Cryptocurrencies are operated on blockchain networks, where the data are stored and managed across a peer-to-peer computer network. Being a decentralized platform, solving disputes and disagreements can be challenging and time-consuming, raising the need for an agreement that aligns the network together to agree on a single data set, and there comes the consensus mechanism.
What is a consensus mechanism, its importance, its types, and everything you need to know about consensus is included in this article. Continue reading and be a consensus prodigy.
Table of Content
- What is Consensus Mechanism?
- How Does a Consensus Mechanism Work?
- The Need for a Consensus Mechanism
- What are the Different Types of Consensus?
What is Consensus Mechanism?
A consensus mechanism is a set of software protocols integrated into a blockchain network that synchronizes all the nodes of the network in agreeing to the state of a digital data set. A consensus is used to verify transactions and ensure security in the blockchain platform.
How Does a Consensus Mechanism Work?
The data of pending transactions are entered into the nodes, and it is crosschecked with the ledger record, and an approval or disapproval notification is sent back to the node. Being a decentralized network, the approval of the majority of nodes is required to confirm the transaction. Once the transaction is confirmed, it is distributed and stored in the blockchain permanently.
The Need for a Consensus Mechanism
A blockchain network is decentralized, there is no central authority to control and manage the process of transactions. Every participant of the platform is responsible for maintaining the integrity of the platform. To agree upon an agreement a consensus mechanism brings all the nodes together.
1. Create a Trustless Environment
A consensus mechanism is a set of rules that all the nodes must agree upon. It eliminates the need to trust every member of the platform.
2. Prevents Double Spending
When a user spends more than the limited maximum, a bank or other institution charges additional fees. Whereas in blockchain, the consensus mechanism evaluates the usage of money and eliminates the chances of double spending by controlling the use of the money again before settling the first transaction.
3. Enhances Security
A consensus mechanism makes it necessary to hold half of the platform’s coins to verify a false transaction, which is next to impossible. This rule prevents hackers from making changes to the platform.
What are the Different Types of Consensus Mechanism?
There are different types of consensus mechanisms and they vary in their principles.
1. Proof of Work (PoW)
Proof of work is the first consensus mechanism introduced offering reliability and security for transactions. In this mechanism, miners make an effort to solve complex arbitrary puzzles with the help of high-powered computers to prevent system tampering. A participant node validates the transaction and a large network verifies it. This mechanism is utilized for validating transactions and generating new coins during crypto mining.
2. Proof of Stake (PoW)
The proof of stake mechanism allows users to stake cryptocurrency and process the transaction based on the number of crypto tokens staked. To earn rewards in the form of transaction fees the validators stake the token. It is a low-cost and low-energy-consuming process, thus considered an eco-friendly and feasible alternative to proof of work. When a consensus is reached the large network verifies the block and adds it to the existing blockchain.
3. Proof of Capacity (PoC)
Proof of Capacity utilizes the free space in the hardware drive to allow mining. Before starting the mining process, PoC keeps a list of possible solutions on the hard drive. The larger the drive the higher the possibility of obtaining the hash value from the list, thus the higher the reward earned. By offering low-cost transactions, PoC creates a user-friendly platform for everyone. It is more efficient than Proof of Work (PoW) and Proof of Stake (PoS) mechanisms.
4. Proof of Activity (PoA)
Proof of activity is the combination of proof of stake and proof of work consensus. In proof of activity consensus, the process of mining is similar to proof of work, where miners solve complex arbitrary problems using strong computational power. After completing the mining process, the consensus shifts to proof of stake, verifying the new block, and adding to the blockchain. Once all the blocks are added to the blockchain, it becomes ready to record transactions.
5. Proof of History (PoH)
Proof of history consensus utilizes timestamps in the blockchain to monitor the time taken to complete two consecutive transactions without relying on nodes. By taking the output of a transaction and using it as input for the next hash value, PoH consensus allows everyone to view the events that occurred between the transactions. It utilizes one CPU score to solve the Verifiable Delay Functions (VDF), making it more faster and energy efficient than other leading consensus algorithms.
There are many other less popular consensus mechanisms available, including Proof of Burn (PoB), Proof of Importance (PoI), Proof of Elapsed Time (PoET), Proof of Authority (PoA), and Delegated Proof of Stake (DPoS).
Also Read: Popular Consensus Mechanisms in Blockchain: PoW and PoS
Final Thoughts
Consensus mechanism allows a decentralized platform to conduct and coordinate the events of transactions smoothly. Each consensus mechanism is used for different purposes and has its own advantages and limitations.
However, the integration of a consensus mechanism increases the performance of a blockchain network.