What Are Consensus Mechanisms in Blockchain Technology

Consensus mechanisms or protocols are the backbone of blockchain technology. They’re essential for the network’s scalability and guide how nodes cross-check and verify transactions.

These protocols are the secret behind all decentralized network security. They ensure validators (nodes) reach a consensus regarding the state of the chain. This process prevents mistakes and secures the network from possible double spending or Sybil attacks from malicious actors.

Are you new to the crypto industry or an expert user seeking comprehensive knowledge about the history and types of blockchain consensus mechanisms? Let’s dig into the details.

History of Blockchain Consensus Mechanisms

In the 1980s and 1990s, personal computers and networks became popular, leading to the emergence of shared databases for multiple users to access stored information. Many had admins and users could only access data through permissions.

A few years later, these databases became distributed ledgers that allow network members, irrespective of location, to keep track of records and access the information.

However, data tampering and unauthorized access were concerns. An approach to automating database management became necessary. A distributed autonomous consensus was created, where network programs would agree on the database state.

The agreement was to let encryption algorithms create alphanumeric strings of long numbers -- called a hash -- that would then be validated by network programs and verified. 

The hashes only change if the information inputted in the hashing algorithm is modified. The programs compare the hashes to ensure they match. When each program on the network created a matching alphanumeric string, the network consensus agreed on the data. 

Satoshi Nakamoto was credited for creating consensus mechanisms. However, many worked on it years before the Nakamoto whitepaper, which made the Bitcoin concept famous.

Now that you know the history of blockchain consensus mechanisms, how well do you understand the protocols?

Understanding Blockchain Consensus Mechanism

Consensus mechanisms are quickly replacing human verifiers and auditing, and cryptocurrencies, blockchains, and distributed ledgers benefit from their use. 

For example, the Bitcoin blockchain uses the Proof-of-Work (PoW) consensus, which solves an encrypted puzzle called hash with computational power. Once a miner or a collaborative group solves the hash, Bitcoin's PoW mandates that each node in the network verifies the modified data by scrutinizing:

• The data structure
• The block header hash
• The block timestamp
• The block size
• The initial transaction

After checking the above information, the transaction checklist is verified. Now let’s discuss various blockchain consensus mechanisms to improve your knowledge.

Types of Blockchain Consensus Mechanisms

Besides the popular consensus mechanisms like Proof of Stake (PoS) and Proof of Work (PoW), there are several noteworthy types, such as:

1. Delegated Proof Of Stake (DPoS)
2. Practical Byzantine Fault Tolerance (pBFT)
3. Proof Of Weight (PoWeight)
4. Proof Of Capacity (PoC)
5. Proof Of Authority (PoA)

Proof of Work (PoW)

Proof of Work (PoW) is a consensus mechanism that tracks, validates, and confirms all blockchain network transactions. PoW involves mining efforts toward solving complex mathematical problems using computer power. These math problems require computing algorithms, and the result must match a set of network criteria.

When a miner reaches a puzzle's solution, it passes it over to the network along with a record of transactions. Other members, known as nodes, are selected randomly to check the validity and consensus rules. The solution will be recorded and added to the blockchain. .

Advantages:

• Decentralized Structure: PoW gives people control over operations. Anybody with the needed resources and time can be a part of mining and preparing blocks.
• High Security: The efficiency of PoW in fending off manipulation is relatively high. Much like the 51% attack, distributed computational power prevents this threat from getting executed.
• Acceptable Scalability: Blockchains must be scalable to serve more users speedily at a low cost. Although PoW blockchains throughput is not exceptionally high, they are fair enough. However, scaling solutions made it easier to serve large numbers of users cheaply.

Disadvantages:

• High Block Creation Time: PoW blockchains have lagged in technological progress, slowing block confirmations.
• Energy Inefficiency: An energy-intensive hardware is required to implement PoW. The electric consumption of Bitcoin is greater than that of energy use in countries like Norway.
• High Computational Cost: The expenses can be overwhelming for proof-of-work setup and operations, especially during the initial stage.

Proof of Stake (PoS)

PoS emerged as an alternative to PoW because it is cheaper and energy efficient. Ethereum and Cardano are well-known blockchains that have chosen the PoS. Here, validators are selected according to the amount of their staked tokens. They stake a specified amount of native coins to create and verify blocks for network security.

In PoS, nodes can lose their locked assets due to inappropriate behavior, so they behave upright to benefit from staking rights.

Advantages:

• Fast Block Creation Time: In PoW, block creation can take 10 minutes, while in PoS, the blocks are generated in seconds. It helps in ensuring faster transactions.
• High Throughput: Fast block creation features of PoS systems enable them to work with more transactions at a high speed.
• Energy Efficiency: PoS consumes a lesser amount of energy compared to PoW. It’s the better choice for sustainability.
• Scalability: PoS is less scalable than PoW but can keep transaction speed virtually unchanged for a growing network.

Disadvantages:

• Centralization Risks: If the consensus is influenced by validators that own many native assets, centralization may arise, which can harm PoS systems.

Delegated Proof Of Stake (DPoS)

In 2014, Dan Larimer developed the Delegated Proof of Stake (DPoS) as a Proof of Stake variation. It's a blockchain consensus mechanism enabling network users to vote and elect delegates for block validation. Validators are selected based on the amount of crypto staked.

DPoS has been successfully implemented by high-performance blockchains such as Cosmos and Tron. The delegates, known as "witnesses," are different from those in PoS.

Advantages:

• Scalability: DPoS utilizes a smaller number of individual validators through multiple validation cycles, consensus protocol, and block production. It ensures higher transaction throughput in a short period. 
• Energy Efficiency: Unlike PoW, DPoS eliminates the need for vast computational power from witnesses elected to mine blocks based on staking wealth.
• Low-Cost Transactions: DPoS ensures quick operations at low costs, unlike PoW, which often has high fees.

Disadvantages:

• Semi-Centralization: Critics of DPoS maintain that its meaningful dependence on some witnesses as a foundation makes a step towards centralization. It's the opposite of the decentralized blockchain concept.
• Vulnerability to 51% Attacks: The semi-centralized nature of DPoS keeps them prone to 51% attacks. Malicious witnesses could collude and dishonestly manipulate the blockchain or halt its operation.

Practical Byzantine Fault Tolerance (pBFT)

PBFT allows systems to reach consensus even with faulty nodes. It uses pre-selected validators but has a primary node that proposes new transaction blocks. After validation, other nodes return data to the primary node, and the block joins the blockchain with the majority approval.

A consensus of at least 2/3rds from honest nodes is required to reach consensus, which Hyperledger Fabric and many other well-known blockchains have adopted. Nevertheless, pBFT security is at risk when at least a third of the network is dishonest.

Advantages:

• Energy Efficiency: Unlike PoW, pBFT operates without electricity consumption and expensive computation, consequently obtaining the highest efficiency.
• High Throughput: pBFT ensures that decisions are quickly settled due to its swift validation process, and the decisions are made without obstacles or block finality confirmation.

Disadvantages:

• Limited Scalability: The pBFT protocol may face scalability issues when the number of transactions increases.
• Vulnerable to Sybil Attacks: If an individual or group controls several dishonest network nodes, they can manipulate the chain, causing a typical Sybil attack.

Proof Of Weight (PoWeight)

A group of six MIT researchers, headed by Yossi Gilad, were developing an algorithm model to solve the Byzantine Generals’ Problem but discovered a consensus based on weight fraction for the Algorand blockchain. They called it Proof of Weight.

Nodes in this mechanism are represented in weights determined by the amount in their accounts. The algorithm selects validators randomly among the other users by their weight. It reduces the possibility of having malicious nodes. Honest users must possess up to ⅔ of the network funds to overpower dishonest nodes.

Although PoWeights has a similar design to PoS, they differ in functionalities. Users can participate in PoWeights using tokens without locking or staking them.

Advantages:

• Customization and Scalability: PoWeights is easily adaptable to numerous protocols and designs that fit into its architectural designs. For example, Filecoin implements PoWeights as Proof of Spacetime, weighing users based on their stored data volume.
• Fast Transaction Confirmation: With validation being made by the committee member only, it speeds up transaction confirmation.
• Energy Efficiency: Proof of Weight runs without energy consumption. As such, the user only needs to have native assets.

Disadvantages:

• Lack of Incentive: Unlike PoW and PoS, PoWeights does not reward network participants for maintaining network operations.
• Semi-Centralization: The committee members might centralize the procedures, which, in turn, may result in dishonest behavior or bad decisions.

Proof Of Capacity (PoC)

Proof of Capability, commonly referred to as Proof of Space, was introduced in 2015 by Stefan Dziembowski and Sebastian Faust. The first project to use this consensus was Burstcoin.

In Proof of Capacity, the mining process demands that miners establish the possibility that they have sufficient storage to mine crypto coins. A hard disk is the most suitable storage device. 

Validators are chosen based on the amount of crypto they hold, and miners must prepare by plotting nonces before mining commences. They can create as many nonces as the space can hold. PoC frequently sets puzzles throughout the network, and any miner with the closest hash is awarded the puzzle.

Advantages:

• No Special Hardware Required: Proof of Capacity requires only hard disks and is simple to set up.
• Increased Decentralization: In Proof of Capacity, anyone can become a miner due to the low cost of hard disks.

Disadvantages:

• Vulnerable to Grinding Attack: A hashing attack orchestrated by a miner to bolster their chances to succeed in the solved hash puzzle is called a grinding attack. In particular, the PoC algorithm enables miners to favor their nonces by requesting more computational hashes, thus gaining an unfair edge.
• Space Privilege: In cases when miners with larger hard disk plots nonces, they solve puzzles faster than the ones working with a smaller storage.

Proof Of Authority (PoA)

Proof of Authority is a consensus where validators stake their identity. They verify their identity in real life by using their real-time information as proof to guarantee users' trustworthiness and accountability. Also, validators are selected by their identity and reputation and must stake certain assets as a dedication to the network.

Advantages:

• Transactional Speed: Only a handful of vetted validators can reach a decision regarding transactions success on proof of authority.
• Enhanced Security: Verifiers undergo strict due diligence, reducing the probability of malicious activities and improving security.
• Reduced Energy Consumption: PoA uses less energy compared to PoW.

Disadvantages:

• Centralization: The lack of validators in PoA leads to the concentration of consensus power to only one entity or a few people.
• Lack of Anonymity: Unlike other consensus mechanisms, which deem anonymity a priority, PoA is neither strictly anonymous nor private.
• After learning blockchain consensus mechanism types, let’s dive into the future.

Future of Consensus Mechanisms

Consensus mechanisms are most popular in the context of cryptocurrency but are applicable across all distributed ledger networks that enterprises use. They provide modules designed to fit a variety of customers and businesses, and the mechanisms employed are scalable by nature.

Hyperledger Fabric, a popular distributed ledger platform, offers a range of consensus to address various needs. For instance, a specific entity does not need energy-consuming proof of work, whereas another might require that level.

Although the future of cryptocurrencies may remain uncertain with possible fluctuations, consensus mechanisms still stand out as one of the fundamental features of the emerging technology. They are central to maintaining security and validity and preventing any security aggression on distributed ledgers.

Conclusion

An essential feature among distributed ledgers, databases, and blockchains is their consensus mechanism, which has become part of the digital world. Traditional assets are being digitized on ledgers and blockchains where people without any financial services access can engage.

However, a consensus mechanism evaluates data inputs and outputs, which translates to automatically auditing digital transactions without human oversight or intervention. These technologies generate an environment where you can't doubt the integrity of that other party in a transaction as your connection is secure and the information is unalterable.