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EXPLORING THE CONSENSUS MECHANISM OF BLOCKCHAIN TECHNOLOGY

Tech Planet Author 1 hour ago Follow


In blockchain, all network users (nodes) are equal and can influence the
system's work as it ensures decentralization. However, nodes should agree on how
to control the network, what transactions are valid and perform their roles
honestly.

Consensus in blockchain means an agreement between nodes on the current state
and necessary changes in the system. Network users agree on existing and new
data on the blockchain.

Such agreement performs automatically based on particular rules and conditions,
known as consensus mechanisms. As rules and conditions can be different, there
are different types of consensus mechanisms.

Besides the most popular Proof-of-Work (PoW) and Proof-of-Stake (PoS), there are
other types of consensus mechanisms that defer in security, scalability, energy
efficiency, level of decentralization, throughput, transaction fees and speed.

Why does the consensus mechanism matter? As a crypto user, you should get
acquainted with consensus mechanisms and their pros and cons to make proper
trading and investing decisions and to understand potential security risks you
may bear while interacting with concrete cryptocurrencies and projects.






TYPES OF CONSENSUS MECHANISMS


 


PROOF-OF-WORK (POW)

PoW is a consensus mechanism in Bitcoin, Dogecoin, Litecoin, and others.

In PoW, nodes (miners) validate transactions and propose new blocks by solving
the computational problem. Miners compete to be the first to solve the puzzle as
the quickest one receives so-called mining rewards. The more miners appear, the
more competition and the more complicated the computational problem. Thus,
mining requires a lot of energy and special equipment to win the competition,
making it unprofitable for small miners. At the same time, blockchains that
adopt the PoW consensus mechanism are highly secured as attackers must spend
high costs to attack the network, which can be unprofitable. Thus, Bitcoin
network was never hacked.



PoW advantages: highly secured, decentralized structure, and acceptable
scalability.

PoW disadvantages: high block creation time, energy inefficiency, and high
computational cost.


 


PROOF-OF-STAKE (POS)

PoS is a consensus mechanism in Ethereum, Solana, Cardano, Tezos and other
blockchains.

In PoS, nodes don't perform computational work but stake native
cryptocurrencies. Nodes (validators) are required to purchase a particular
amount of cryptocurrency and lock it in a smart contract for some time to get
rewards instead. Validators are chosen randomly to validate transactions and add
new blocks, and the more locked assets validators have, the more possible they
would be chosen. A dishonest validator may lose a part or all locked assets as a
punishment. PoS may suffer from centralization as a small number of users can
keep the majority of staked assets taking control over the network. Also, a PoS
network performs less security than a PoW since attackers can spend bearable
costs to manipulate data.

PoS advantages: fast block creation time, high throughput, energy efficiency,
and scalability.

PoS disadvantages: centralization may occur.


 


DELEGATED PROOF OF STAKE (DPOS)

DPoS is a variation of PoS used by Cosmos and Tron.

In DPoS, users stake native assets as well, but only selected delegates can
validate blocks. Such delegates are called witnesses and perform decision-making
on other users' behalf. Stackers vote to elect witnesses and can also reselect
them if dishonest behaviour occurs. Such democracy structure makes all nodes
equal. However, semi-centralization may occur since the number of witnesses is
limited. Also, witnesses may control over 51% of a network and make malicious
decisions collapsing the network.



DPoS advantages: scalability, energy efficiency, and low-cost transactions.

DPoS disadvantages: semi-centralization, vulnerability to 51% attack.


 


PROOF-OF-WEIGHT (POWEIGHT)

In PoWeight, each user weights the network determined by the amount they have on
their accounts. The algorithm randomly selects users based on their weight. To
keep the network secured, over 51% of users should be honest. Unlike PoS, in
PoWeight, validators should only own assets without staking and don't receive
rewards.

PoWeight advantages: customization, scalability, fast transactions, and energy
efficiency.

PoWeight disadvantages: semi-centralization, and no incentive.


 


PROOF-OF-CAPACITY (POC)

Unlike PoW, where miners should solve complicated energy-inefficient problems to
validate transactions and get rewards, PoC miners should approve they have
enough space on their hardware to mine cryptocurrencies. Miners can store as
many nonces and blocks hashed as their space allows. The algorithm chooses
miners with the most significant storage capacity as they will likely meet the
closest hash requirements to add a new block.

PoC advantages: energy efficiency, high decentralization, and low entry barriers
for miners.



PoC disadvantages: the miners' competition may be unfair since it wins the one
with the largest space, and miners can trick the network.


 


PROOF-OF-AUTHORITY (POA)

PoA requires users to stake their identities or reputation instead of financial
capital. Network users select validators who disclose their identities and act
as system moderators. The validators are interested in a network's long-term and
successful development and usually appear to be institutional investors. So they
stake their social capital and bear reputational risks only. As the number of
validators is limited, such networks are centralized, but their structure allows
high scalability. PoA is more likely a solution for private networks and is used
by VeChain.

PoA advantages: scalability, more energy efficiency compared to PoW, high speed,
and tight security.

PoA disadvantages: centralization, validators are not anonymous.


 


BYZANTINE FAULT TOLERANCE (BFT)

In BFT, ⅔ of nodes should agree the transaction is true to add a new block. It
is supposed those nodes are honest and the network can successfully perform so
far as most users are genuine. Thus, BFT helps blockchain stay continuously
functioning and resist despite some users may be malicious.

BFT advantages: energy efficiency and high throughput.



BFT disadvantages: the system is susceptible to 51% and Sybil attacks, and low
scalability.


 


BOTTOM LINE

The consensus mechanism directly affects security and decentralization, which
are essential for crypto users choosing blockchain technology for new financial
instruments and opportunities underrepresented in centralized finances.

 

Learn More from SpectroCoin

CRYPTO BLOCKCHAIN CRYPTOCURRENCY BITCOIN ETHEREUM NFT ETH BTC DEFI

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