The so-called blockchain technology or "Distributed Ledger Technology" (DLT) has developed rapidly in recent years. In particular, the rise in the value of Bitcoin and other cryptocurrencies and the worldwide success of some large initial coin offerings (ICO) has raised public interest in developments in the digital world. One of the particularly interesting aspects of blockchain technology is decentralized consensus building, which is achieved through the application of various consensus mechanisms. Most blockchain projects use one of the three most popular consensus algorithms: Proof-of-Work (PoW), Proof-of-Stake (PoS), or Delegated Proof-of-Stake (DPoS). These mechanisms ensure that all participants have identical copies of the distributed database files.
Consensus
Proof of Work (PoW)
Unlike other consensus mechanisms, the proof-of-work mechanism requires a lot of energy and computing power to reach consensus, and therefore, it is a costly option. The basic idea is that so-called "miners" in a network must prove that they have engaged to some extent. Miners provide the computing power needed to maintain the blockchain and verify transactions. At the same time, the miners ensure the immunity of the network against hackers. They compete with each other to chain together a group of transactions called the "chain of blocks". The blockchain contains all verified transactions that all network participants can access. The miners use so-called hash functions, i.e., mathematical functions of fixed length. When solving math puzzles, the real challenge is that you have to get a result with certain properties derived from the hash function. By solving the arithmetic puzzles, it can be shown that the transactions (i.e., the calculation process) were carried out without errors. If the block is successfully mined, it is attached to the blockchain, and the first miner to solve the math puzzle is rewarded. The most well-known cryptocurrency that uses the Proof-of-Work mechanism is Bitcoin.
Proof-of-Stake (PoS)
Proof of Stake (PoS) aims to separate a miner's voting power from their computing power, i.e., PoS grants mining power based on the percentage of tokens a miner owns. The higher the share of the total number of tokens, the more likely the miner will be chosen to mine the next block... However, the proof-of-stake mechanism uses a random algorithm to generate consensus. Although the number of tokens held ("stake") is relevant (since the ratio influences the likelihood that a miner will be allowed or selected to mine the next block), several other factors play a role in the selection of the next miner. The main goal of the PoS is to ensure that the miners support the blockchain project in the long term. Projects using the PoS mechanism include Dash and Neo.
Delegated Proof-of-Stake (DPoS)
The DPoS mechanism can be seen as a more democratic evolution of the PoS mechanism. In DPoS, those with the most tokens are not eligible to confirm or validate transactions. Instead, all token holders elect a group of proxies to perform this task. The mechanism remains decentralized since all network users have the right to choose the group of miners who will confirm the transactions. On the other hand, the advantage of the centralized aspect of DPoS over the PoS mechanism is the higher verification and transaction speed, resulting in high scalability. The EOS project, as well as Lisk, use the DPoS-mechanism.
Practical Byzantine Fault Tolerance (PBFT)
The consensus mechanisms explored so far work well when network participants are not trusted—that is, they work well with public or permissionless networks. This next section deals with those consensus mechanisms in which network participants are trusted; PBFT is among the most well-known examples. PBFT works best in cases where network participants are at least partially trusted, i.e., authorized networks. It predates blockchains in terms of underlying theory but has been applied to blockchain networks with some success. It can be viewed as a Proof of Authority (PoA) mechanism where nodes stake their identity and reputation instead of a financial or computational stake such as PoW and PoS. This means that identities are known, and therefore networks are likely to be centralized. Nodes in PBFT are arranged sequentially and constantly communicate to keep network performance high. There is a primary node, also known as a "lead" node, and multiple backup nodes.
PBFT believes that some of these nodes are likely to be fraudulent and, therefore, send malicious or fake messages. Thus, To solve this problem, all nodes communicate with each other. The goal is for all honest nodes to agree on the state of the network by majority consensus. Honest nodes are more likely to agree on the state of a network than rogue nodes that agree on a wrong decision. Therefore, most of them should reject the wrong information. Nodes in the system share messages when deciding whether to send a block up the chain. This ensures that a message originated from a specific peer node and has not been modified in transit. These messages take the form of four rounds, known as "views," suggested by the leader. If a view has taken too long, the nodes can agree on a timeout. Guide nodes can be modified after each view.
Proof Of Elapsed Time (PoET)
Proof of elapsed time is an underlying agreement mechanism that Intel has first projected to enhance energy efficiency and eliminate the waste of resources. PoET is very keen on dedicated hardware to limit cooperation and decentralization. PoET reaches agreement by the random selection of block leaders wherever the winning odds are unfolded equally throughout the network. Every node holds a constant probability of turning into the winner.
The following are some popular consensus algorithms and some popular platforms, respectively.
Table 1. Some common consensus algorithms
Consensual algorithm |
Permissions of nodes |
Voting based on |
Energy consumption |
Capability expand |
Attack 51% |
Attack double spending |
Depends on the hardware |
Speed |
Proof of Work (PoW) |
Free |
Find the nonce number |
High |
High |
Likely |
Likely |
Yes |
Low |
Proof of Stake (PoS) |
Free |
Stake |
Low |
High |
Likely |
Unlikely |
No |
High |
Delegated Proof of Stake (DPoS) |
Configurable |
Vote |
Low |
High |
Likely |
Likely |
No |
High |
Practice Byzantine Fault Tolerance (PBFT) |
Permissions must be granted |
Vote |
Low |
Low |
Likely |
No |
No |
Low |
Proof of Elapsed Time (PoET) |
Free |
Create random time |
Low |
Medium |
Unlikely |
No |
Yes |
High |
Table 2. Some popular platforms and corresponding consensus algorithms
No |
Algorithm |
Platform |
Blockchain type |
Market capitalization ($) |
TPS |
||
Public |
Private |
Conjugation |
|||||
1 |
PoW |
Bitcoin |
x |
917,834,327,179 |
7 |
||
Ethereum |
x |
494,912,381,366 |
15 |
||||
Litecoin |
x |
10,712,971,860 |
28 |
||||
Monero |
x |
3,439,993,762 |
30 |
||||
Zcash |
x |
1,986,408,268 |
27 |
||||
2 |
PoS |
Qtum |
x |
1,046,771,589 |
70 |
||
Nxt |
x |
13,746,194 |
100 |
||||
ADA |
x |
41,995,217,205 |
257 |
||||
3 |
DPOS |
EOS |
x |
3,218,473,197 |
4000 |
||
TRON |
x |
9,232,522,072 |
2000 |
||||
BitShares |
x |
97,380,175 |
100000 |
||||
4 |
PBFT |
Hyperledger Fabric |
x |
0 |
depends on business |
||
5 |
PoET |
Hyperledger Sawtooth |
x |
x |
0 |
depends on business |
Conclusion
Consensus mechanisms are implemented depending on the type of operation a particular blockchain network is expected to perform. The mechanisms used in permissionless networks tend to focus more on security, ensuring consensus is reached between untrusted nodes. The mechanisms used in permissioned networks sacrifice decentralization for settlement finality and faster transaction rates. However, the mechanisms still cause some limitations for blockchain systems. With PoW, this side needs an expensive computer computing process to create a new block, and others will be wasting energy as many miners compete to create a block in one case. PoS is the most popular alternative to PoW, but the blockchain is controlled by the parties holding the most shares. DPoS is an extension of PoS where holders of shares use their shares to vote for delegates to increase the reliability and speed of consensus in the system. With PoET, it is currently the consensus model of choice for the hyperledger Sawtooth's modular framework. This mechanism can prevent the use of high resources and energy consumption, but users of the blockchain must rely on an Intel hardware module to combat fraud. PBFT is also a popular consensus mechanism, which does not consume a lot of resources, but the scalability is quite poor.
References
[1] Nick, A. and Hoenig, L., Consensus Mechanisms in Blockchain Technology, accessed April 20th, 2022.
[2] Andreas M. Antonopoulos, Mastering Bitcoin: Programming the Open Blockchain, accessed April 20th, 2022.