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Blockchain consensus is a part of any blockchain — it is the core technology that keeps blockchains decentralized, integrity and security of the network.

There are a lot of blockchain consensus mechanisms, each mechanism will work in a unique way that best suits its blockchain idealogy.

Today, we will find out what is the Blockchain consensus to understand it and some of the most widely used consensus types. Let’s get started!

Table of contents
1. What is blockchain consensus mechanism?
2. Why does blockchain need a consensus mechanism?
3. Types of blockchain consensus mechanisms
3.1. Proof of Work (PoW)
3.2. Proof of Stake (PoS)
3.3. Delegated Proof of Stake (DPoS)
3.4. Proof of Activity (PoA)
3.5. Proof of Authority (PoA)
3.6. Proof of Burn (PoB)
3.7. Proof of Capacity / Proof of Space (PoC / PoSpace)
3.8. Proof of Elapsed Time (PoET)
3.9. Proof of History (PoH)
3.10. Proof of Importance (PoI)
3.11. Proof of Contribution (PoC)
3.12. Proof of Reputation (PoR)
3.13. Others
4. Closing thoughts

1. What is blockchain consensus mechanism?

A consensus mechanism (also known as consensus protocols or consensus algorithms) is a procedure in which the peers of a Blockchain network reach an agreement about the present state of the data in the network. Through this, consensus algorithms establish reliability and trust in the Blockchain network.

At its core, blockchain consists of multiple nodes that create a network. For a transaction to be recorded on the blockchain, it has to be agreed upon by the whole network at the same time.

The method of agreement that blockchain nodes use is called the blockchain consensus mechanism. Up to this moment, there are many different types of consensus mechanisms that can be used in a blockchain network, each with its own unique strengths and weaknesses.

Proof of work (PoW) and proof of stake (PoS) are two of the most widely used consensus mechanisms.

2. Why does blockchain need a consensus mechanism?

Consensus mechanisms form the backbone of all cryptocurrency blockchains and are what makes them secure. Before we find out the different consensus mechanisms, we need to first define what it means for blockchains to achieve consensus.

A blockchain is a decentralized, distributed and oftentimes public digital ledger that is used to record transactions. Each of these transactions is recorded as a ‘block’ of data, which needs to be independently verified by peer-to-peer computer networks before they can be added to the chain. This system helps to secure the blockchain against fraudulent activity and addresses the problem of ‘double-spending’.

In order to guarantee that all participants (‘nodes’) in a blockchain network agree on a single version of history, blockchain networks like Bitcoin and Ethereum implement what’s known as consensus mechanisms. These mechanisms aim to make the system fault-tolerant.

There exists no chance for a single party to exploit the blockchain if its consensus is solid and secure enough. The more nodes there are, the more secure the blockchain becomes. This makes Bitcoin and Ethereum the two safest blockchains up to date.

3. Types of blockchain consensus mechanisms

3.1. Proof of Work (PoW)

Proof of Work is a type of algorithm used by decentralized networks to achieve distributed consensus and it is the first blockchain consensus to exist, as it was introduced by Bitcoin — the first cryptocurrency.

Proof of Work requires nodes to use computing power in order to solve difficult and asymmetric puzzles. The node to first solves the mathematical problem receives rewards in a process called “mining”, whereas nodes are considered miners.

In PoW, miners essentially compete against one another to solve extremely complex computational puzzles using high-powered computers. The first to come up with the 64-digit hexadecimal number (‘hash’) earns the right to form the new block and confirm the transactions. The successful miner is also rewarded ​​with a predetermined amount of crypto, known as a ‘block reward’ (in the case of Bitcoin, for example, this reward is in the form of newly minted Bitcoins).

By using computing power to secure the blockchain, Proof of Work requires a massive amount of electricity usage as well as expense for the compulsory hardware. At the same time, it usually takes longer for a block to be validated and created, making PoW less efficient than other consensus mechanisms.

3.2. Proof of Stake (PoS)

Proof of Stake (PoS) is another type of algorithm used by decentralized networks to achieve distributed consensus. It is an alternative to Proof of Work (PoW), which is used by many cryptocurrencies, such as ICON, Ethereum and other Altcoins.

In a Proof of Stake (PoS) system, miners are required to pledge a ‘stake’ of digital currency for a chance to be randomly chosen as a validator. The process is not unlike a lottery whereby the more coins you stake, the better your odds.

Unlike in PoW where miners are incentivized by block rewards (newly generated coins), those who contribute to the PoS system simply earn a transaction fee.

PoS is seen as a more sustainable and environmentally-friendly alternative to PoW, and one that’s more secure against 51% attack (We will discuss it in another article). However, as the system favors entities with a higher number of tokens, PoS has drawn criticism for its potential to lead to centralization like Cardano (ADA), Solana (SOL), and Tezos (XTZ).

3.3. Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is the evolved version of Proof of Stake (PoS). Instead of choosing a validator randomly, delegators who verify a specific block will be voted by users, whereas delegators with the most staked tokens will be chosen.

The key advantage of DPoS over PoS is that it is more scalable. Because only a limited number of delegates are responsible for creating new blocks, the network can process transactions more quickly and handle a larger number of users.

DPoS is also considered to be more democratic than PoS because all users have the opportunity to participate in the decision-making process by voting for delegates. This can help to ensure that the network is run in the best interests of the users.

However, DPoS is also criticized for being less decentralized than PoS, because the power to create new blocks is concentrated in the hands of a small number of delegates. This can make the network more vulnerable to attacks and centralization. It is used by Lisk (LSK), Hive (HIVE) and Ark (ARK).

3.4. Proof of Activity (PoA)

Proof of activity (PoA) is a hybrid of the PoW and PoS consensus mechanisms. It is used by the Decred (DCR), Dash (DASH), Zano (ZANO),…

In a PoA system, the process of creating new blocks and adding them to the blockchain is split into two phases:

• In the first phase, known as the PoW phase, miners compete to solve a mathematical puzzle, as in a traditional PoW system. The first miner to solve the puzzle creates a new block and adds it to the blockchain.
• In the second phase, known as the PoS phase, a group of users known as validators is chosen based on the amount of cryptocurrency they hold (their stake in the network). These validators verify the block created in the PoW phase, and if they agree that it is valid, they add it to the blockchain.

The key advantage of PoA over PoW or PoS is that it is more secure and efficient. Because the PoW phase ensures that only valid blocks are added to the blockchain, the network is less vulnerable to attacks. And because the PoS phase allows users with a stake in the network to participate in the consensus process, the network can reach consensus more quickly and efficiently than in a traditional PoS system.

3.5. Proof of Authority (PoA)

Proof of Authority (PoA) works by selecting its validators based on reputation. A modified version of PoS, it was proposed by Ethereum co-founder and former CTO Gavin Wood in 2017.

In a PoA system, users who are considered to be trustworthy and have a good reputation and don’t need to stake coins are chosen to create new blocks and add them to the blockchain. These users are known as “authorities” or “validators,” and they are responsible for verifying transactions and ensuring that the network follows the rules.

The key advantage of PoA over PoS is that it is more secure and resistant to attacks. Because the validators are known and trusted individuals, it is more difficult for an attacker to compromise the network and prevent other users from adding new blocks. PoA-based projects include VeChain (VET), Ethereum Kovan testnet,…

However, PoA is also criticized for being less decentralized than PoS, because the power to create new blocks is concentrated in the hands of a small number of trusted individuals. This can make the network more vulnerable to corruption and centralization.

3.6. Proof of Burn (PoB)

Proof of Burn (PoB) is a variation of Proof of Work (PoW), which is the algorithm used by Bitcoin and many other cryptocurrencies.

In a PoB system, miners compete to create new blocks and add them to the blockchain by “burning” (destroying) some of their cryptocurrency. The first miner to burn a certain amount of cryptocurrency is rewarded with a certain number of tokens (in the case of Bitcoin, for example, this reward is in the form of newly minted bitcoins). Miners do not need to use as much computational power, so the energy costs are lower.

The act of burning coins also leads to coin scarcity, limiting inflation and driving up demand. PoB is not as widely used as PoW, but it has been implemented by some decentralized networks, such as Counterparty (XCP), Factom (FCT),…

3.7. Proof of Capacity / Proof of Space (PoC / PoSpace)

Proof of capacity (PoC) — also known as Proof of Space (PoSpace) — bases its mining algorithm on the amount of space available in a miner’s hard drive.

In a PoC system, miners compete to create new blocks and add them to the blockchain by committing a certain amount of disk space on their computers. The more storage capacity a miner has, the more possible solutions. The more solutions, the higher the chances of possessing the correct combination of hashes and winning the reward.

PoC opens up opportunities for the average person to participate in the network. The mechanism is currently used by Signum (SIGNA) — formerly Burstcoin (BURST), Storj (STORJ), Chia (XCH),…

3.8. Proof of Elapsed Time (PoET)

Usually used on permission blockchain networks (those that require participants to identify themselves), Proof of Elapsed Time (PoET) leverages trusted computing to enforce random waiting times for block construction. It was developed by Intel in early 2016 and is based on a special set of CPU instructions called Intel software guard extensions (SGX).

A time-lottery-based consensus algorithm, PoET works by randomly assigning different waiting times to every node in the network. During the waiting period, each of these nodes goes to ‘sleep’ for that specified duration. The first to wake up (that is, the one with the shortest waiting time) is awarded the mining rights. This randomization guarantees that every participant is equally as likely to be the winner, ensuring fairness within the network.

In a PoET system, the waiting time is determined randomly, so all users have an equal chance of creating a new block, regardless of the amount of cryptocurrency they hold.

PoET is not as widely used as PoS, but it has been implemented by some decentralized networks, such as Hyperledger Sawtooth and Corda.

3.9. Proof of History (PoH)

Proof of History (PoH) provides proof of historical events. Developed by Solana (SOL), PoH allows for ‘timestamps’ to be built into the blockchain itself, verifying the passage of time between transactions without having to rely on other nodes.

PoH allows the network to maintain a record of its own history, which can be useful for various applications. For example, a network using PoH could maintain a tamper-resistant record of all the transactions that have ever occurred on the network, which could be used for auditing or other purposes.

As PoH is only employed by Solana (SOL), it has yet to be tested on a large scale.

3.10. Proof of Importance (PoI)

Proof of Importance (PoI) selects its miners based on certain standards in a process called ‘harvesting’. It’s based on these factors that an importance score is attributed to nodes. The higher the score, the higher the probability of being chosen to harvest a block and receive the accompanying transaction fee.

In a PoI system, miners are chosen to create new blocks and add them to the blockchain based on their “importance” in the network. This importance is determined by a variety of factors, such as the amount of cryptocurrency the user holds, the number of transactions they have made, and the amount of activity they have generated on the network.

PoI is not as widely used as PoS, but it has been implemented by some decentralized networks, such as NEM and EOSIO.

3.11. Proof of Contribution (PoC)

Proof of Contribution (PoC) monitors the actions of all validators within the network and rates them based on their contribution — a mechanism pretty similar to the social credit system. The credit of a user is evaluated based on the number of staked tokens and historical records.

Before participating in the network and the computation process, users have to stake a security deposit. After completing the computational work, nodes that conduct the validated result will be rewarded with transaction fees as well as the staked tokens from those that do not successfully provide the correct answer.

3.12. Proof of Reputation (PoR)

Proof of Reputation (PoR) is the upgraded and enhanced version of Proof of Contribution (PoC). While it works nearly in the same way, the difference lies in its validators. While anyone can become a node on a PoC blockchain, PoR requires a stricter filtering process.

To become a validator on a PoR blockchain, your reputation has to be so big that conducting fraudulent activities on the blockchain can annihilate your identity. They are usually private companies or figures that want a blockchain to serve their specific needs.

3.13. Others

Up to date, there have been myriads of blockchain consensus mechanisms, serving both public and private demands.

4. Closing thoughts

There’s no one-size-fits-all approach when it comes to verifying the authenticity of distributed blockchain platforms. Each consensus mechanism comes with its own set of advantages and trade-offs. While PoW and PoS are certainly the most prevalent, a variety of new and evolving algorithms are continuing to emerge.

Since these blockchain consensus mechanisms can never be changed and the only way to innovate is to create a new one, the space of consensus will be constantly evolving with more and more to come. Newer blockchains would want to improve the network’s technological aspects, hence inventing new kinds of consensus to fit their idea.

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