The Ingenious Consensus Algorithm Powering Blockchain Networks

ByGavin Cole

Mar 20, 2023

The foundation of the practicality of any occurrence in the world lies in our understanding of it. From the microscopic realm of atoms to the intricacies of social interactions among individuals, a certain correlation must exist between organisms for life to proceed harmoniously and sustainably. This correlation can be considered an “agreement” between various elements.

Imagine if technology were to function on a similar mechanism of agreement. This would improve practical outcomes, where each technology is tailored to fit specific application areas. A prime example of such a technology is the blockchain network, which relies on a consensus algorithm to determine the creation of blocks at specific times.

The blockchain network operates on a decentralized process of creating blocks, with each block containing vital data. Once a block is filled with data, it moves on to the next block, forming a long chain of interconnected blocks.


Essentially, blockchain is a type of Distributed Ledger Technology (DLT) that stores records of data processed through blocks across multiple connected computer nodes. Each node of the ledger contains transaction details that are consensually shared globally.

In other words, blocks are units of data that contain transaction details. They are added to the blockchain only when the nodes within the network reach a consensus on the validity of the transaction details.

Blockchain Consensus Algorithm

In a decentralized data blockchain, establishing a mutual understanding between users and the underlying mechanics of the blocks is critical. This requires the implementation of a consensus protocol that creates an agreement between all the nodes in the network, ensuring the blockchain’s current state is accurately represented.

On the other hand, a centralized structure has a single controlling body that governs the entire system. This structure eliminates the need for complex governance and understanding between administrators. In contrast, a decentralized setup requires a distributed database to ensure a consensus is reached on the data added to each node.

Several consensus protocols are available to ensure the reliability of blockchain networks for users. These protocols are crucial in establishing trust among the network participants and creating a transparent system for data transactions. By implementing the right consensus protocol, blockchain networks can be more secure and trustworthy, encouraging more users to adopt this technology.

  1. Proof of Work

Proof-of-Work (PoW) is a consensus algorithm that selects a miner to create the next block. It involves solving complex math problems, and the fastest node wins. PoW was first implemented in Bitcoin, but its high energy consumption led to the development the more energy-efficient Proof-of-Stake (PoS) protocol.

  1. Proof of Stake 

PoS consensus is a more eco-friendly alternative to PoW. It requires validators to stake their crypto assets to reach a consensus and select the next block. No expensive hardware or energy consumption is needed. PoS allows investing in coins rather than hardware to solve puzzles.

  1. Proof of Burn 

PoB consensus allows validators to participate without expensive hardware by burning coins. Unlike PoS, coins burned in PoB cannot be retrieved. PoB effectively prevents double-spending and fraudulent activities on the blockchain. It’s the third attempt at creating a consensus algorithm.

  1. Proof of Capacity 

Proof of Capacity (PoC) involves validators investing in their hard drive space instead of burning coins or investing in expensive hardware. Validators with more hard drive space are more likely to be selected to mine the next block and earn block rewards. On the other hand, proof of Elapsed Time (PoET) is a fairer means of mining blocks used in permissioned blockchain networks. Nodes randomly wait and add proof of wait in their block. The node that completes mining in the shortest time wins, but measures are in place to prevent nodes from winning every time.

  1. Proof of Activity

Proof of Activity (PoA) combines parts of Proof of Work (PoW) and Proof of Stake (PoS) to avoid 51% of assaults. PoA starts with miners aggressively mining new blocks with great computing power, similar to PoW. When a new block is discovered, the system switches to PoS, and a new set of validators is chosen randomly based on the block header data. Validators with more coins have a better probability of getting chosen. The validators then sign the new block; if all validators sign, the block is added to the blockchain network. If not, the procedure is repeated with a fresh random set of validators until the block is verified. The incentives are distributed among miners and validators. Decred (DC) employs the PoA consensus method.

Conclusion

Blockchain networks rely on various consensus mechanisms beyond the six most commonly used ones. These algorithms play a critical role in creating blocks within the network. Instead of generating new blocks without oversight, blockchain validators must reach a consensus through a carefully designed algorithmic process.

This process ensures that new blocks are only added to the chain once the network’s validators have agreed. By doing so, blockchain networks can maintain their integrity and security while enabling decentralized storage and data sharing. Overall, consensus mechanisms are a key component of blockchain technology, enabling these networks to function effectively and securely.


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