Blockchain consensus protocols are sets of rules that determine how a decentralized computer network reaches agreement on which transactions are valid and which are not. These protocols play an indispensable role in any blockchain network, ensuring that all participants collectively maintain a common transaction ledger.
Blockchain consensus protocols provide a method for verifying whether a transaction is true or not, allowing for review and confirmation of data added to a blockchain’s record.
Some well-known consensus mechanisms include Proof of Work (PoW), Proof of Importance (PoI), Proof of Stake (PoS) , DPoS, TaPoS, dBFT and Proof of Burn (PoBr).
In this article, we have explained different types of blockchain consensus protocols. Let's get started!
Consensus mechanisms in blockchain
An Overview of Consensus Protocols in Blockchain Technology
One of the most important elements of blockchain technology is the consensus protocol. This protocol is used by all blockchains to reach an agreement on the state of the system and order transactions. Consensus protocols are at the heart of distributed systems, such as public ledgers (blockchain), anonymous peer-to-peer networks (Bitcoin), distributed cloud storage systems (Sia) and many others.
In this article, we will discuss what a consensus protocol is, how it works and why it's so important for blockchains.
What is Blockchain Technology?
Blockchain is a distributed ledger technology that creates an immutable record of transactions. It was first used to create Bitcoin, but there are many other blockchains, such as Ethereum. Blockchain is being used in many industries including financial services and healthcare.
Blockchain technology has become widely known in the last few years, especially since the Bitcoin price skyrocketed in 2017. There are a couple ways cryptocurrencies can come to consensus about what block is next, and which transactions should be included in that block.
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Define Consensus Protocol in Blockchain
Consensus protocol is a core part of blockchain technology. It refers to the rules that participants in the network must follow to make sure that all nodes involved in the system reach an agreement on each transaction. In other words, it's how blockchain reaches trust and security.
Consensus protocol has a big impact on the crypto price, including the Ethereum price. This is because they affect the mining difficulty and mining costs. When the mining difficulty is high, it's hard to mine coins. The number of miners will decrease. As a result, the hash rate will decrease too, which will make it harder for a new block to be mined, so even if more transactions are made, it may take a long time for them to be verified.
This means that if consensus mechanism is not good enough, people will only stop using cryptocurrency in the future because of its instability due to low usage frequency, which is bad for any coin.
Different Types of Consensus Protocols in Blockchain
Blockchain networks rely on consensus protocols to ensure that participating nodes agree on valid transactions. These protocols cater to different needs, from security to scalability and energy efficiency. Choose wisely based on your blockchain application’s requirements. Let’s explore some key consensus protocols:
Proof of Work
Proof of work is a consensus protocol that requires nodes to solve a complex mathematical problem in order to create new blocks. It's the most popular consensus protocol used in blockchain technology, and it was first introduced by Bitcoin's anonymous creator Satoshi Nakamoto.
In proof of work (PoW), miners compete against each other to find a solution for the next block on the blockchain. This process involves calculating an extremely difficult hash value. One that fits certain requirements from all of the transactions contained in that block.
Proof of Stake
Proof of stake (PoS) is a type of algorithm that allows for distributed consensus to be reached by validators. In proof-of-work systems, miners are required to solve complex mathematical equations in order to validate transactions and create new blocks on the blockchain.
If a validator correctly adds a block at any point during this lottery, then they will receive all transaction fees associated with that block plus an additional reward proportional to how much money they staked versus everyone else who participated in this lottery round (up until now).
The main benefit of PoS over PoW is its lower energy consumption because mining rigs don't need expensive hardware like GPUs anymore. Instead anyone who owns cryptocurrency can become part of their network simply by owning some coins themselves.
Delegated Proof of Stake
Delegated Proof of Stake (DPoS) is a consensus algorithm designed to secure a blockchain by ensuring representation of transactions within it. DPoS combines stakeholder voting with block validation, making it a dynamic and accessible consensus mechanism for blockchain networks.
DPoS originated in 2014 as a modified version of PoS. The first DPoS blockchain, BitShares, launched in 2015.
In DPoS, network users vote to elect delegates (also known as witnesses or block producers). These delegates are responsible for validating the next block on the blockchain. Similar to traditional Proof of Stake (PoS), DPoS uses a collateral staking system. Users stake their native tokens as collateral to participate in the voting process.
DPoS offers a more democratic, affordable, and efficient way to validate transactions. By involving users in the election of delegates, it addresses some limitations of standard PoS mechanisms.
Proof of Authority
Proof of Authority (PoA) is a consensus algorithm used in blockchain networks to validate transactions and create new blocks. Unlike some other consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS), PoA relies on the identity and reputation of its validators to maintain the security and integrity of the network.
PoA provides an energy-efficient alternative for private blockchains, emphasizing trust, reputation, and a streamlined validation process.
In a PoA network, a small and designated number of validators are preapproved to participate. These validators are trusted entities that have undergone a strict vetting process. They don’t need to stake coins like in PoS; instead, their reputation serves as the basis for validation.
Validators use software to organize transactions into blocks. The process is automated, so they don’t need to constantly monitor their computers. However, they must keep their admin sites (computers) in good working order.
Proof of Space
Proof of Space is a consensus protocol for distributed ledgers. The basic idea behind Proof of Space is that each node in the network (each individual computer or server) provides some amount of computational resources as proof of their ownership over the network.
This means that every node has to have a certain amount of disk space, and they must prove that they own that space by adding a small amount of data to the blockchain. The more space they provide, the more weight they have in the consensus process.
This is particularly relevant because it allows different types of nodes to be weighted differently: lightweight nodes can run on low-end hardware and provide very little storage space, while high-end nodes can store massive amounts of data and provide thousands of times more weight to their owners than lightweight nodes do.
Proof of Capacity
Proof of Capacity (PoC) is a consensus mechanism used in blockchains that leverages the storage space on hard drives for mining. Notable blockchains that use PoC include Signum, Chia, and SpaceMint. So, PoC offers an intriguing alternative to traditional consensus mechanisms.
In PoC, mining devices (also called nodes) use their available hard drive space to decide mining rights and validate transactions. Unlike Proof of Work (PoW), which relies on computational power, or Proof of Stake (PoS), which considers the miner’s stake in cryptocurrencies, PoC utilizes empty hard drive space.
The main benefit of PoC lies in its efficiency compared to PoW and PoS systems. By using existing storage capacity, PoC reduces energy consumption and democratizes participation in the network.
Delegated Byzantine Fault Tolerance
Delegated Byzantine Fault Tolerance (dBFT) is a consensus algorithm commonly used in blockchain networks to achieve network security, reliability, and efficiency. dBFT strikes a balance between security and efficiency, making it suitable for various blockchain applications.
In a dBFT system, a limited group of trusted nodes, known as “delegates” or “consensus nodes,” are responsible for validating and confirming transactions. These delegates are carefully selected to ensure network integrity.
When a new transaction is proposed, the delegates reach consensus on its validity. If a majority of delegates agree that the transaction is legitimate, it is added to the blockchain.
dBFT is efficient because it avoids the resource-intensive mining process seen in Proof of Work (PoW) blockchains. Instead, it relies on a smaller set of validators. dBFT ensures network security by tolerating up to one-third of the delegates being faulty or malicious. This resilience helps prevent attacks and ensures the blockchain’s integrity.
Proof of Elapsed Time
Proof of elapsed time (PoET) is a consensus protocol that uses the passage of time to reach consensus. In PoET, each node in the network is given an opportunity to produce a block in an equal amount of time. The block produced by each node is then time stamped by its own clock and broadcasted across the network for other nodes to verify its validity.
If multiple nodes produce blocks during their allotted time slots and broadcast them simultaneously, then all but one of those blocks will be discarded as invalid by other nodes on account of having been created too soon after another block had already been created before it could be verified by everyone else in the system (and therefore considered valid).
The advantage here is that elapsed time cannot be tampered with; unlike traditional systems like proof-of-work where miners can manipulate their hardware clocks or even just lie about how much computing power they have available at any given moment.
Proof of Burn
Proof of Burn (PoB) is a fascinating consensus mechanism used by some blockchains to achieve distributed consensus. PoB combines economic commitment with consensus, making it an intriguing addition to the world of blockchain mechanisms.
Validators (or miners) intentionally burn or permanently destroy a portion of the cryptocurrency tokens they own. By doing so, they earn the right to participate in the network’s protocol, such as creating blocks or earning transaction fees.
Validators send their coins to an address from which they are irretrievable. Essentially, they commit these coins to oblivion. This act demonstrates their long-term commitment in exchange for short-term loss.
Depending on how PoB is implemented, validators may burn the native currency of the blockchain application or an alternative chain (like Bitcoin). The more coins they burn, the better their chances of being selected to mine the next block. Unlike Proof of Work (PoW), which consumes significant energy, PoB minimizes resource usage. It’s an interesting alternative that avoids the wastefulness associated with PoW.
What is the Importance of Consensus Protocol in Blockchain?
Consensus protocol allows people to agree on something. If a group of people are going to do something together, they need to agree on how they're going to do it.
Consensus protocols allow people to do this without having to argue about it endlessly.
It is a solution that ensures that the data shared among nodes in a distributed network always match. In its simplest form, it's the process of how blocks are added to the blockchain.
Consensus protocols are the bedrock of blockchain technology, and are a necessity for any application that requires multiple parties to agree on the validity of transactions or documents.
Consensus protocols help to ensure that all parties in a transaction have a consistent view of the state of the blockchain and that there's no single point of failure, such as a centralized government or institution, which can easily be corrupted or fall victim to internal disputes.