Have you ever wondered how consensus algorithm works? If you have, you are not alone. Blockchain undoubtedly offers the transparency, integrity, and security out of the box. The idea is to provide a decentralized platform where every node plays an equal role during decision making. The way a blockchain maintains all its features and provides agreement across the whole blockchain is known as consensus algorithm.

In this article, we will be covering consensus algorithms, their definition, and examples. By going through the article, you will know how consensus is gained in a blockchain environment and how it impacts the economy surrounding the blockchain. Let’s get started.

 

What is a consensus algorithm?

A consensus algorithm can be defined as the process of achieving agreement on a single unit of information on distributed systems or processes. It offers reliability to the network which involves multiple nodes. It is one of the most important aspects of a distributed network as it ensures that the integrity of data is maintained. Consensus algorithms are used to prevent double spending.

 

Types of consensus algorithms

There are many popular consensus algorithms out there. There is no perfect consensus algorithm out there. Each consensus algorithm has its own strength and weaknesses. So, let’s list the popular ones and learn about them below.

 

Proof-of-Work(PoW)

Proof-of-Work is the most popular consensus algorithm out there. Its popularity is linked to Bitcoin and is devised by Satoshi Nakamoto in his bitcoin paper. Proof-of-Work operates with the help of miners. When a new transaction is created, it is assigned to a particular block. To validate the transaction, miners solve the hard computational problem using computational processing power. This leads to the use of enormous energy. The idea behind PoW is to work around the longest chain. The chain on which 50% miners working on it will win.

PoW gets harder with time as the computation power required to resolve a block increases. The difficulty is maintained to ensure that constant block time.

Pros: There are no particular pros of PoW. We can only say that it works in a distributed network and is being done so for the past ten years.

Cons: Energy-hungry, slow, killing planet resources slowly.

Cryptocurrency that uses PoW: Bitcoin, Litecoin, Ethereum, and many others.

Read more: https://en.bitcoin.it/wiki/Proof_of_work

 

Proof-of-Stake(PoS)

Proof-of-Stake is the second most popular consensus algorithm out there. It is developed to counter the disadvantages of PoW. To do so, PoS doesn’t utilize mining as its means to manage consensus across the platform. However, it works by staking.

Staking is a method through which nodes stake a required number of coins to take part in the consensus system. Once done, the node then participates in mining blocks. For example, if a node has 10% stake in coins, then the probability of it getting to mine the next block is 10%. Unlike Proof-of-Work, there is no need to do mining or a huge amount of computational power. This also gives each miner in a PoS network equal opportunity to contribute/

Also, attacking a POW system is less expensive than PoS system which means that PoS systems are more secure when it comes to 51% attack on the blockchain.

Pros: Energy efficient, more decentralized, more secure compared to PoW.

Cons: None

Cryptocurrency that uses PoS: NEO, NavCoin, ARK

Read more: https://en.wikipedia.org/wiki/Proof-of-stake.

 

Delegated Proof-of-Stake(DPoS)

Delegated Proof-of-Stake(DPoS) might sound similar to PoS, but in reality, it is different. Daniel Larimer developed DPoS. So, how does it work? It works by assigning delegates rather than depending on the token holders. The token holders themselves choose the delegates. Once the delegates are elected, they are now in the position to validate transactions in the blockchain. Any DPoS powered blockchain generally has 21 to 100 delegates.

Delegates are responsible for the proper functioning of the blockchain. If they fail to do so by not able to mine their block or push invalid transactions, they will be removed from the position and replaced with a better delegate.

The biggest difference between DPoS compared to PoW and PoS is that there is no competition in the blockchain which results in better efficiency. However, it also means that blockchain solution that is currently using DPoS are partially centralized which can lead to lack of trust. On the bright side, it only takes a few seconds for a transaction to get completed. EOS, for example, is the first blockchain that managed to block times less than one second.

Pros: Scalable, energy efficient, cheap transaction

Cons: Partial centralization

Cryptocurrency that uses DPoS: EOS

Read more: https://it.wikipedia.org/wiki/Delegated_Proof_of_Stake

 

Other consensus algorithms

There are many other popular consensus algorithms. Let’s list them below.

Proof-of-Authority(PoA): PoA is a completely decentralized consensus algorithm where admins approve transactions. They are accounts that are pre-allocated to carry out the task. Example: POA.Network

Byzantine Fault Tolerance(BFT): BFT uses the famous Byzantine generals problem. There are multiple variants of BFT including Practical Byzantine Fault Tolerance(PBFT) and Federated Byzantine Agreement(FBA). PBFT is used by hyper ledger where pre-selected generals are chosen to run the blockchain efficiently. In the case of FBA, each Byzantine general takes care of their chains. This way they separate truth from false information. Two good examples that are currently using FBA are Ripple and Stellar.

 

Conclusion

In this article, we went through the most popular consensus algorithms out there. We also listed the blockchain solutions that are currently using consensus algorithms. Each one of them offers one purpose that the other one fails to provide. Also, there is no perfect consensus algorithm out there. Their popularity is solely dependent on how the related cryptocurrency and ecosystem is doing. Proof-of-Work, for example, is still used because of bitcoin. However, the use of PoW or its efficiency may change in future thanks to new upgrades. So, what do you think about consensus algorithms? Comment below and let us know. We are listening!

 

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