Most of us are already used to the security systems of institutions like banks and governments. There are usually officials and mechanisms put in place to ensure things run smoothly. So, I get if you are finding it difficult to wrap your head around how a decentralized system works.
Well, in the blockchain world, where there is no central authority, consensus mechanisms are the unsung security heroes. If you are wondering how then you should read this article till the end. I will be explaining consensus mechanisms: definition and types. Whether you are a crypto expert or you’re just starting your journey, come closely as I show you the protocols that make blockchain work for us!
KEY TAKEAWAYS:
- Consensus mechanisms are rules that help to protect the integrity and safety of a blockchain without the need for middlemen.
- Proof-of-work is the most popular and requires miners to solve a puzzle to earn the right to add new blocks.
- Proof-of-stake involves giving up some of your coins to qualify as a block validator.
- Other consensus mechanisms include delegated proof-of-stake (DPoS), proof-of-authority (PoA), proof-of-capacity (PoC), and proof-of-burn (PoB).
What Are Consensus Mechanisms?
Imagine you are working with a group of people to solve a problem. As expected, each person would probably have different opinions. However, for the group to succeed, you must all agree on a solution — this is kind of how consensus mechanisms work.
Consensus mechanisms are rules that help a decentralised network of computers (or nodes) agree on the state of the blockchain. Since it operates without a central authority, consensus mechanisms ensure participants can validate and add transactions to the chain in a fair and trusted way. In other words, they are decision-making processes that maintain the integrity of the blockchain.
Without them, the network would end up in chaos since there would be no way to verify blocks and transactions. Consensus mechanisms are necessary to prevent double spending on the chain. Additionally, they make it possible for two strangers to carry out secure transactions without having to trust themselves.
Types of Consensus Mechanisms
Consensus mechanisms make it difficult for malicious actors to wreak havoc on a decentralised network. There are different types, and each of them comes with their unique strengths, weaknesses, and purposes. Let’s take a look at some of the most popular validation mechanisms in the blockchain space.
- Proof-of-Work (PoW)
Proof-of-work is the most popular mechanism because it powers the first ever created cryptocurrency, Bitcoin. Here, miners (who use powerful computers) compete to solve complex maths puzzles. The first person to get it right can add a new block to the chain and earn rewards, usually in the form of cryptocurrency. While PoW is secure and well-tested, its major downsides include energy consumption and the risk of centralization.
- Proof-of-Stake (PoS)
Proof-of-stake was developed as a greener and more efficient alternative to PoW. Instead of solving mathematics problems to mine new blocks, PoS selects validators to create new blocks. Here is how the process works.
Participants stake (or lock up) part of their coins as collateral. Then, validators are randomly chosen to create new blocks and verify transactions. If they behave honestly, they are rewarded with transaction fees. If they do otherwise, they risk losing their staked coins.
PoS has gained major attention in the blockchain community since Ethereum famously transitioned into it from PoW. One challenge of proof-of-stake (PoS) is the risk of centralization. This is because those who stake more coins have better chances of becoming validators.
Read Also – Crypto Mining Vs. Crypto Staking: What Is The Difference?
- Delegated Proof-of-Stake (DPoS)
Delegated proof-of-stake is a variation of PoS that was designed to improve scalability and efficiency. In delegated proof-of-stake, token holders vote for a small number of people (called delegates) to be responsible for validating transactions. Since it involves a smaller number of delegates, this mechanism processes transactions faster than PoW and PoS blockchains.
- Proof-of-Authority (PoA)
Proof-of-authority is often used in private and permissioned blockchains. Unlike PoW and PoA, which rely on validators, this mechanism depends on reputable individuals and organisations for verification. Although it is fast and efficient, PoA’s major downside is the risk of a highly centralized network.
- Proof-of-Capacity (PoC)
Also known as proof-of-space, PoC uses hard drive space to verify transactions and secure a network. The more storage you dedicate, the greater your chances of validating the next block. PoC was formally introduced in 2015, and Burstcoin (or Signum) was the first blockchain to use it.
- Proof-of-Burn (PoB)
In proof-of-burn, miners destroy a certain amount of crypto to gain access to mine new blocks. They sacrifice their coins by sending them to an address where they would be lost forever. This action proves their commitment to the network and worthiness in contributing to its security. Although some people criticize the PoB model as a waste of resources, small projects like Slimcoin employ it as their primary consensus mechanism.
Conclusion
Consensus mechanisms are the lifeline of a blockchain’s security. Now that you understand how they work, I believe you can better appreciate how decentralized networks work without middlemen. As the technology keeps growing, it is expected that new mechanisms will be developed to deal with the challenges of the existing ones.
Reference
- medium.com – List of 10 Types of Consensus Mechanism with Examples
- hacken.io – Consensus Mechanisms In Blockchain: A Deep Dive Into The Different Types
- investopedia.com – What Are Consensus Mechanisms in Blockchain and Cryptocurrency?
