Five Types Of Consensus Mechanisms You Should Know About

How do blockchains ensure that transactions are real, valid, and not the product of fraud? The answer is consensus mechanisms, and in this article, we take a closer look at the pros and cons of five of the most popular consensus mechanisms in crypto.

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@enter.artPUBLISHED 2ND OCTOBER 2022

Bitcoin and other cryptocurrencies have been praised for their decentralized nature. They give financial power to the people, allowing anyone to send any amount anywhere at any time. To put this in perspective, someone once transferred over $1 billion worth of BTC in just under 10 minutes! The paperwork would likely make one cringe if it were to be fiat money. 

However, while decentralization has its advantages, it brings up some causes for concern. For example, with no centralized authority to enforce rules, what’s to stop bad actors from taking over? Also, trust is an essential part of any monetary system, but how can we trust a system that is not directly regulated? 

The answers to these questions lie in an understanding of the very technique that powers blockchain technology - the consensus mechanism. This article will offer a comprehensive dive into the topic. We will discuss what it is, how it works, and the various types of consensus mechanisms available today. 

What Is A Consensus Mechanism? 

A consensus mechanism is the process by which participants in a blockchain network determine which transactions are authentic and which are not. It acts as the sole source of authority that ensures that all blockchain transactions are fault-tolerant and follow a specific model. It is like the stamp that central banks put on paper money to distinguish an original from a fake. 

When Bitcoin was created, the only consensus mechanism that existed was the proof-of-work mechanism. However, even though it was a reliable way of verifying transactions, many were worried about its environmental impact and scalability issues. Therefore, other consensus mechanisms, such as proof-of-stake, proof-of-history, etc., were created. To date, there are more than 10 blockchain consensus mechanisms, each with its own appeal. 

Types Of Consensus Mechanism 

Proof Of Work (PoW) 

This is the mechanism that coins like Bitcoin, Dogecoin, Litecoin, Monero, and many other public blockchains use. It requires miners to compete against one another and try to be the first to solve a set of complex mathematical puzzles. Whoever solves it first and comes up with the answer is rewarded with newly minted coins. That miner also forms the next block and validates the transactions in it.

Pros 

● It is one of the most secure methods of achieving consensus due to its sophistication. 

● It produces energy that users can convert to other forms. 

● Its fairness provides healthy competition among miners. 

Cons 

● It requires costly gear. 

● It produces a high level of energy that is bad for the environment. Bitcoin, for example, uses an estimated 94.5 TWh of energy per year - equivalent       to what Sweden consumes!

● Transactions on PoW blockchains are slower than many others. 

Proof Of Stake (PoS) 

The Proof-of-stake consensus system is a process where blockchain users demonstrate their devotion to the blockchain by staking their tokens for a fixed period. They are, in turn, rewarded with newly minted tokens and given the privilege to validate transactions and propose new blocks. 

As with PoW blockchains, you also need an efficient computer to be a validator in a PoS system, but the specifications required to stake are far lower than those required to mine. Thus, staking consumes less energy and is more affordable than mining. Examples of PoS blockchains are Ethereum, Cardano, and Polygon.

Pros 

● It is kinder to the environment since it requires little energy. 

● PoS-powered transactions are usually fast. 

● It has a lower barrier to entry since one doesn’t need high-powered computers to partake in it. 

Cons 

● It may not be as secure as Proof-of-work. 

● Those with a more significant stake maintain greater control over the blockchain. 

Delegated Proof Of Stake (DPoS) 

As you can guess from the name, DPoS is a consensus mechanism derived from the Proof-of-stake system. It is the system used by blockchains like Lisk, EOS, Bitshares, etc. It was developed by Daniel Larimer in 2014 and added a voting mix to the staking system used by PoS systems. How does it work? 

Like staking, interested investors will lock up their tokens on the blockchain to win the right to vote. They then use their voting power to elect witnesses (or block producers) who validate transactions on the blockchain. The witnesses are elected based on their reputation of honest and consistent validations. They can also be elected out of office if they become inefficient or dishonest. 

Pros 

● It is more efficient than PoS because validators are more incentivized to stay honest and efficient since they can easily be voted out. 

● It allows investors to still be involved in the blockchain without dealing with the technicalities of validating transactions. 

● It is a very democratic system. 

Cons 

● It leaves fewer people in charge of the blockchain, making it easier to coordinate an attack on the blockchain. 

● The voting power depends on how much skin you have in the game. Thus, those with fewer resources are sidelined. 

Proof Of History 

PoH is another consensus mechanism that evolved from Proof-of-stake. It was developed, along with the Solana concept, by Anatoly Yakovenko in 2017. So far, the Solana blockchain is the only blockchain still employing this consensus mechanism. How does this work? 

All PoS blockchains rely on a timestamp to verify transactions. However, because the timestamp has to be uniform across all nodes, they all depend on the network’s time. It is only after time has flowed through the network that each node will then validate transactions. This makes the entire blockchain process transactions slower. 

However, with the PoH system, each node calculates the time based on past events without waiting for time confirmation from the network. This speeds transactions up and is why the Solana blockchain is one of the fastest ever to grace the scene. 

Pros 

● It is faster than most PoS systems. 

● Its high scalability potential makes it a low-fee system 

Cons 

● It is still a new system and has not been thoroughly proven. 

● The Solana blockchain has had various network blackouts, some due to this system. 

Proof Of Authority 

Proof-of-authority is the least decentralized of all the options. Gavin Woods proposed it in 2017 (You might recall Gavin as one of the founders of Ethereum). Here, instead of staking or mining, investors put their reputation on the line to get a shot at being one of the validators of the blockchain. 

They do this by revealing their identities to allow voters to determine how veritable they are. Because this system requires fewer resources than others, it is a highly scalable mechanism. Examples of proof-of-authority blockchains are Vechain (VET) and private blockchains like JPMCoin (JP Morgan). 

Pros 

● It is a fast and low-fee consensus mechanism. 

● Since validators are chosen based on their reputations, there is more basis for trust. 

Concluding Thoughts 

The consensus mechanism is the engine that drives a blockchain. Without it, the blockchain will fall into disrepute, unable to distinguish valid transactions from invalid ones. With this article, you now know how the most commonly used consensus algorithms work and which of them is best for you.



This article is written by Olole Nuel a part of enter.blog's bounty program. Do you have an interesting topic, series or subject you think would be fitting for enter.blog? 

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