Written by: Hrushikesh Bornare
In the context of blockchains and digital currencies, we have been frequently hearing about some key words like proof-of-work (PoW) and proof-of-stake (PoS) which are two of the most prevalent consensus mechanisms/algorithms. Proof of Work (PoW) is the most common consensus algorithm, and more than 75% of the digital currency market capital is controlled by it (up until the recent Ethereum merge). We will understand more about the consensus algorithm in this article.
Need for a Consensus Algorithm:
- A consistent state of the blockchain across all the nodes in the network needs to be guaranteed by some means in the blockchain technology. The consensus algorithm ensures this as a procedure via which all the peers of a blockchain network reach a common acceptance of the real-time state of the distributed ledger. For any new block that is generated, there must be one single version of truth at any/every node in the blockchain.
- Consensus mechanisms strengthen the effective operation of blockchains and ensure a single, consistent, and truthful ledger agreed on by most nodes. Some consensus mechanisms are designed to work best in public networks while others perform better in private networks.
- Some consensus mechanisms might prioritize various parameters like speed, efficiency, security etc. For e.g., Security might be helpful in the areas of Supply chain management, Hospital Management while speed, efficiency and security might be suited for payments domain.
Goals of Blockchain Consensus:
Consensus mechanisms or the consensus blockchain protocols enable:
- Everyone participates in the network and use the same fundamentals of being fair and reasonable, supporting decentralization of the blockchain system.
- Ensures that the data in the process is legitimate and accurate, and the status of the public ledger is updated.
- It rewards for the good behavior and punishes bad actors.
- Makes sure, only the verified and the validated transactions are included in the public transparent ledger. This solves the problem of spending digital currency twice.
- Ensures that the blockchain is fault tolerant, consistent, tested, and reliable and implies the system will work infinite times even in case of failures and threats.
Types of Consensus Algorithms:
Different consensus algorithms are used for the process of validation of transactions depending on the platform used to implement it. These algorithms are the set of rules defined to regulate the proper performance of the system. So, to prevent malevolent activities in blockchain technology, few of the different consensus algorithms used are mentioned for reference. These algorithms can be understood in detail:
- Proof of Work (PoW)
- Proof of Stake (PoS)
- Practical byzantine fault tolerance (PBFT)
- Delegated Proof of Stake (DPoS)
- Proof of Activity
- Proof of Authority (PoA)
- Proof of Elapsed Time (PoET)
- Proof of Trust (PoT)
- Proof of Capacity (PoC)
- Proof of Burn (PoB) etc.
Proof-of-work (PoW) and proof-of-stake (PoS) are two of the most prevalent consensus mechanisms.
To conclude, Consensus algorithms are vital in large-scale, fault-tolerant systems because they enable a set of distributed machines or servers to work as a coherent group and agree on system state, even in the presence of failures or outages. Consensus Algorithms need to maintain the integrity and security of these distributed computing systems.