A consensus is a dynamic way to reach an agreement in a group. It is done with an aim to benefit the entire group as a whole. The method through which consensus decision-making is achieved is called “consensus mechanism.”
Now, which consensus protocols should be used for a wavering entity like blockchain?
As understood, blockchain is a decentralized peer-to-peer ledger without a central authority or a leader controlling it. It creates a system which is devoid of corruption from a single source. In blockchain, independent nodes in the network must come to a consensus on the ledger status. This consensus mechanism ensures that all participants of a distributed ledger are on the same page.
Below are some standard consensus protocols used in the crypto space and their working:
Proof-of-Work ( PoW )
Bitcoin’s creator, Satoshi Nakamoto, invented the proof-of-work protocol. Going by the protocol’s name, the mechanism requires nodes to prove the work that has been done to have the right to add a new transaction to the blockchain. The transactions are done by ‘miners’ who solve cryptographic puzzles to “mine” a block to add to the blockchain. When a miner solves the puzzle, they present their block to the network for verification and in turn receiving the newly created cryptocurrency unit provided by the protocol as a reward. This entire process is energy intensive as it involves the nodes hashing data through high-performance, application-specific integrated circuit (ASIC) chips. Proof-of-work involves high computation energy and electricity which makes it an expensive process.
Proof-of-Stake ( PoS )
Proof-of-stake differs from the proof-of-work protocol. In this consensus algorithm, mining new blocks become easier for those who hold the highest amounts of the cryptocurrency. In other words, a proof-of-stake system requires the user to show ownership of a certain number of cryptocurrency units. The miners or creators of the new block are chosen randomly. It depends on the user’s wealth, also defined as ‘stake.’ In the proof of stake system, blocks are said to be ‘forged’ or ‘minted,’ not mine. Forgers are referred to users who validate transactions and create new blocks in this system. Validation of a transaction and creation of a new block requires the forgers to put their coins at ‘stake.’ Proof of stake protocol is a lot more resource-friendly than proof-of-work.
Proof-of-Space or proof of capacity algorithm uses the existing free space on hard drive to mine coins. Its very nature makes it more decentralized and low on power usage. Assigning more hard drive space will allow users to have more “plots” of data. The nodes receive a reward in the form of the native coin depending on the space made available by the nodes to the network.
Proof-of-Burn ( PoB)
Proof-of-Burn is consensus protocol which is an alternative to Proof-of-Work and Proof-of-Stake. In this algorithm, the coins are sent by the miners to an unspendable address ( eater address), and efficiently burning them. The burnt coins cannot be accessed an spent again. The idea behind burning a cryptocurrency is that the user is willing to undergo a short-term loss for a more long-term investment. Users are rewarded over time as they earn a lifetime privilege to mine on the system. The more coins a user burns, the higher the chance he or she will have of mining the next block. Proof-of-burn works like virtual mining.
Delegated Byzantine Fault Tolerance (DBFT)
The Byzantine alternative or distributed Byzantine Fault Tolerance algorithm is named after the Byzantine Generals problem. It addresses the issue of achieving consensus in distributed systems. DBFT recognizes two kinds of participants in the blockchain ecosystem: professional node operators or bookkeeping nodes, who run nodes to make money; and users who are just interested in making use of the blockchain. Delegated Byzantine Fault Tolerance utilizes this division of labor to provide better security for blockchains. The professional node broadcasts its version of the blockchain to the network. If 66% of the other nodes agree with the information, a consensus is achieved. When the consensus is not reached, there is an appointment of a different professional node broadcast its blockchain version until a consensus can be established.