Public blockchains unlike centralized systems, are self-regulating systems. The consensus mechanism or consensus method as some call it, ensures the validity of the transactions happening in a network.
This means there is no authority that regulates them. Instead, there are hundreds of thousands of participants whose role is to verify and authenticate the transactions that are happening in a particular blockchain.
With these regular changes in a blockchain, the publicly shared ledgers require an efficient, functional, fair, reliable, fast, cost efficient and secure mechanism. Many investors prefer a blockchain with the lowest possible transfer cost, the highest possible security and the quickest possible transfer time. But how does the consensus methods come into the picture? Continue below to learn more about what it is and how it works.
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- 1 What is a blockchain concensus method/mechanism?
- 2 Difference between consensus and validation
- 3 How transaction verification works in a blockchain
- 4 How many blockchain concensus mechanisms exist?
- 5 Proof of Work
- 6 Less common blockchain consensus methods
- 6.1 Proof of History (PoH)
- 6.2 Proof of Authority (POA)
- 6.3 Proof of Capacity (PoC)
- 6.4 Proof of Elapsed Time (PoET)
- 6.5 Proof of Validation (PoV)
- 6.6 Proof of Importance (PoI)
- 6.7 Delegated Proof of Contribution Protocol (DPoC)
- 6.8 Proof-of-Stake Voting (PoSV)
- 6.9 Proof of Activity (PoA)
- 6.10 Proof of Burn (PoB)
- 6.11 Ripple Protocol Consensus
- 6.12 Stampery Blockchain Timestamping Architecture (BTA)
- 6.13 Anonymous proof of stake (ZPoS)
- 7 Conclusion about consensus methods
What is a blockchain concensus method/mechanism?
This is a process in which the users of a blockchain network agree on the state of the data in the network. A blockchain concensus method or mechanism is a set of rules that ensures the legitimacy, integrity and reliability of the data. This in turn leads to trust in the blockchain network.
Difference between consensus and validation
It is important to understand that consensus and validation are different types and stages of a transaction. For one, a blockchain validator validates a transaction by ensuring that it is lawful and not malicious. On the other hand, a consensus defines the order of events until they agree. Therefore, the working mechanism of consensus algorithms involves agreeing on the order of the verified transactions. That means validation happens before a consensus.
How transaction verification works in a blockchain
There are several steps to include a transaction to a blockchain. Despite the decentralization of cryptos, there is a need to authenticate transactions. This is done using crypto keys that help to identify a user and provide access to their wallet. Users who have a computer in a network earn incentives to verify a transaction.
How many blockchain concensus mechanisms exist?
With the different types of blockchain technology out there and the vast opportunities offered by blockchain, it can be hard to determine the number of blockchains out there. But what is clear is that there are literally tens of working mechanisms in the consensus algorithm. That said, let us look at several types of blockchain consensus mechanisms and their sub methods. Some of the most important are the 23 different consensus methods described below:
Proof of Work
A key element of how to achieve consensus is through a distributed network where validators confirm the records of transactions. Bitcoin and other early cryptocurrencies use proof of work. In this protocol, miners who are basically hardware operators take part in the computing power when validating a transaction in a network. For their role, they get compensation in form of cryptos. This is what led to the utilization and transaction recording of the PoW protocols. See a top list over proof of work here or learn more about Bitcoin blockchain which is the most famous PoW based network.
Proof of Stake
The Proof of stake (POS) is a consensus mechanism that was created to deal with inefficiencies that are common with proof of work protocols. Previously, these inefficiencies were solved through crypto mining. Today, POS uses nodes that have been chosen depending on the platform token stake to audit and record transactions. The Ethereum blockchain merge is a merge in September will change the network from PoW to PoS.
Blockchain and computer systems use various version of the POS protocol to achieve the required agreement. The agreement is on a certain value of data or a unique state of a network in distributed processes and multi-agent systems such as cryptocurrencies. Most of the modern Blockchain projects now commonly use the POS consensus mechanism. Some of these are Cosmos (ATOM), Cardano (ADA), Polkadot (DOT), Solana (SOL), VeChain (VET), and Tezos (XTZ), to name a few.
One of the reasons why it’s popular is because it’s more scalable by far. POS is also more flexible and environmentally friendly as compared to the POW iterations. See a top list over proof of stake coins & tokens here.
There are a huge amount of different proof of stake types and some of the most important ones are mentioned below.
Liquid proof of stake (LPoS)
Tezos Blockchain uses liquid proof of stake (LPoS) as a validation mechanism. With this protocol, holders of a token can pass their validation rights to other users. However, holders achieve this while still maintaining their token ownership. Therefore, the token remains in the wallet of the delegator. If there is a security mishap, the penalty goes to the validator. Its main downside is that it’s among the slowest blockchain validation.
Delegated Proof of Stake (DPoS)
This is another consensus mechanism that is commonly used in projects such as Steemit and EOS network. It was developed by Dan Larimer and works similarly to the LPOS. However, users vote on the delegate who should get the blockchain’s new block. The token holders also vote on the person to validate a transaction on a network. The delegate’s token number determines how much power each vote has. That means that token holders with more tokens are more likely to become validators. An example of DPos is the EOS token. Some blockchains combine both delegated proof of stake and another consensus method, such as Solana network that combine it with proof of history.
Pure Proof of Stake (PPoS)
The native coin (ALGO) of the Algorand network was the first user of the PPoS. This blockchain’s aim is to provide security, decentralization, and scalability in an environmental-friendly way. The consensus mechanism uses the Byzantine consensus and a more egalitarian approach as compared to the POS.
Bonded Proof of Stake (BPoS)
The Bonded Proof of stake works in the same way as the LPOS. Just like LPOS, holders of a token can transfer their rights to vote without the custodial rights. This means that just like in LPoS, token holders can vote for or against protocol change.
However, BPOS is different from LPOS in that if there is a security lapse, the blockchain deducts both the delegator and the validator’s stake. This is unlike LPOS where only the stake of the validator is deducted. Two of the earliest projects that used the BPoS protocol were Cosmos and IRISnet.
Nominated Proof of Stake (NPoS)
One of the key differences between NPOS and other consensus mechanisms is that validators are chosen automatically. However, they need to build their reputation to prove their reliability in the bigger community. Validators can do that by providing low gas fees on transactions. Blockchain projects including Cosmos, Kusama blockchain, EOS and Polkadot use the NPoS consensus algorithm.
Hybrid Proof of Stake (HPoS)
Just like the name suggests, Hybrid Proof of Stake (HPoS) marries the proof of work with the proof of stake. Both mechanisms work hand in hand to ensure the security of the network. These rules require miners to produce some new blocks while the validators vote on whether they are valid or not.
Dash blockchain and Decred are some notable projects that have adopted an HPoS consensus mechanism. In most cases, these rely on POW miners to get new blocks that accommodate transactions. These are then passed to the POS validators who vote on whether the blocks and records need to be confirmed or not.
Thresholded Proof of Stake (TPoS)
In this approach, both stakers and validators earn the staking rewards. However, their stake depends on the percentage of Near Staked with a certain percentage shared up to a particular maximum. An example of this is the Near Mechanisms with the Near Blockchain and its native token with the same name.
Leased Proof of Stake (LPoS)
Commonly used on the Waves platform, this is a proof of stake mechanism. It enables the holders of a token to lend their tokens. They in turn earn a percentage of the payout. This is a departure from the traditional proof of stake protocol. Previously, every block could add a new block to a blockchain.
But with a leased POS, users can either choose a full node or they can lease their stake to the full node with the receiving rewards. This kind of system allows any person to participate in Wave network maintenance.
Less common blockchain consensus methods
On top of the above various types of consensus algorithms, there are other less common consensus mechanisms. These proof of stake variants include:
Proof of History (PoH)
This consensus algorithms blockchain uses the Proof of stake but calculates the time differently. For instance, It changes historical events into a hash that can be generated using certain previous events. The computation sequence in Proof of History provides a way of verifying the time that has passed between two events.
The Solana founder developed this consensus mechanism and now use it together with DPoS. This makes Solana one of the fastest blockchain algorithm, with transaction speeds of up to 65,000 TSP.
Proof of Authority (POA)
The Proof of Authority is an algorithm that uses blockchain to deliver faster transaction speed. It uses a consensus mechanism where the stake is the identity. One of the most notable blockchains that use this mechanism is Vechain. The founder of Ethereum Dr. Garvin started the blockchain in 2015. However, there are other blockchains that use the consensus mechanism such as Kovan and Giveth.
Therefore, POS is a highly centralized consensus method that identifies validators. It is, therefore, suitable for private blockchains and consortiums such as insurance companies and banks.
Proof of Capacity (PoC)
This consensus mechanism uses the hard disk space of a mining node to determine the hard drive space of a mining node. In this system, miners can precalculate the POW functions and keep them in an HDD. This makes it less time-consuming but more energy efficient. Creating a new block takes an average of 4 seconds. Burstcoin (SIGNA) is one of the tokens that used this new mining method. Update from 2/9, 2022: Burstcoin is not active anymore.
Proof of Elapsed Time (PoET)
Intel created this consensus method in 2016. It enables blockchains to determine the next creator of the next Block. Additionally, PoeT uses a lottery method that distributes the winning chances to all network users. Hyperledger Sawtooth, which focuses on building distributed ledgers uses this consensus mechanism.
Proof of Validation (PoV)
This is a unique consensus mechanism that aims to achieve consensus using the validator staked nodes. In this protocol, all the nodes of POV system maintain the transaction sequence in the blocks created on that blockchain.
Proof of Importance (PoI)
The Proof of Importance is a blockchain consensus method that aims to show the utility of a node in the cryptocurrency system. The final goal is to create a block. The NEM token (XEM) uses PoI.
Delegated Proof of Contribution Protocol (DPoC)
This is a democratized and decentralized governance and incentive protocol. In this consensus mechanism, holders use their governance rights by delegating their stakes to people contributing to the growth of a network. A random selection picks one delegate who is voted to add to the block.
Therefore, the goal of DPOS is to use voting delegates to improve the POS mechanism by ensuring the representation of a transaction within the blockchain. It can therefore be termed as a technology-based democracy that uses voting to prevent malicious usage and centralization.
Proof-of-Stake Voting (PoSV)
The POSV is a blockchain consensus mechanism that works similarly to the proof of stake. TomoChain uses a type of PoSV algorithm.
Proof of Activity (PoA)
This type of blockchain technology combines the POS and POW mechanisms. It requires the miners to perform heavy computation in order to add a new block with header information and the reward address. After this, one empty block will be chosen depending on the tokens in their account. The person who mined the block will have an opportunity to add it to the block. This project was launched in 2016 and is most conspicuous in the Decred (DCR) blockchain.
Proof of Burn (PoB)
This consensus method requires the miners to get to a consensus by burning coins. Users permanently ban coins from regular circulation. The miner sends cryptos to a verifiable public address. This address is known as an eater address. The goal is for the miner to make some type of investment into the blockchain. Since there are high numbers of cryptos burned on the mechanism, the miner gets more mining power.
Some of the coins that use this mechanism are Slimcoin, Counterparty, and Factom. For instance, Counterparty requires users to send bitcoins to a certain address and in return get XCP tokens.
Ripple Protocol Consensus
RippleNet blockchain mechanism is similar to other blockchain protocols such as Bitcoin and Ethereum. However, its major difference is that it has the goal of ensuring efficient and affordable transfer of funds to other parts of the world. It uses the Ripple Protocol Consensus Algorithm to achieve this.
Stampery Blockchain Timestamping Architecture (BTA)
This is one of the many types of blockchain technology that can timestamp and anchor an infinite quantity of data in a blockchain. The goal of the consensus mechanism is to ensure the affordability and scalability of the data. At the same time, it helps to maintain integrity, efficiency, and ownership of transactions with the help of cryptocurrency proof.
One of the proofs of stake variants in this consensus method is the Byzantine Fault Tolerance (BFT). An example of a blockchain that uses this mechanism is the Hperledger Fabric. The blockchain uses less than 20 validators that are preselected to determine the network’s consensus. Federated Byzantine Agreement is another branch of BTA. It uses a variation of this consensus mechanism.
Anonymous proof of stake (ZPoS)
PIVX, a project that aims to provide security of the global digital cash is the brain behind this consensus mechanism. It does this through the use of data protection. The project enables users to be their own bank with full control of their digital assets.
ZPOS uses zerocoin protocol to make the consensus method possible. The number of coins that each person stakes in a network remain private. This means that people can own private cryptocurrency balances while getting rewards privately and securely.
Conclusion about consensus methods
The above are the most common types of blockchain technology consensus mechanisms. While there may be others out there, validators commonly use these types. Generally, all these algorithms have the same goal of ensuring the integrity of a transaction.
However, blockchain developers keep on mixing and matching existing protocols. They also try to find new ways to streamline the on-chain governance. This is an indication that in the days to come, there will be an increase in the number of consensus mechanisms. All in all, while the above consensus methods are a broader view of the proof of stake we use today, there is nothing constant in the blockchain space.
Thousands of blockchain projects are already using some kind of PoS. In fact, all consensus methods including permissioned blockchain systems and permissionless blockchain systems are working to improve network decision-making. Additionally, they also seek to improve resource efficiency and scalability. Therefore, we expect consensus mechanisms to keep on playing an important role in the development of the blockchain industry.