A Beginner’s Overview of 8 Blockchain Consensus Mechanisms

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  • Consensus mechanisms are there to guarantee that all nodes on a network are synchronized and that all transactions are legitimate.
  • The most well-known consensus mechanism that probably all crypto fans have heard of is proof of work (PoW).
  • DPOS is known as one of the fastest consensus mechanisms.

Multiple businesses and organizations have been deploying blockchain for various applications, like securing data and verifying certain functions. For these applications to work, they utilize certain types of blockchain consensus mechanisms.

These consensus mechanisms are basically there to guarantee that all nodes on a network are synchronized and that all transactions are legitimate. They are also used to ensure that every node is connected to the same network and that transactions are verified regularly.

Not all blockchain projects use the same consensus mechanisms as they all have different purposes and desired outcomes with different applications. This means that developers need to take into consideration all the strengths and weaknesses of the consensus mechanisms to make an informed decision about which mechanism to choose for a project.

1.  Proof of Work

The most well-known consensus mechanism that probably all crypto fans have heard of is proof of work (PoW). Transaction processing for this consensus mechanism is also known as mining, and the miners doing this are known as nodes.

Miners can solve very complex mathematical puzzles that require extensive computational power. This is mostly because the miners work with trial and error.

Miners utilize CPU mining, GPU mining, FPGA mining, ASIC mining, mining pools, and many others to solve these puzzles. The first miner to solve the puzzle is awarded a block.

The level of difficulty to mine a block changes according to the speed it takes to mine a block. If blocks are mined rather quickly, the puzzles get more complex and vice versa. This means that new blocks have to be created in a certain time frame to carefully adjust the difficulty of the puzzles.

Bitcoin (BTC), the king of crypto, uses PoW. Unfortunately, this does not count in the crypto’s favor anymore, as this consensus mechanism consumes power resources at a staggering rate at a time when the world is trying to be greener and energy efficient.

It is estimated that Bitcoin’s current annual power consumption is about 51.13 TWh.

2. Proof of Stake

Since PoW is losing some of its popularity, proof of stake (PoS) is the next best thing. PoS uses a randomized process to figure out who gets a chance to produce the next block.

The users on the blockchain can lock up their tokens for a predetermined time to become a validator. Validators can produce blocks and are selected based on the design of the blockchain. Users who own the most coins for longer or those who own the biggest stake are more likely to create a new block.

Validators also get rewarded for work done that is usually in the form of a portion of the transaction fees from transactions carried out on the block they created. Validators could also receive a specific amount of coins.

This means that the PoS method incentivizes mining the blockchain network. In addition to this, PoS is much better than PoW when it comes to energy efficiency, which is why its popularity is steadily increasing.

3. Delegated Proof of Stake

Delegated proof of stake (DPOS) allows users to stake their coins and vote for a particular number of delegates. The weight of a user’s vote is dependent on their stake. This means that the vote of a user who staked 20 coins will have more weight than the user who only staked 2.

At the end of the vote, the delegate who received the highest number of votes gets the chance to produce new blocks. This is one of the reasons why DPOS is also known as a digital democracy.

Just like with PoS, delegates are incentivized with rewards like a portion of transaction fees or a specific amount of coins.

DPOS is known as one of the fastest consensus mechanisms as it can handle a higher number of transactions when compared to the rest.

4. Proof of Capacity

When it comes to proof of capacity, the solutions to complex puzzles are stored in digital storage like a hard disk. This process is known as plotting.

After the storage device is filled, the user can use it to produce blocks. The user that finds the solution to the puzzle the fastest gets the chance to create a new block. In other words, the users with the highest storage capacity are way more likely to get the chance to produce a new block.

5. Proof of Identity

Another consensus mechanism is proof of identity. This mechanism compares the private key of a user with an authorized identity. In other words, proof of identity is a piece of cryptographic evidence of a user’s key that is cryptographically linked to a specific transaction.

At the moment, any user from a blockchain network can create a block of data that can also be presented to anyone in the network. Proof of identity is there to ensure the integrity and authenticity of the created data.

The potential of proof of identity is huge and is recognized by many cities as it can be used to verify the identity of their citizens.

6. Proof of Elapsed Time

Proof of elapsed time is a process that randomly yet fairly decides who will produce a new block based on the time they have been waiting to do so.

This means that the mechanism produces a random wait time for each user, and whoever’s time finishes first will be given the chance to produce a new block.

An important thing to keep in mind is the fact that this mechanism will only really work if the system can verify that no users are running multiple nodes and that the waiting times are truly random.

7. Proof of Authority

Proof of authority is a modified version of PoS where the identities of validators in the network are at stake.

With this mechanism, identity is the correspondence between validators’ personal identification on their official documentation to help verify their identity. In other words, validators stake their identity on the network.

Proof of authority also only allows nodes that become validators to produce new blocks. These validators whose identities are at stake are incentivized to preserve the blockchain. At the moment, the number of validators is fairly small.

8. Proof of Activity

The last consensus mechanism is known as proof of activity — a combination of PoW and PoS. In proof of activity, miners attempt to find the solution to a puzzle and claim their reward.

However, the blocks created in the proof-of-activity mechanism are simple templates with mining reward addresses and header information. This header information is then used to pick a random group of validators to sign a new block. The validators with larger stakes have a better chance to be selected to sign a new block.

Once the chosen validator signs a new block, it then becomes part of the network. If the block remains unsigned, it is discarded and a new block is used. The generated network fees are distributed between the winning miner and the validators.

Although most consensus mechanisms have similar goals, they all use different approaches to ensure consensus. Although there is no single consensus mechanism that is perfectly reliable, the existing mechanisms have all evolved to the point where they all meet the basic needs of blockchain technology.

As these mechanisms evolve through time, it will be difficult to pick the best of the lot for a specific project, which is why it is so important for developers to know the strengths and weaknesses of all the mechanisms to make informed decisions.

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