Understanding Consensus Mechanisms

As the use of blockchain technology rises, it's essential to understand how valid transactions are verified across networks. That’s where consensus mechanisms come in. 

Blockchain networks rely on consensus mechanisms to reach an agreement among nodes about the status of their ledger. This key process helps all participants stay in sync, preserving network integrity and validating transactions along the way.

In this post, we'll dive into these methods—including proof-of-work (PoW), proof-of-stake (PoS), and proof-of-authority (PoA)—and gain insight as to why they exist and how they promote reliability amongst all users involved with a particular system.

What Does Consensus Mean?

"Consensus" means a general agreement amongst a group. When something is agreed upon unanimously, it has been reached by consensus. Consensus allows us to make decisions collectively: whether that’s choosing what movie to watch with friends, or aligning on a complex policy initiative. 

On-chain, consensus mechanisms are used to ensure agreement among all network participants ("nodes”) on the current state of a distributed ledger. Consensus mechanisms are among the core components of any blockchain-based system. They allow users to securely and efficiently reach agreements on how data should be stored and accessed.

Types of Consensus Mechanisms

Proof-of-Work: Proof-of-Work uses algorithms to solve complex mathematical problems known as “hash puzzles” to verify transactions and add them to the blockchain. It's generally used by cryptocurrencies such as Bitcoin to make sure that new blocks of data are valid before they can be added to the chain.

Proof-of-Stake: Proof-of-Stake is a consensus protocol that enables block validation in blockchain networks like Ethereum. It replaces the energy-intensive and costly PoW system with a more efficient consensus algorithm that relies on staking. In Ethereum, for example, users lock up their cryptocurrency as collateral to secure the network and receive rewards for their contributions.

Delegated Proof-of-Stake: Delegated Proof-of-Stake (DPoS) is a consensus mechanism that evolved from the original Proof-of-Stake. In DPoS, stakeholders elect delegates to represent them, verifying transactions and creating blocks on their behalf while they remain in control of the network. This approach can improve scalability and speed up the consensus process.

Proof-of-Capacity: Proof-of-Capacity is an energy-efficient consensus algorithm that uses "plotting," or pre-allocating hard drive space, to store blockchain hashes. This allows miners to use their spare hard drive space for mining, reducing energy costs and increasing the security of the network compared to traditional PoW algorithms.

Proof-of-Activity: Proof-of-Activity is a consensus algorithm that combines Proof-of-Stake (PoS) and Proof-of-Work (PoW) principles to increase network security and decentralization. It is an innovative solution that uses the best of both concepts, allowing participants to get rewards for validating blocks while also staking their tokens in order to prevent malicious activities on the blockchain.

Proof-of-Elapsed Time: Proof-of-Elapsed Time (PoET) is a consensus mechanism that is used to achieve distributed fairness and randomness in the selection of network validators. Validators are chosen by the amount of time they have waited to be selected, rather than computation resources or stake. To become a validator, a node must wait a randomly determined amount of time known as the “waiting time” before it can participate in the consensus process.

Proof-of-Burn: Proof-of-Burn is a consensus mechanism where computing power is replaced by the "burning" of scarce digital tokens. The act of burning cryptocurrency creates an immutable ledger and allows participants to prove they have a stake in the network without needing expensive mining hardware.

Proof-of-Authority: Proof-of-Authority is a consensus mechanism where validators are chosen based on their reputation or identity. PoA is used in private or consortium networks where the identities of the validators are known and trusted by the network. It’s one of the most energy-efficient consensus mechanisms.

On-chain, as in real life: there are many tools that we can use to facilitate agreement between parties. Though there are lots of different types of consensus mechanisms, they each have the same goal: to keep the network running smoothly. 

To connect with developers and learn more about consensus protocols, join the discord.