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Blockchain technology enables cryptocurrencies to achieve high levels of transparency, security, and immutability.
But do you know how blockchain accomplishes this? The answer lies in the consensus algorithm.
In the context of blockchain, consensus refers to an agreement where all members of the network must accept the majority decision, even if they don’t necessarily like it. This majority decision must benefit everyone within the network.
In the crypto space, many consensus algorithms exist, each making a cryptocurrency unique.
This post highlights the top 10 consensus mechanisms.
1. Proof of Work (PoW)
Used by: Bitcoin, Bitcoin Cash, Litecoin, Dogecoin etc.
Proof of Work is the first consensus algorithm, marking the beginning of blockchain-based cryptocurrencies.
It was initially implemented by Bitcoin to create new coins and record transactions, addressing the double-spending problem.
PoW involves miners who use computational power to solve complex problems and add new transactions to blocks, while nodes validate these blocks.
Though PoW predates Bitcoin, Satoshi Nakamoto combined it with cryptographic signatures, Merkle chains, and P2P networks to create a distributed consensus system.
Pros
Successfully tackles the Double-Spending problem.
It has been tested in the wild since 2009 and stands steady today as well.
Cons
Uses computational power which needs more electricity and produces heat.
Prone to a 51% attack.
2. Proof of Stake (PoS)
Used by: Ethereum, Peercoin, Nxt.
Proof of Stake formed to tackle the problem in PoW.
Instead of mining with hardware, participants stake their coins. The more coins you stake, the higher your chances of being selected to create the next block.
The process is entirely random, removing the need for powerful hardware.
Pros
Doesn’t need any powerful hardware to become a miner.
Not easy to conduct the 51% attack.
Cons
The nothing-at-stake problem means during a fork (blockchain splitting) block generators can vote for multiple blockchains.
3. Delegated Proof of Stake (DPoS)
Used by: Steemit, BitShares, EOS, Lisk, Ark.
DPoS builds on PoS but allows stakeholders to delegate their stake to a representative (called a witness) who is responsible for validating transactions.
Witnesses take turns validating blocks in a round-robin system, ensuring fast and efficient block production.
Pros
Fast.
Energy Efficient.
Cons
A bit centralized.
4. Leased Proof of Stake (LPoS)
Used by: Wave platform.
This is another version of the PoS mechanism that aims to give preferences to small stakeholders to get involved in mining.
Usually, in the PoS system, a stakeholder who has a big holding has a higher probability of mining the blocks, but LPoS aims to give preference to the small stakeholders by letting them lease the big node to win the block.
In the LPoS system, you can get mining opportunities even if you don’t have a large amount of coin to deposit as a stake. The system allows you to lease a complete node along with the other small stakeholders and earn the reward with a percentage of the transaction fee that has been collected by the complete node.
Pros
Encouraging small stakeholders to participate in the network.
Cons
Somehow leads to centralization by giving high priority to small stakeholders.
5. Proof of Weight (PoWeigth)
Used by: Algorand.
This consensus aims to make a further up-gradation in the PoS system by adding some other factors than owning more tokens.
These factors get identified as “Weighted Factors.” For example, Filecoin considers the amount of IPFS data that you have and weights that factor. Some of the other factors including but not limited to Proof of Space.
Pros
Energy efficient.
Highly customizable.
Cons
Incentivization can be a challenge.
6. Proof of Burn (PoB)
Used by: Slimcoin, TGCoin (Third Generation Coin).
In this consensus mechanism to become a miner, you have to burn some of your holdings.
Burn means you have to send some of your holdings to a public address having no private keys and randomly generated by the system, after sending you can’t get back the holdings you have sent to the address.
This way system decides who will be the miner to mine next block based on the value they have burnt which means, if user burns more coin they’ll have the greater chance to mine the next block and further increasing their overall rewards.
There are different ways to implement the PoB mechanism. In some case, an existing PoW coin can burn in exchange with the PoB coin.
Pros
Creates stability by appreciating users to hold the coin for the long term.
Enhances the decentralization and creates a better-distributed network.
Cons
Users holdings gone forever means wasting it.
7. Proof of Elapsed Time (PoET)
Used by: HyperLedger Sawtooth.
In this Consensus, you have to wait for a certain time to mine block and time based on the principle of a fair lottery system where every single node is equally likely to be a winner.
The PoET mechanism is mainly used by the permission blockchain network where you have to get permission to participate in the network.
In this algorithm, a winning node in the network generates a random wait time and goes to sleep for that specified duration, and the next node wakes up and waits for the time that created by the previous node and passes the time mine the block. The same process then repeats for the discovery of the next block.
Remember, PoET is suitable for a big corporation that has certain software to ensure randomly selecting the waiting time for all participating nodes and genuine completion of the waiting time by the winning participant.
Pros
Low cost of participation.
Encouraging more participation.
Cons
Not suitable for public blockchain networks.
Even the cost of participation is low, but participants have to use their hardware to mine a block.
8. Proof Of Capacity (PoC) aka Proof Of Space (PoSpace)
Used by: Brustcoin, SpaceMint, Chia.
PoC works like a PoW mechanism, but the only difference is instead of using computational power to calculate nonce in this mechanism miners use their hard drive memory.
In this mechanism, if you want to mine a block, you have to plot your hard drive. When you plot, the system uses your hard drive space to create nonce.
Here, nonce means a data which have the different scoops, the scoops are nothing but having different hash combinations in it, these hash continuously created by you, including your particular ID until you have solved the nonce.
The resulting scoop number and the corresponding nonce will be used to calculate a unit of time called the “deadline”.
If the deadline that you’re able to produce is shorter than those of the other miners then, you are allowed to create the new block, and you will be entitled to the block reward.
Pros
Environmental friendly.
Can be used for anti-spam measures and denial of service attack prevention.
Cons
Incentivization can be an issue.
9. Byzantine Fault Tolerance
In this list, it is the first consensus that not contain the word Proof 😊.
Anyway, form the above consensus list we have seen every participant on the blockchain network must have to agree upon the rules set by the consensus algorithm to get an incentive or other benifits.
What if some participant on the network acts malicious and hole network unaware about the act.
This is the fundamental question of the Byzantine General Problem, which gave birth to the concept of Byzantine Fault Tolerance.
Then, what is the Byzantine General Problem?
The Byzantine General Problem was conceived in 1982 as a logical dilemma that illustrates how a group of generals may have a communication problem when trying to agree on the next move.
Below is the video that helps you understand what is Byzantine General Problem actually is.
https://youtu.be/dfsRQyYXOsQ?si=XKHTrWPkwVgbV13O
In crypto space, there are several ways we can tackle this Byzantine Fault Tolerance.
#1 Practical Byzantine Fault Tolerance (PBFT)
The goal of PBFT is to correctly reach a sufficient consensus despite malicious nodes in the system failing or sending out incorrect information.
In this system, all the nodes receive the order from one leader node. All nodes (here called backup nodes) in the system communicate with one another with the goal being that all honest nodes will come to an agreement on the state of the system using a majority rule.
There are two functions nodes can communicate: nodes must prove that messages came from a specific leader node, and they must verify that the message was not modified during transmission.
For the PBFT system to function, the number of malicious nodes must not equal or exceed 1⁄3 of all nodes in the system in a given vulnerability window.
In PBFT consensus rounds called views and divided into 4 phases.
A client sends a request to the leader node to invoke a service operation.The leading node broadcasts the request to the backup nodes.The nodes execute the request, and then send a reply to the client.The client awaits x+1 replies from different nodes with the same result, where x represents the maximum number of potentially faulty nodes.
#2 Federated Byzantine Agreement (FBA)
Instead of being controlled by the one leader node in FBA, the node makes its own decision individually about who to trust.
To make their decision node have to join the small groups of nodes which they trust, the group called as quorum slice in FBA.
Commonly, quorums intersect if not, then there will be disjoint quorums which can lead to the recording of contradictory transactions.
#3 Delegated Byzantine Fault Tolerance (DBFT)
Used by: Neo.
DBFT works the same as PBFT using one leader node but here to become BFT addresses the issue of malicious participants within a network, ensuring consensus despite potential failures or incorrect information. There are several types of BFT, including:
Pros
Fast and scalable.
Cons
Not suitable for a public blockchain.
10. Directed Acyclic Graphs (DAG)
Used by: Iota, HashGraph, Byteball, RaiBlocks/Nano.
DAG uses individual transactions linked together, rather than blocks, to verify the authenticity of new transactions.
Unlike traditional linear blockchain structures, DAG arranges transactions in parallel.
Pros
Fast.
Energy efficient because their are no miner needed to verify transactions.
Highly scalable due to their non-linear structure.
Cons
Hard to implement Smart Contracts.
Final Thoughts…
These consensus algorithms play a pivotal role in how various crypto assets differentiate themselves.
While this list covers many unique consensus methods, it’s not exhaustive.
Each algorithm offers distinct advantages and challenges, and the innovation in this space continues to grow.
List of Top 10 Different Types of Consensus Algorithms was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.