Various Blockchain Consensus Mechanisms: 5 Types

Various Blockchain Consensus Mechanisms: 5 Types

You’ve probably heard of Bitcoin and other cryptocurrencies in the news, even if you’ve never heard of blockchain. One of the most popular blockchain technologies is Bitcoin, whose price rose from $1,000 to $20,000 in just one year.

What, though, is blockchain? In a nutshell, a blockchain is a unique distributed database that was created with the primary goal of storing data that users could write to and read from. Because of the decentralized structure of this data, a “digital ledger” can be shared among a global network of computers without the need for a centralized organization. A consensus mechanism that guarantees that no one party tampers with the records and that everyone is kept honest is at the heart of this digital ledger.

Although distributed databases are not new to the market, blockchain is unique in that it lacks a database administrator (decentralized network). Anyone can create a server and join blockchain to join the network as a node. In a blockchain, every node is equal and in sync with every other node. Bitcoin uses blockchain technology to create a public digital ledger that records transactions when bitcoins are transferred between addresses (e.g. digital payments). Since all of these transaction data are available to the public, it is simple to determine whether the payer has sufficient Bitcoins to cover the payment.

The upkeep of the network’s consensus over the data logged on the blockchain is essential to the blockchain’s operation. Additionally, it affects the operation’s security and financial constraints. The five most popular consensus mechanisms employed by blockchain projects throughout the world are listed below.

POW (Proof of Work)

The first and best-known consensus mechanism, POW, was created by Satoshi Nakamoto, the anonymous creator of Bitcoin. A miner in POW will be permitted to add a new block of the transaction to the blockchain if they locate the hash first. Having a high hashrate is essential for miners to compute the hash and get the rewards because mining requires a lot of processing. In addition to Bitcoin, Ethereum also incorporates POW into its algorithm. However, what distinguishes Ethereum is their POS-based finality mechanism, which can be overlayed on top of an existing POW blockchain to create a hybrid POW/POS system known as Casper Friendly Finality Gadget (FFG).

POS (Proof of Stake)

POW necessitates high energy usage. The price increase of bitcoin over the previous few years increased demand for GPU. Some chip manufacturers design unique chips just for mining. POS, as opposed to POW, is determined by the participants’ coin bets. The staker is more likely to add a new block containing the transaction to the blockchain the more coins they have. In POS, there is no block reward. The only compensation for the staker is the transaction charge. Because it uses less energy than POW, POS systems are appropriate for platforms with a fixed supply of coins. This method of allocating tokens based on investment is used by the majority of platforms supported by crowdsales.

DPOS (Delegated Proof of Stake)

DPOS is a POS variant. With DPOS, coin holders can vote on a list of nodes who may be permitted to add fresh blocks of transactions to the blockchain using their balance. Owners of coins can also cast a vote to alter the network parameter. While DPOS provides all coin holders more control and ownership in the network, POS is more like winning the lottery.

PBFT (Practical Byzantine Fault Tolerance)

Miguel Castro and Barbara Liskov presented Practical Byzantine Fault Tolerance (PBFT) in 1999 at the MIT Laboratory for Computer Science. One potential answer to the Byzantine Generals’ Problem is PBFT. The objective of PBFT is to decide whether to accept or reject data that has been uploaded to the blockchain. Each party (“general”) keeps a state inside itself. When a party receives a message, they execute a computation using the message and their internal state. This party’s choice regarding the message will be determined by this calculation. The party will then communicate the choice to all other parties inside the network. Based on the sum of the decisions made by all parties, the ultimate decision is made. Since PBFT uses the total number of nodes to certify trust, a large hashrate is not necessary in this procedure. When there are sufficient responses, the transaction is confirmed to be legitimate. Some blockchain initiatives, like Stellar, Hyperledger, and Ripple, use PBFT as their algorithm.

DAG (Directed Acyclic Graph)

If we consider Directed Acyclic Graph (DAG) to be Blockchain 3.0 and the waves of Ethereum to be Blockchain 2.0, then Bitcoin is Blockchain 1.0. DAG is a finite directed graph in graph theory without directed cycles. It is a popular data structure in computer science and is frequently used to discover the optimum route and process data. Due to the POW system, Bitcoin has been experiencing an efficiency bottleneck. Blocks cannot be constructed simultaneously and each block takes ten minutes to create. With DAG, transactions can be active on several chains at once. This could signal the arrival of instant transactions with low transaction costs. A project in China called ITC (IoT Chain) is based on DAG and has a processing speed of over 10,000 transactions per second.


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