Various Consensus Mechanism and Their Working Explained

The role of consensus mechanisms needs to be understood to understand how Bitcoin and other cryptocurrencies work. We will have a detailed view of what they are, how they function, and how consensus mechanisms contribute to a secure, trustworthy blockchain experience for all users.

Types of Consensus Mechanism

Proof of work

Compared to other consensus mechanisms, the proof-of-work process requires a lot of energy and computing power to establish a consensus, making it a costly option. The essential concept is that miners in a network must demonstrate that they have put out a specific effort. Miners provide the computational power required to maintain the blockchain and validate transactions.

Miners also ensure that the network is secure against hackers. They compete against one another to connect a series of transactions, known as blocks. All verified transactions are stored on the blockchain and available to all network participants. Hash functions, or mathematical functions, are used by miners.

In simple words, hashing is the process of taking any length input string and producing a fixed-length result. The actual problem is that by solving mathematical riddles, a consequence with specific properties resulting from the hash function must be obtained. It can be demonstrated that the transactions (i.e. the computation path) were conducted without errors by solving the mathematical riddles.

If the block is mined correctly, it is added to the blockchain, and the miner who solves the mathematical challenge first receives a reward. Bitcoin is the most well-known crypto money that uses the proof-of-work mechanism.

Proof of Stake

Proof of Stake divides a miner's voting power from its processing power, i.e. in PoS, mining power is distributed according to the percentage of tokens held by a miner. The more significant his or her proportion of the total tokens, the more likely this miner will be chosen to mine the block.

Despite this, the proof-of-stake system relies on a random method to reach a consensus. Though the number of tokens owned stake is significant (since the proportion of tokens held influences the likelihood that a miner will be authorised or selected to mine the next block), various other criteria play a role in determining who will mine the next block.

Delegated Proof of Stake

The Delegated PoS mechanism can be considered a more democratic version of the PoS process. Only those with the most tokens are authorised to confirm or validate transactions in DPoS.

To complete this activity, all token owners choose a group of delegates. Because all users in the network are allowed to select the group of miners that confirm transactions, the method remains decentralised.

The advantage of the centralised feature of DPoS over the PoS-mechanism, on the other hand, is the faster verification and transaction speed, which leads to great scalability. Both the EOS and Lisk projects use the DPoS-mechanism.

Proof of Capacity

Solutions to complex mathematical riddles are stored in digital storage such as hard discs using the Proof of Capacity approach. Plotting is the term for the entire procedure. Users can use a storage device to make blocks after it has been filled with mathematical puzzle solutions.

Users who find the solutions first are allowed to mine the block. Users having the most storage capacity will have a better chance of creating a new block.

Proof of Elapsed Time

The Proof of Elapsed Time method selects the producer of a new block at random and relatively depending on the time they have waited. The method does this by assigning each user an unexpected wait time, with the user whose wait time expires first producing a new block.

This consensus process only works provided the system can verify that no single user can start several nodes simultaneously and that the wait time is random.

Proof of Identity

A user's private key is compared to an authorised identity in Proof of Identity. Proof of Identity is a cryptographic piece of proof for a user's private key that is cryptographically associated with a specific transaction.

A blockchain network allows any recognised user to generate a data block that can be displayed to anybody else on the web. Proof of Identity ensures the data's integrity and validity.

Smart cities can also employ blockchain consensus techniques such as Proof of Identity to validate their people's identities.

Proof of Authority

The Proof of Authority mechanism is a modified Proof of Stake in which validators' identities are at risk. The identity in this situation is the correlation between the validator's identities and their official papers to aid in verifying their identity.

The network is where these validators stake their reputation. The only nodes allowed to produce new blocks in Proof of Authority are those that become validators. Validators whose identities are on the line are motivated to keep the blockchain network safe and secure. Furthermore, the number of validators is limited (i.e. 25 or less).

Proof of Activity

The Proof of Activity mechanism uses the combination of the Proof of Stake and Proof of Work Consensus mechanisms—Miners attempt to solve a puzzle and collect their reward in Proof of Activity. The Proof of Activity blocks, on the other hand, are simply templates with the mining reward address and header information.

After that, the header information is utilised to select a random group of validators for mining the blocks. Validators containing more stakes have a better chance of being chosen to sign a new block. Once the designated validators sign, a new block becomes a part of the blockchain.

If validators find an unsigned block, it is deleted, and a new block is used. The winning miner and the validators split the network fees produced throughout the operation. Despite having identical goals, different blockchain consensus methods use different approaches to achieve consensus. Although there is no single reliable consensus mechanism, existing ones have evolved to match the needs of blockchain.

As the underlying technology is still relatively new, identifying the type of blockchain consensus mechanism that will be more used and beneficial in the long run can be increasingly difficult.

As a result, business leaders who want to implement blockchain technology in their company should be familiar with the various blockchain consensus techniques.

Advantages of Consensus mechanism:

Forms the crypto-core market's agreement:

Consensus methods enable confidence in a blockchain by synchronising data amongst all participating users.

Provides a safe environment:

For security, cryptocurrencies and distributed applications rely on consensus methods.

Anyone can participate:

The obstacles to becoming a miner or running their nodes are low with the most prevalent consensus techniques.

Disadvantages of Consensus mechanism:

Require a lot of energy:

Proof-of-work is an energy-intensive process that uses as much electricity as several countries.

Attacks are possible:

A 51 per cent attack is a form of hack that has a modest possibility of succeeding, among other minor flaws.