What is a consensus algorithm and its different types?
A blockchain is a distributed network of interconnected computers known as nodes. They offer network privacy, security, transparency, and immutability.
In most circumstances, blockchain networks lack a central authority that validates transactions. Yet, every transaction on these networks is deemed safe and authentic. It is only possible due to the presence of consensus methods.
Consensus algorithms allow nodes to collaborate in a decentralized and distributed environment. It establishes a shared understanding of a blockchain’s present state.
These algorithms are the foundation of the crypto industry. They define the conditions that each node must meet when validating and adding blocks to a blockchain.
“The Byzantine Generals Problem” was the basis of this concept. It asks if it is possible to get a consensus in geographically distributed independent nodes.
Consensus algorithms enhance the security and integrity of blockchain networks. It enables decentralized management and validation of large numbers of transactions per second.
Today, various types of consensus algorithms are in use. Let’s have a look at some of them:
Popular Consensus Algorithms
1. Proof-of-Work (PoW)
Satoshi Nakamoto introduced Proof-of-Work in his famous Bitcoin whitepaper in 2009. It was the first consensus mechanism.
In PoW, the nodes compete to solve mathematically complex problems to add a new block. They reach a consensus on the validity of the block before adding it to the blockchain. As a result, the presence of two distinct blocks is improbable.
PoW is the most used consensus mechanism today. Bitcoin, Ethereum, Litecoin, Dogecoin, and other cryptocurrencies have adopted it.
But, most developers favor other methods because of PoW’s slow performance and high energy consumption.
2. Proof-of-Stake (PoS)
Proof-of-Stake was launched in 2011 as an alternative to PoW. It is the second most popular consensus algorithm.
Instead of mining, the nodes have to lock the native coin of the blockchain within the system. This process is known as staking, and ‘staking pools’ hold the funds.
In PoS, the algorithm randomly selects nodes from the staking pool. These selected nodes validate blockchain transactions. The selection is often based on one’s staking percentage. For example, if a user holds 10% of the funds locked in the staking pool, his chances of validating the blocks are 10%.
PoS is a good substitute for PoW since it requires lower resources for block validation. Aside from being more energy-efficient, PoS is harder to attack and is easily scalable. The PoS consensus algorithm is being utilized in Eth2.0, as well as Peercoin and NXT.
3. Delegated Proof-of-Stake (DPoS)
In DPoS, stakeholders elect validators on one’s behalf. Generally, there are 21–100 designated validators who rotate after a particular time. This algorithm is substantially faster than PoS because of the delegation procedure.
In contrast to PoW and PoS, validators can work together. If an elected validator fails to publish blocks regularly or publishes invalid transactions, token holders can replace them with someone else. As a result, the validation process is significantly faster and more scalable.
Several blockchains, including Steemit, EOS, Bitshares, Lisk, and Ark, now use the DPoS.
4. Proof-of-Authority (PoA)
Proof-of-Authority is a resource-intensive consensus mechanism. It relies on the validator’s reputation when adding a block to a network.
Gavin Wood, Ethereum’s co-founder, came up with the idea for PoA. It is an efficient solution for private blockchains. It does not need resource-intensive mining activities. PoA also uses a fixed number of block validators, making it easily scalable.
PoA works best in a permissioned environment. Private blockchain networks like POANetwork, Ethereum Kovan testnet, and VeChain favor it.
5. Byzantine Fault Tolerance (BFT)
BFT is used to resolve a rogue or untrustworthy node on the blockchain network. Its name is from the “Byzantine Generals” problem. It pertains to a logical dilemma discussed in an academic work by Leslie Lamport, Robert Shostak, and Marshall Pease.
In a blockchain, nodes that distribute faulty blocks compromises the integrity of the blockchain. No one can intervene to rectify it because there is no central authority.
BFT is a scalable and quick consensus technique used by Hyperledger, Ripple, and Stellar networks.
6. Proof-of-Burn (PoB)
Proof-of-Burn is another substitute for the PoW. Rather than using costly equipment, the nodes burn cryptos by sending them to a burn address. After the coins are sent, they cannot be recovered.
Validators must burn the blockchain’s native coin to boost their verification chances. PoB minimizes energy consumption by burning tokens to create virtual mining machines.
Two factors influence the consensus algorithms used by various blockchain platforms. First is the type of applications the platform intends to offer. Second, are the threats it perceives to the chain’s integrity.
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