT or Practical Byzantine Fault Tolerance is also a consensus algorithm. This was introduced by Barbara Liskov and Miguel Castro in the late 90s. Practical Byzantine Fault Tolerance was designed to increase the efficient working of asynchronous systems. The main goal of this algorithm is to solve problems related to the available Byzantine Fault Tolerance solutions.
Two types of byzantine failures are available, one is fail-stop and the other one is arbitrary node failure. Failure to return a result, respond with an incorrect result, respond with a deliberately misleading result, and respond with a different result to different parts of the system are the types of failures that come under arbitrary node failure. Energy efficiency, transaction finality, and low reward variance are some of the advantages of Practical Byzantine Fault Tolerance (PBFT).
Conclusion
As we all know Consensus mechanism has now become a necessary part of databases, distributed ledgers, and blockchains. Proof of Work (PoW) and Proof of Stake (PoS) are the most popular consensus mechanisms used in cryptocurrency. Mainly consensus algorithms are designed to face three issues. To create fair reward models, reduce their environmental impact, and increase the speed without compromising on security, decentralization, and scalability.