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Different Blockchain Consensus Mechanisms Explained – The Definitive Guide

Key to what makes blockchain secure is its decentralized nature. Before any node [participant] can add a block [set of data] to the chain, it has to be first validated by other nodes. This ensures the risk of malicious or fraudulent blocks being added to the chain is minimal. This, however, still doesn’t resolve the danger of a group hijacking the chain by creating a lot of nodes and hence increasing their chance of their block being added to the chain. To counteract this, a consensus mechanism is implemented, which demands additional commitment for a block to be validated.

Here I will explain the different types of blockchain consensus mechanisms, what are their pros and cons, and which tokens [coins] use them.

Proof of Work (PoW)

The earliest implemented consensus mechanism, its concept is fairly ancient in internet terms. PoW was first proposed way back in 1993 as a means to counter the proliferation of junk mail. Fast forward to 2009, the world’s first cryptocurrency, Bitcoin, was created based on it.

PoW requires nodes to use computation power in order to create a block. This can be in the form of solving complex puzzles or mathematical equations. The first node to find a solution is then checked by other nodes and if the solution is valid, the block gets added to the chain. Because it consumes resources, PoW may compensate the node in some form, such as by rewarding them a set amount of the native cryptocurrency. The term “miner” is used for people running their computers to build new blocks and extract cryptocurrency.

Pros

Highly decentralized

Block validation is completely decentralized, meaning no single entity can alter how the mechanism works.

Cons

Inefficient

PoW blockchains usually have slow transaction speeds, particularly at peak hours. Bitcoin, for instance, has an average transaction time of 10 minutes.

Bad for Environment

The process is energy-intensive. Just one Bitcoin transaction takes 2125 kWh to complete – enough to power an entire village for a day.

Not as Secure

Any hacker group or organization with enough computing power can simply form the majority and gain control of the network. A PoW blockchain network has to first grow to a certain size to make this unfeasible.

Variant

Proof of Space (PoS*)

In PoS, instead of working memory such as graphic cards, nodes use storage memory to add blocks. An advantage over PoW is that it tends to be faster and less power-intensive. However, a lower barrier to entry in forming nodes also means the risk of a hostile network takeover is higher.

Proof of Work Cryptocurrency List

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PoS*

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Proof of Stake (PoS)

First introduced in 2012 by the team behind Peercoin, PoS nodes have to stake their native tokens as collateral on the blockchain before they can create new blocks. Staking nodes are usually rewarded with generous interest rates earned on their staked amount. Anyone found to have engaged in malicious activity is penalized by losing some or all their staked tokens.

To further improve security, many PoS protocols also assess the staking time as a contributing factor. The longer a node has been holding its tokens, the higher the chance it gets to create the new block.

Pros

Efficient

Transaction time is usually rapid on PoS network.  As an example, the Polkadot network, at present, can process more than 1,000 transactions per second.

Higher Security

Conducting malicious activity contains a higher risk on a PoS network. Not only does a malicious entity have to buy and stake a large amount of the native tokens to gain control of the network but risks losing them all if discovered.

More Environmentally Friendly

Since regulation and processes are on-chain, it consumes sustainably less energy than PoW networks.

Cons

Encourages Hoarding

A PoS network discourages spending as people hold on to their tokens to keep collecting interest.

Unequal

Since the coins are not being circulated a lot and staked coins earn interest, there is a risk of just a few users dominating the chain’s native economy.

More centralized

Initially, PoS was initially touted as being more decentralized than PoW. However, because of hoarding, this has not turned out to be the case. Those with a higher amount staked also have a higher chance to validate a block.

Variants

Delegated proof of stake (DPoS)

With DPoS, those staking nodes vote for a node to which validation is then delegated. DPoS provides an added layer of security at the cost of more centralization by limiting block validation to only the best behaving nodes.

Pure Proof of Stake (PPoS)

In this, every token held in a crypto wallet is staked on the chain. Whenever a new block gets created, nodes are randomly selected to validate it and earn a reward. PPoS was created as a solution that was more secure than vanilla PoS but just as decentralized.

Proof of History (PoH)

Pioneered by Solana, PoH adds a mechanism that timestamps blocks created on the chain. PoH works by using a verifiable delay function.  In simpler words, it counts the delay between two blocks created and hence the order in which it will be added to the chain. This speeds up transactions as multiple validators can process blocks in advance before the previous block is validated.

Proof of Importance (PoI)

PoI was developed to address the shortcomings of the vanilla PoS chain, particularly its hoarding problem. In PoI, staking nodes are ranked according to their utility within the blockchain. The ranking is determined by how many transactions and the quality of those transactions a node conducted in the past. Those ranked more important get a priority when it comes to validating new blocks.

Proof of Stake Cryptocurrency List

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DPoS

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PPoS

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PoH

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PoI

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Proof of Authority (PoA)

PoA is a reputation-based consensus protocol. The better the reputation of a node, the higher its authority and selection when it comes to block validation. Any nodes that don’t act truthfully risk losing their reputation and thus authority.

As an added form of security, nodes may also be linked to real-world persons or organizations. Thus, a loss of reputation on the network can have similar ramifications in the real-world.

Pros

Low Cost

Limitation on nodes and its simple on-chain mechanism means it consumes little in the way of resources.

Cons

Not Very Secure

While theoretically, people would want to act honest to reduce reputation harm, history is witness to many cases of even high-profile individuals trading reputation for profit.

Proof of Authority Cryptocurrency List

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Proof of Burn (PoB)

PoB was designed as an early alternative to PoW. It works similarly except that instead of a physical machine, they mine coins through a virtual one. Nodes “buy” their virtual rigs by transferring their coins to a verifiably un-spendable address [referred to as burning]. The more coins burned, the more “powerful” the rig which they can use to mine for more coins.

To discourage giving an unfair advantage to early adopters, a “decay” mechanism may also be introduced. Each time a block is created, the power of all existing virtual rigs is reduced, encouraging users to burn more coins to retain a competitive advantage.

Pros

Market scarcity

Buring coins limits, keeping the resource finite.

Encourage long-term commitment

Miners can’t just invest and forget, they have to periodically burn new coins.

Cons

Very slow

Transactions are even slower than many PoW chains.

Not very transparent

The process of burning coins is not easy to verify on the chain by other nodes.

Proof of Burn Cryptocurrency List

Slimcoin (SLM)

Proof of Proof (PoP)

I was made aware of this protocol through Reddit user zeb737. Essentially, it is a protocol built upon another consensus protocol. Data from the chain is published by miners on another existing PoW or PoS blockchain. In an event of a possible attack or fraud, the published data can then be referenced to identify any inconsistencies.

Pros

Quick mainstream development

Allows blockchains lacking an established security infrastructure to utilize that of another blockchain deemed as safe. No need to reach a certain scale to be deemed as safe.

Cons

Trust issue

Since miners publish the referential data, another mechanism has to be employed to ensure the data published is indeed legitimate.

Proof of Proof Cryptocurrency List

Veriblock (VBK)

Practical Byzantine Fault Tolerance (pBFT)

PBFT is another method for preventing dishonest or malicious nodes from adding blocks to the network. The name is derived from a situation in game theory called the Byzantine General Problem. In this logic dilemma, each Byzantine general is besieging a fortress and the generals have to arrive at a consensus on whether to attack or continue the siege. If some of the generals or their messengers are dishonest and lie about their decision, the entire operation can be at risk.  Thus, the issue is to arrive at the right consensus, keeping in mind these ‘Byzantine Faults.’

pBFT resolves this through two implementations:

  • The assigning of a node as a “leader” in a round-robin fashion. The leader is responsible for receiving and transmitting a decision send by any node.
  • All nodes communicate with each other in voting rounds to prove that a decision came from a specific node and was not modified during transmission.

A consensus is reached when the number of nodes verified as honest equals two-thirds or more of the total.

Pros

Very Fast

Since transactions don’t require multiple confirmations, pBFT chains process blocks quickly.

Economical

Very little computing power is required to run processes on the chain, saving energy and being better for the environment.

Cons

Scaling issues

Because it is communication-heavy, a pBFT network with too many nodes can be difficult to scale.

Variant

Federated Byzantine Agreement  (FBA)

In FBA, voting rounds are federated and each node has its own quorum that they need to convince to allow a block to be validated. Because quorums can overlap, it increases the chances of finding dishonest nodes. However, this increased complexity makes it even more difficult to scale than pBFT.

Practical Byzantine Fault Tolerance Cryptocurrency List

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End Note

Right now at the time of this writing, we really are just scratching the surface of blockchain’s potential. As the technology advances at a rapid pace, many more consensus mechanisms would have been implemented by the time you are reading this. I hope you found this article useful and if I had missed out on any important blockchain consensus mechanism, tell me about it in the comments below. And, of course, congratulations on reading this to the very end!

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