Understand 10 Useful Consensus Mechanism Algorithms by Prof. Naveen Kandwal

consensus mechanism algorithms in blockchain
consensus mechanism algorithms in blockchain | Blockchainblogging.com

What are Consensus Mechanism Algorithms?

Consensus Mechanism Algorithm enables the blockchain network to attain reliability and build a level of trust between different nodes while ensuring security in the environment.

Blockchain consensus mechanism algorithm is a procedure via which all the multiple peers of a Blockchain network reach a common agreement or consensus about the real-time state of the distributed ledger on the true state of the network. These sets of processes and rules are called consensus algorithms.

Objectives of Blockchain Consensus Mechanism Algorithm

Consensus Mechanism Algorithm, Unified Agreement, Economic Incentive, Fair and Equity, Prevent Double Spending, Fault Tolerance, Blockchainblogging.com
Understand 10 Useful Consensus Mechanism Algorithms by Prof. Naveen Kandwal 5

1. Unified Agreement

Unlike centralized systems where having a trust on the authority is necessary, users can operate even without building trust in each other in a decentralized manner. The protocols embedded in the Distributed blockchain network ensures that the data involved in the process is true and accurate, and the status of the public ledger is up-to-date.

2. Align Economic Incentive

When it comes to building a trustless system that regulates on its own, aligning the interests of participants in the network is a must.

A blockchain consensus protocol, in this situation, offers rewards for good behavior and punishes the bad actors. This way, it ensures regulating economic incentive too.

3. Fair & Equitable

Consensus mechanisms enable anyone to participate in the network and use the same basics. This way, it justifies the open-source and decentralization property of the blockchain system.

4. Prevent Double Spending

Consensus mechanisms work on the basis of certain algorithms that ensures that only those transactions are included in the public transparent ledger which are verified and valid. This solves the traditional problem of double-spending, i.e, the problem of spending a digital currency twice. 

5. Fault Tolerant

Another characteristic of Consensus method is that it ensures that the blockchain is fault-tolerant, consistent, and reliable. That means, the governed system would work indefinite times even in the case of failures and threats.

Why are They Important?

Consensus mechanism algorithms are important in ensuring that blockchains remain completely decentralized. Due to the decentralized nature , there will never be a centralized authority in place to verify and update the ledger with fresh data. Due to this, the stakeholders in the network have to decide on a peer-to-peer basis as to which data is to be added to the blockchain.

Consensus Algorithm Process Cycle
Image Source: FreeCodeCamp

Such a process of achieving a consensus in a widely distributed ledger would be impossible if not for a smart algorithm capable of automatically communicating and verifying the new transactions with all relevant machines on the network.

Without the presence of a fitting consensus algorithm, decentralized systems would have to give way to a centralized power that holds and processes data in one place – making the information it stores vulnerable to digital attacks and tampering by somebody who manages to gain access to its location.

Consensus Mechanism Algorithms

1. Proof of Work (PoW)

Proof of Work is the oldest consensus mechanism used in the Blockchain domain , Developed by Satoshi Nakamoto. It is also known as mining where the participating nodes are called miners.

Proof of work (PoW) is a form of cryptographic zero-knowledge proof in which one party (the prover) proves to others (the verifiers) that a certain amount of computational effort has been expended for some purpose

In this mechanism, the miners have to solve complex mathematical puzzles using comprehensive computation power. They use different forms of mining methods, such as GPU mining, CPU mining, ASIC mining, and FPGA mining. And the one that solves the problem at the earliest gets a block as a reward. 

Cryptocurrencies using PoW: Bitcoin, Litecoin, ZCash, Primecoin, Monero, and Vertcoin to name a few. 

2. Proof of Stake (PoS)

Proof of Stake is the most basic and environmentally-friendly alternative of PoW consensus protocol.

In this blockchain method, the block producers are not miners, but they act like validators. They get the opportunity to create a block over everyone which saves energy and reduces the time. However, for them to become a validator, they are supposed to invest some amount of money or stake. 

Also, unlike that in the case of PoW, miners are provided with a privilege to take their transaction fees in this algorithm for there is no reward system in this consensus model.

This, as a whole, encouraged brands like Ethereum to upgrade their model from PoW to PoS in their Ethereum 2.0 update. Also, it helped various Blockchain ecosystem like Dash, Peercoin, Decred, Reddcoin, and PivX to function properly.

3. Byzantine Fault Tolerance (BFT)

Byzantine Fault Tolerance, is a condition of a computer system, where components may fail and there is imperfect information on whether a component has failed. The term takes its name from an allegory, the “Byzantine Generals Problem”, developed to describe a situation in which, in order to avoid catastrophic failure of the system, the system’s actors must agree on a concerted strategy, but some of these actors are unreliable.

Learn more about the Byzantine Fault Tolerance through this video:- 

The two variations of BFT consensus model that are prime in the Blockchain arena are PBFT and DBFT.

  • Practical Byzantine Fault Tolerance (PBFT)

PBFT is a lightweight algorithm that solves the Byzantine General’s problems by letting users confirm the messages that have been delivered to them by performing a computation to evaluate the decision about the message’s validity. 

The party then announces its decision to other nodes who ultimately process a decision over it. This way, the final decision relies upon the decisions retrieved from the other nodes.

Stellar and Ripple are some of use cases of this blockchain consensus mechanism.

  • Delegated Byzantine Fault Tolerance (DBFT)

Introduced by NEO, the Delegated Byzantine Fault Tolerance mechanism is similar to DPoS consensus model. Here also, the NEO token holders get the opportunity to vote for the delegates. 

However, this is independent of the amount of currency they invest. Anyone who fulfills the basic requirements, i.e, a verified identity, right equipment, and 1,000 GAS, can become a delegate. One among those delegates is then chosen as speaker randomly.

The speaker creates a new block from the transaction that is waiting to be validated. Also, he sends a proposal to the voted delegates who have the responsibility to supervise all the transactions and record them on the network. These delegates have the freedom to share and analyze the proposals to check the accuracy of data and honesty of the speaker. If, then, 2/3rd of the delegates validates it, the block is added to the blockchain.

This Blockchain consensus protocol is also called ‘Ethereum of China’.

4. Proof of Capacity (PoC)

In the Proof of Capacity (PoC) mechanism, solutions for every complex mathematical puzzle is accumulated in digital storages like Hard disks. Users can use hard disks to produce blocks, in a way that those who are fastest in evaluating the solutions get better chances for creating blocks. 

The process it follows is called Plotting. The two cryptocurrencies that relies on PoC blockchain consensus protocol are Burstcoin and SpaceMint.

5. Direct Acyclic Graph (DAG)

In this Blockchain consensus protocol, every node itself prepares to become the ‘miners’. Now, when miners are eradicated and transactions are validated by users itself, the associated fee reduces to zero. It becomes easier to validate transactions between any two closest nodes, which makes the whole process lightweight, faster, and secure.

The best examples of DAG algorithm are IOTA .

6. Proof of Burn (PoB)

Proof of Burn (PoB) consensus model works on the principle of letting miners ‘burn’ or ‘ruin’ the virtual cryptocurrency tokens, which further provides them with a privilege to write blocks in proportion to the coins. The more coins they burn, the more are the chances of picking the new block for every coin they get. 

But, in order to burn coins, they are required to send it to the address where it couldn’t be spent for verifying the block. 

This is widely employed in the case of distributed consensus. And the finest example of this consensus mechanism is the Slim coin.

7. Proof of Identity (PoI)

The concept of PoI (Proof of Identity) is just like that of the authorized identity. It is a piece of cryptographic confirmation for a users’ private key that is being attached to each particular transaction. Each identified user can create and manage a block of data that can be presented to others in the network.

This blockchain consensus model ensures authenticity and integrity of the created data. And thus, is a good choice for introducing in smart cities.

8. Proof of Activity (PoA)

PoA is basically a hybrid approach designed through the convergence of PoW and PoS blockchain consensus models. 

In the case of PoA mechanism, miners race to solve a cryptographic puzzle at the earliest using special hardware and electric energy, just like in PoW. However, the blocks they come across holds only the information about the identity of block winner and reward transaction. This is where the mechanism switches to PoS.

The validators (shareholders appointed to validate transactions) test and ensure the correctness of the block.  If the block was checked many times, the validators activate to a complete block. Besides, the block reward is divided so that validators gain shares of it.

The two real-world implementation of this mechanism are Espers and Decred coins.

9. Proof of Elapsed Time (PoET)

Introduced by Intel, PoET has an intent to take over cryptographic puzzles involved in PoW mechanism by considering the fact that the CPU architecture and the quantity of mining hardware knows when and at what frequency does a miner win the block. 

It is based on the idea of fairly distributing and expanding the bigger fraction of participants. And so, every participating node is asked to wait for a particular time to participate in the next mining process. The member with the shortest hold-up time is asked to offer a block. 

At the same time, every node also come up with their own waiting time, after which they go into sleep mode. 

So, as soon as a node gets active and a block is available, that node is considered as the ‘lucky winner’. This node can then spread the information throughout the network, while maintaining the property of decentralization and receiving the reward.

10. Proof of Importance (PoI)

Introduced by NEM, PoI is a variation of PoS protocol that considers the role of shareholders and validators for its operation. However, this is not only influenced by the size and chance of their shares; various other factors like reputation, overall balance, and no. of transactions made through any particular address also plays a role in it.

The networks based on POI consensus model are expensive to attack on and rewards users for contributing to the network’s security.

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