A Guide to Blockchain Consensus Mechanisms

How Blockchains Achieve Consensus?

Blockchain technology has been receiving a lot of attention lately for its potential to remove the need for bureaucratic intermediaries and simplify numerous administrative processes and drive efficiency in a number of industries. The implementation of blockchain to current centralized systems, it is said, will add transparency to processing systems by decentralizing decision making and, in many cases, access to data as well.

Introduced to the world through cryptocurrencies, the technology which has been seeing increasing adoption in the mainstream financial, health, and logistics industries, to name a few achieves decentralization through consensus mechanisms built into the technology to introduce trust to traditionally trustless interactions between humans.

Blockchain consensus mechanisms, consensus mechanisms

Function of Blockchain Consensus  Mechanisms

Blockchain technology’s consensus mechanisms are designed to facilitate the decision making processes of a group of users. Consensus protocols enable a blockchain’s users to democratically generate, and vote on decisions that affect the entire network. Decisions can range from day-to-day data processing like which node gets to produce the next block, to governance issues pertaining to updates to the blockchain’s actual architecture.

The objectives of consensus mechanisms  are:

Seeking Agreement – Consensus is defined as agreement by a majority of number of member of a group. Seeking agreement is therefore the main objective of a consensus mechanism is to bring about agreement by at least the majority of members, this maintaining group solidarity

Collaboration – The second objective of a consensus protocol is to uphold agreement in the ideological sentiments pertinent to the group’s intended activities. Consensus enables users to collaborate more directly without intermediaries.

Egalitarianism – For consensus to occur, votes of individual members of a group should hold equal weight and none should be, for any reason, be regarded as being more important.

Inclusiveness – The voting process on a blockchain shouldn’t favor certain members over others, and be open to as many entrants as possible. Promoting participation by all members.


Consensus Mechanisms Used In Blockchain

Various types of consensus mechanisms have cropped up in the blockchain space, some as solutions to short comings in previous models while others aim at solving niche problems. These are the most commonly used in blockchain.


Proof of Work (PoW)

Proof of Wok is the most commonly used, as well as, the oldest consensus mechanism in blockchain. Developed by bitcoin creator, Satoshi Nakamoto, Proof of Work consensus protocols rely on computing hardware to solve complex but superfluous mathematical equations and find a hash. The first miner to solve a hash is granted the right to produce the next block recording a set of transactions made on the network.

Proof of Work’s hardware intensiveness sparked a competition for hashing power, with miners purchasing large amounts of specialized equipment in order to be the party to collect the next block reward.

Groups of miners banded together to up their chances of solving the next hash, which resulted in a lopsided balance of power, with certain mining groups making up a large percentage of the hashing power dedicated to maintaining a blockchain network. This lead to lopsided voting power, with one group voting in their own interests rather than for the benefit of the network, which technically erodes the network’s egalitarian ideal.


Proof of Stake (PoS)

The Proof of Stake consensus mechanism was developed in response to the potentially negative environmental repercussions that might arise as a result of the growing use of power intensive equipment using the Proof of Work consensus mechanism.

PoS relies on the number of coins a user stakes as opposed to how much computing power at one’s disposal. The more coins one stakes, the higher the likelihood of processing the next block. Proof of Stake does not offer a block reward but instead rewards the miner with the transaction fees.

Although PoS consumes less power than PoW, the fact that it shifts the emphasis to individual investment in exchange for voting power means it still encounters the same problem as Proof of Work, with some users colluding to influence the network.


Delegated Proof of Stake (DPoS)

Delegated Proof of Stake is based on the Proof of Stake system where a user’s stake determines voting power, however, DPoS users stake their coin holdings to elect nodes to add new blocks to the network and vote on proposed network upgrades.

The same cartel-like behavior prevalent in PoW and PoS networks has been observed in networks running Delegated Proof of Stake. The controversies surrounding the governance of EOS being some of the issues arising from DPoS.


Proof of Importance (PoI)

Proof of Importance, as used in NEM’s blockchain, works on the belief that productive activity on the network should be rewarded. Special algorithms calculate a user’s transactional activity along with other factors like a minimum balance of 10,000 XEM to determine users who get to collect the transaction reward.

This mechanism is a variation of the Proof of Stake protocol but incorporate other factors into decision making to prevent abuse.

Proof of Burn (PoB)

The Proof of Burn consensus mechanism achieves its objective by having users exchange the value of one currency to produce blocks by requiring users to purpose generated ‘’unspent addresses” in exchange for a native cryptocurrency.

Slimcoin applies PoB along with a mix of other consensus protocols.


Directed Acyclic Graph (DAG)

Regarded as the third evolution of blockchain technology, DAG, according to graph theory is a finite directed graph without directed cycles. DAG allows numerous transaction on multiple chains simultaneously,  unlocking the potential for blockchain to perform transactions instantly and at minimum cost.

IOTA implements DAG based technology to enable users to send feeless transactions in exchange for verifying other transactions. IOTA’s tangle, it is reported, is scalable and can be implemented at minimal cost, making a viable backbone for the internet of things.

Practical Byzantine Fault Tolerance (PBFT)

The PBFT consensus mechanism solves the Byzantine Generals’ Problem by having participants confirm messages sent to them by running a computation to determine it’s decision about the message’s validity. The party then broadcasts it’s decision to other nodes who then process a decision on it. The final decision depends on the decisions returned by the other nodes.

PBFT is  a lightweight algorithm, as it depends on the number of nodes as opposes a high hashrate to reach consensus. Ripple and Stellar, as well as Hyperledger employ PBFT algorithms

 Proof of Elapsed Time (PoET)

Proof of Elapsed Time solves the user commission issues caused by PoS consensus algorithms by effectively ensuring every participant has equal opportunity to produce a block.

Used mostly in permissioned blockchains, PoET allows each node to produce blocks for a specified amount of time, then rests for a certain amount of time while other nodes add blocks to the network.

Conclusion

There are a number of methods people have devised to address the Byzantine General’s Problem in blockchain, each of them a testament to the fact that we find ourselves in uncharted waters regarding how to collaborate and exchange value without the intermediation of incumbent institutions.

The consensus algorithms listed above go a long way towards facilitating consensus and collaboration, and are, almost certainly, precursors to more sophisticated mechanisms that might protect blockchain participation from the human element.

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