- Proof-of-Work and Proof-of-Stake have been the two most widely-adaptable consensus mechanisms in the crypto space.
- Multiple consensus algorithms have cropped up in the last few years that are worth knowing.
Consensus mechanisms determine how cryptocurrencies are generated and managed. They are the underlying structures that maintain the sustainability of the blockchain. In simple words, a consensus is a general agreement usually among a group of people. The same is viable in the blockchain realm as well. Multiple members of the blockchain agree on something and it is then executed.
But there are various aspects that one needs to understand. So let’s go through this detailed guide to learn everything about consensus mechanisms.
Nitty-Gritty of Consensus Mechanisms
A consensus mechanism is implemented with many processes and users to achieve distributed agreement. These are automated verifiers that work better than humans. Their audits are flawless and they reveal the true status of the ledger’s state. The world’s first crypto Bitcoin uses a mechanism called Proof-of-Work.
It lets the miners solve puzzles while using computational power. After the solving of every hash, the network verifies the data. It checks the following to ensure the status of the hash:
Data Structure
Block Header Hash
Block Timestamp
Block Size
First Transaction
Once the verification is done, a new block is created which ultimately paves the way for a coin. On the other hand, Proof-of-Stake is another common consensus method that works on an accumulation of tokens.
This structure requires the members of the network to stake their cryptos. With that, they get the rights to validate the new transactions, which results in new coin creation.
While these two are the most prominent blockchains, many more have cropped up in the last few years. To gain full knowledge about consensus mechanisms, it’s important to know all of them.
Consensus Mechanisms That Exist In Crypto Space
All these consensus mechanisms bring some unique features to the blockchain realm.
Proof-of-Work (PoW)
As discussed above, this is the creator of the first cryptocurrency, Bitcoin. In this environment, miners compete with each other to solve mathematical equations. Upon solving them, they get rewarded with some portion of the crypto. Proof-of-work is known for guzzling lots of power. Moreover, it requires custom-built hardware to undertake the mining process. As a result, it becomes quite a capital-intensive venture to start a mining unit.
Proof-of-Stake (PoS)
Working on the staking structure, this mechanism is very energy efficient. It doesn’t require the network operator to acquire any specific hardware. PoS has also emerged as an effective means to earn a passive income for the members.
Delegated Proof-of-Stake (DPoS)
Delegated Proof-of-Stake takes the PoS algorithm one step ahead. Besides validating the transactions, it also adds new blocks to the chain. Mostly, a small group of validators run this variation.
In this network, the stakeholders appoint delegates to do their job rather than participating themselves. To get rewards, delegates need to be honest in their validations. They also get incentivized to prevent fraudulent transactions.
Leased Proof of Stake (LPoS)
LPoS is another variant of PoS that lets small token holders participate in the validation process. As the name suggests, it works on leasing small portions of tokens to validators. The token holders lease their assets to others who use them to beef up their stake. The former retains ownership and receives a share of the rewards. The latter adds new tokens and validates transactions also.
Proof-of-Authority (PoA)
It works on the same algorithm of validating and adding new blocks. However, it is not managed by a decentralized system of nodes. Instead, a group of trusted validators executes all the tasks. They act as an authoritative body and maintain the genuine validation process.
Byzantine Fault Tolerance (BFT)
This particular algorithm enables distributed systems to sustain malicious nodes. It strengthens the consensus to maintain integrity from within. The network works on distributed networks of nodes to validate transactions.
Practical Byzantine Fault Tolerance (PBFT)
Practical Byzantine Fault Tolerance is an upgraded version of Block Trading Facility (BTF). It makes the original version of the blockchain more efficient by bringing a segmented approach. The ecosystem has three groups which are client nodes, replica nodes, and a leader node. The leader node proposes new transactions and the replica node validates them.
Federated Byzantine Agreement (FBA)
The Federated Byzantine Agreement focuses on bringing more flexibility and scalability. It distributes the nodes into smaller sub-networks. These sub-networks have their consensus mechanisms. Each of them works in close synchronization with others and maintains high efficacy. Nonetheless, nodes have the choice to join the network of their choice.
Conclusion
Since the crypto sphere is expanding, one can expect more algorithms in the future. However, their adaptability will depend on various factors. PoW and PoS have been the most viable options for the growing blockchain space. In the future, one may expect their updated versions for sure.