How Many Consensus Algorithms Are There? An Overview

As we all know, blockchains are decentralized ledgers with no centralized authority to govern and control the network. Naturally, this eradicates many problems inherent in the centralized networks, such as limited user freedom and network manipulation, but it also necessitates the development of a new operating mechanism.

Over the years, blockchains have developed several consensus algorithms to regulate their networks and ecosystems. The primary purpose of these consensus algorithms is to validate the authenticity of transactions and record them on the digital ledger.

After well over a decade since the first blockchain was launched, various consensus models have emerged and been adopted for practical implications. Some of these are completely new and unique concepts, while others are variations of the former ones.

This article will cover some of the most popular consensus algorithms commonly used in the blockchain industry today.

Proof of Work (PoW)

Though invented in 1993, proof of work is the first-ever algorithm introduced into a blockchain. Satoshi Nakamoto combined it with other existing technologies (cryptographic signatures, P2P network, etc.) and developed the first application, i.e., Bitcoin, to use it practically. The model was later adopted by many other cryptocurrencies, such as Litecoin and Dogecoin.

In the PoW model, the blockchain gathers all the data regarding blocks and transactions. But this data needs to be approved and recorded first. The job is done by the participants of the blockchain (miners), which are spread all across the network in the form of individual nodes.

To select one node and to validate the current block, miners are required to solve highly complex algorithmic problems. Consider it a mathematical competition where all miners race against each other.

The first miner to have successfully solved the code is then trusted to add the new block to the chain. As an incentive to participate, miners are rewarded with newly mined tokens and fees for the recorded transactions as soon as the block is completed.

The PoW model requires miners to use highly powerful computing devices which consume a lot of electricity. Moreover, when one miner successfully solves the algorithmic problem, the resources used by the rest of the participants racing go useless. This factor raises great concerns for the environment.

Already in 2015, according to some reports, it was estimated that the electricity required to complete one transaction on the Bitcoin blockchain was enough to power up 1.5 American households for an entire day.

Proof of Stake (PoS)

Proof of stake is another commonly used consensus model in the blockchain world. It was presented as an energy-conserving solution to the problems inherent in the PoW mechanism.

The PoS model replaces miners with stakers who are elected as validators to mine the new block. To qualify to be elected, users must lock their coins (staking) in the network. The larger your staking, the greater will be the chance to get elected as a validator.

Unlike the PoW model, where miners have to race against each other to win the validator status, in the PoS mechanism, the blockchain itself picks the next validator. This significantly reduces the total energy consumption, as now, the network participants will not have to waste massive amounts of computing power and electricity trying to solve a useless code. It’s important to remember that the selection is made randomly to ensure that the network is not biased towards a certain participant.

Besides being energy-efficient, blockchains with the PoS mechanism are much faster than those with PoW. They take less time to complete transactions. For the sake of comparison, consider Ethereum Classic (the older Ethereum version), which used the PoW model and could complete only 15 transactions per second. In comparison, the newer Ethereum (one with the PoS mechanism) completes several thousand transactions in the same time period.

Some blockchains have a minimum limit to become a staker. However, in case you don’t meet the staking criteria, you can join one of the staking pools. Staking pools allow holders to collectively stake their crypto coins and distribute the reward among all participants.

Delegated Proof of Stake (dPoS)

Now we’re moving towards the less common consensus model, and the first among them is delegated proof of stake.

dPoS, as you can guess by the name, is a variation of the typical PoS model. This consensus mechanism aims to make the existing PoS a more robust and time-efficient system of approving transactions.

In dPoS, miners collaborate instead of competing with each other (as in the case of PoS and PoW). The stakeholders get to choose a node as their validators (witnesses). Multiple witnesses are elected simultaneously to produce blocks. If a witness does not complete the block at the targeted time, the block is skipped, and the next witness starts working on the next block. If a witness fails at completing blocks continuously, it is voted out of the network.

At the same time, a number of other nodes are kept on stand-by. These nodes are used to replace a witness that has either been voted out, gone offline, or been caught doing something malicious. Witnesses are rewarded after the completion of the blocks.

EOS is the most popular project to have adopted this model. It can complete a block within half a second, making it one of the fastest blockchains in the world.

Proof of Activity (PoA)

PoA is a hybrid consensus model that combines PoW and PoS to create a secure and more decentralized blockchain.

The mining procedure starts just like a regular PoW model. The miners use their computing power to race against each other, solving complex cryptographic algorithms. The winner gets to mine a new block to the chain. However, these newly-mined blocks don’t contain any validated transaction records.

This is where the network switches to the PoS model. A bunch of randomly selected validators then authenticate the transactions and complete the block. After the required amount of data has been added to the block, it becomes a proper part of the chain.

The rewards for the block are distributed between miners and validators.

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

Many experts refer to PoC as a version of PoW. That’s because the entire working mechanism of both approaches is exactly similar, except for the means to qualify as validators.

In PoC, participants of the blockchain do not need to use energy-consuming complex computing devices. Instead, hard storage is involved. The mechanism involves two types of participants:

  • Provers
  • Verifiers

Provers are required to solve special PoC algorithms, called nonces. After solving, they send the code to verifiers, who then check if the prover has enough space to mine the next block. The provers with more hard disk space than others are more likely to be verified to mine the next block, while those with lesser space face great difficulty solving the code.

PoC blockchains, such as Burstcoin and SpaceMint, are much faster and energy-efficient. But they are also more vulnerable to hackers, as the system can be injected with mining malware.

Byzantine Fault Tolerance (BFT)

Byzantine fault tolerance consensus models are constructed specifically to deal with a common problem in the decentralized blockchains, i.e., the Byzantine general problem. This problem is concerned with a scenario where the network leaders have to agree on one effective decision, but one (or some) of them is not loyal to the system.

A number of BFT variations are practiced today in different blockchain ecosystems, but the two most common and the most important ones are discussed next.

Practical Byzantine Fault Tolerance (PBFT)

PBFT is the model used by cryptocurrencies, such as Ripple and Stellar.

The primary concept of this model is very simple. A certain number of nodes (generals) are selected and organized in a special order. After that, one of them is elected as the leader, and the rest work as a backup.

However, when the leader reaches a conclusion, it has to be passed through each node to get confirmation. In this way, all the nodes are involved and actively connected with each other.

The problem with this model is that it does not perform well with a large number of nodes, mainly because that demands additional communication, hence, delayed transactions.

Delegated Byzantine Fault Tolerance (dBFT)

Introduced by the NEO, dBFT is the most innovative consensus mechanism since the introduction of PoW and PoS. Many people in the crypto industry call NEO the “Chinese Ethereum,” thanks to the efficiency of this model.

Like dPoS, anyone who fulfills certain requirements becomes eligible to become a delegate. Then the blockchain randomly chooses one delegate as a leader to record transactions and add the next block. However, the leader has to get the records analyzed from the rest of the delegates. Unless two-thirds of the delegates do not approve it, the new block is not added.

Conclusion

Choosing a consensus model is arguably the most important component of a blockchain’s development. It’s the consensus model that determines several factors for an ecosystem. These may include efficiency, security, and versatility.

Yet, not a single consensus model can be declared the perfect approach. Each has its strengths but some flaws, as well. That’s also the beauty of this technology. It’s fascinating to see how different mechanisms adopt different solutions to common problems.

The editorial content of OriginStamp AG does not constitute a recommendation for investment or purchase advice. In principle, an investment can also lead to a total loss. Therefore, please seek advice before making an investment decision.