The most popular consensus algorithms used in blockchains
One of the most significant characteristics of blockchain technology is its distributed nature. As a result, there is a serious problem of agreement between unreliable nodes in the decentralized network. This agreement is usually reached with the aid of consensus algorithms, and nowadays there are a wide array of these algorithms to choose from.
We will consider some of the most popular of these algorithms
Proof of Work (PoW)
PoW is the first successful realization of a consensus algorithm in Blockchain. It is used in:
and other platforms.
Basic principles of work
In PoW, miners attempt to solve difficult mathematical tasks. The first miner who completes all the necessary computations forms a block with transactions and receives a reward from the Blockchain network. The new block is proved and included in Blockchain.
Are there any issues?
As the network expands, the task becomes increasingly complicated. These computations demand huge expenditures, and as such, are the main disadvantage of PoW. Mining requires entities with highly specialized computer hardware to form mining pools, which contradicts the decentralized nature of Blockchain and can instigate a 51% attack.
At the same time, such architecture makes PoW the most secure algorithm.
Proof of Stake (PoS)
Another widespread algorithm is PoS. The most popular implementations are:
How it works
With PoS there are no miners. The participants, also referred to as stakeholders, build the blocks selected according to their balance within the system. This balance can be expressed as tokens of the platforms, and the greater the share is, the higher the block holder’s chance to generate the block.
Stakeholders are not rewarded for building the blocks; instead they get a reward for transactions.
Is it ideal?
Unlike PoW, the PoS algorithm does not require high computational power, and can resist a 51% attack.
With this in mind, it also has disadvantages. The main issue of “Nothing at Stake” involves an attacker building an alternative detachment with a longer chain of blocks, and other holders can support this chain as they have nothing to lose.
Delegated Proof of Stake (DPoS)
Similar to PoS, with DPoS participants invest in tokens of the platform, but the system itself functions in a different manner. Popular implementations are:
How consensus is achieved?
The DPoS algorithm runs on a voting system, which allows holders among the blockchain community to vote for witnesses with the security of the network in mind. Witnesses validate the blocks and put them into the blockchain. Community members have the ability to remove their votes if a witness is producing poor work.
The main advantage of the system is the rapid processing of the transactions as the blocks validate only the selected nodes.
Byzantine Fault Tolerance (BFT)
BFT consensus maintains the integrity of blockchain even if there are problems with several nodes in the system. This consensus mechanism uses projects such as:
Basic principle of BFT
The basic principle of this approach is that “good” nodes will always outweigh the “bad” ones. All nodes are obliged to present their conclusions, and consensus is reached on the basis of this information.
The main disadvantage of BFT is that the anonymity of the system makes it less efficient than other blockchains.
Directed Acyclic Graph (DAG)
The combination of blockchain and DAG is based on the concept of parallel chains, while the blocks in the system maintain their own relevance. Platforms that use the DAG algorithm:
Within the DAG structure there are no miners or validators; the verification is obtained directly via transactions. It allows one to carry out the transactions almost instantly and without a huge commision.
Read more in our article: What is DAG and how does it compete with blockchain?
Proof of Importance (PoI)
PoI is one of the many implementations of PoS. This method takes into account not only the balances of the shareholders, but also the participants’ activity and reputation. Thus, the system motivates users to be active and make transactions.
The PoI consensus algorithm is used in the NEM platform.
Proof of Authority (PoA)
There are a set of authority nodes in the PoA consensus mechanism called sealers. As a new node is added to the set by other approved authority nodes, it can also be removed for unacceptable behavior.
The main principle of PoA is that the generation of blocks and transactions automatically runs via the computing power of the sealers. Under this condition the generation of blocks increases.
PoA is suitable to use in a private network, whereas public networks demand that trust be as distributed as possible.
Proof of Capacity (PoC)
In PoC, participants are rewarded for lending their hard drive space to store data.
The algorithm generates huge data sets called “plots”. The more plots you store on your hard drive, the greater the chance you have to build a new block. With PoC we still encounter the issue of nothing at stake.
Burstcoin is the only cryptocurrency that uses PoC.
Leased Proof-of-Stake (LPoS)
LPoS is an additional modification of the PoS algorithm, and is only supported by the Waves platform. Within the framework of this algorithm, any stakeholder has the ability to transfer his or her balance to the lease of the mining nodes. These mining nodes share a portion of the profit with the holder. Essentially, LPoS allows one to generate an income from mining activities, without conducting any actual mining.
Proof of Cognitive Work (PoCW)
PoCW is an experimental algorithm and is used by the Pandora Boxchain platform.
PoCW consensus secures AI computations and mines tokens upon the completion of cognitive work.
Cognitive work is a conglomeration of finalized, successful and correct computations of users datasets performed with artificial neural networks. Mining based on cognitive work (PoCW) represents a much more efficient form of consensus than usual PoW algorithms that produce no significant results.
These are the most popular consensus algorithms, but note that this is not an exhaustive list. As blockchain technology continues to develop and evolve, new consensus mechanisms are attempting to solve previously existing problems and attain perfect realization.
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