The key to a successful blockchain network is a consensus mechanism that ensures that the most accurate account of wallet balances and token transfers are reflected on the chain. It’s how the majority of users agree on a single set of data and act as verification standards for blockchain transactions, maintaining trust in the blockchain while keeping it decentralized.
While consensus decision-making can be hard, it’s a powerful tool for groups that want to achieve real collaboration and understanding. It also allows for a broader group of voices to be heard and can help prevent a loud minority from dominating the conversation. The process is most commonly used in political movements, nonprofits, intentional communities, and worker cooperatives.
What Is The Consensus Mechanism?
The consensus decision-making process is similar to the way that most of us make decisions in our personal lives. We often choose to listen to others’ opinions before making our own choice, and we try to understand the other person’s point of view. We may even find ourselves disagreeing with their point of view.
However, reaching a consensus is not about unanimity—it’s about finding the best solution for everyone. In the case of a blockchain, consensus mechanisms are the algorithms that decide whether to commit distributed transaction information to the database.
These mechanisms are essential for preventing double-spending and 51% attacks (a malicious attack that gains control of more than 50% of the total number of blockchains). They’re also useful for synchronizing data across a decentralized network and ensuring consistency and transparency in transactions.
A Brief History
In the 1980 and 1990s, networks and computers started gaining popularity, and hence, shared databases were developed. Multiple users were now able to access the stored information. Most of them contained a centralized database along with permissions accessed by users from multiple stations. Later, the setup was converted into centralized networks.
The shared databases were popularly called distributed ledgers as they could record data. Additionally, operators could network it from different accessible locations. A significant issue that should have been addressed was preventing data from getting tampered with. And guess what? The inception of the consensus mechanism for blockchain took place.
Consensus Mechanism: Its Various Types
There are many different types of consensus mechanisms, but they all share some fundamental characteristics. They’re designed to be secure, efficient, and scalable. The type of consensus mechanism a blockchain uses determines its efficiency, how much energy it consumes, and how quickly it can verify transactions.
1. PoW or Proof Of Work
Bitcoin, for example, uses a Proof of Work (PoW) consensus mechanism, where block validators earn cryptocurrency rewards by running computational algorithms. It’s considered to be an inefficient consensus algorithm because it requires a lot of computing power to operate.
2. PoS or Proof Of Stake
Other algorithms, such as Proof of Stake (PoS), require block validators to stake their cryptocurrency in order to vote on transactions. This is a more scalable system, but it also requires that the validator’s identity and reputation be publicly known, which can compromise decentralization.
3. PoA or Proof of Authority
Other types of consensus mechanisms include Proof of Authority (PoA), Proof of History, and Proof of Elapsed Time (PoH). PoA and PoH are both scalable systems that don’t require as much computational power as PoW. PoA and PoH also rely on a group of trusted delegates to oversee the network.
But they use a voting system that’s based on reputation rather than coin value—making them more secure than PoW.
4. DPoS or Delegated Proof Of Stake
A popular new consensus algorithm is the Delegated Proof of Stake (DPoS), which combines the security of PoA and PoH with the scalability of PoS. Horizen EON, our first public PoS sidechain and a fully EVM-compatible smart contracting platform, uses this system.
5. PoC or Proof of Capacity
The fifth consensus mechanism, or the PoC, largely depends on the hard drive’s free space capacity. The reason behind this is a plethora of solutions that are associated with a coin’s problems of hash. It mainly impacts the trader’s ability to restore them.
6. PoAC or Proof of Activity
The PoAC is a combinative mechanism of both Proofs of Stake and Proof Of Work. It is implemented to bring the best PoS, and PoW features together. At its initial stage, the PoAC mechanism works more or less like Proof of Work. After a new block has been developed, it begins functioning like the PoS mechanism.
7. PoB or Proof Of Burn
Next on our list, we have the PoB or the Proof Of Burn. It focuses on enhancing blockchain quality so as to use it as a tool for secure and faster transactions. Following PoS and PoW, the PoB is implemented to avoid fraudulent activities in the blockchain network. Bitcoins mostly make use of this mechanism for security.
Pros And Cons Of The Consensus Mechanism
Did you know that the consensus mechanism comes with a set of advantages and disadvantages? Check them out here:
Pros | Cons |
| A miner or crypto trader from any part of the globe might take part in it. In terms of participation barriers, the consensus mechanism is quite flexible. | There is a severe possibility of hacking which remains a potential disadvantage of the consensus mechanism. The hack percentage is almost 51%. |
| Both miners and traders of a specific coin should agree before approving the coin-based decision. This ultimately blends trust. | Mechanisms like the PoW needs a lot of electricity to function, which is why people usually don’t prefer it. |
| Due to the consensus mechanism, there remains transparency in the trading sector. Hence, traders ensure that no fraud takes place during the transaction. |
Wrap Up
The consensus mechanism has become an integral aspect of databases, blockchains as well as distributed ledgers. These not only verify data outputs and inputs but also translate them automatically to audit larger digital transactions.
So, that was all about the significance of the consensus mechanism and how it impacts the blockchain sector. Did you like the points mentioned in the article? Don’t forget to comment below! Happy Reading.
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