This article examines the most used consensus mechanisms in Blockchain, with its pros and cons.

Decision making is a very important recipe for business sustainability. In centralized systems, decision making and other associated tasks is often left to a central authority.

For example, a database administrator of a firm has the responsibility of adding, removing, and updating data in the company’s database. Since he solely carries out these tasks, he decides how to go about them to ensure efficiency.

For a decentralized system with no central authority, it is a different ball game. Several nodes constitute the network and provide computational power; hence, a single node cannot exclusively call the shots. As a result, it is, therefore, necessary to agree on a means of decision making.

Consensus mechanisms explained

Consensus mechanisms are protocols that make sure all nodes are synchronized and agree on which transactions are added to the blockchain. Also, they help to ensure uniformity of decisions and processes. By doing this, they eliminate the possibility of spending crypto more than once.

Next in this article, the explanation of decision making with the most used consensus mechanisms.

Video explanation

Proof of Work(PoW)

This PoW solution is used by the foremost blockchain, Bitcoin, but also very popular among other blockchain projects. It requires miners (node providers that validate transactions) to complete a proof of work. In other words, these miners are using a lot of electricity to calculate and process blocks in the blockchain. For their efforts, these nodes are rewarded with newly mined cryptocurrency.

PoW one of the most used consensus mechanisms

Firstly, every block generated contains different transactions that must be verified. Verifying these transactions means providing solutions to complex arithmetic problems. In short, these validations are needed to avoid the double-spending problem and to make the network secure. In the end, the first node to solve the problem gets the reward.

Proof of Work: The pros

• Offers immunity to Ddos attacks
• Very secure, impossible to hack
• No room for spammers since high computational power is required to send multiple unsolicited emails.

Proof of Work: The cons

• High setup costs for hardware required
• PoW are common for high use of electricity
• Smaller PoW networks have a bigger chance of a successful 51% attack

Proof of Stake(PoS)

Proof of Stake is also one of the very popular consensus mechanisms. In a Proof of Stake blockchain, miners are replaced by validators. These validators must lock up a certain number of coins as a stake.

Whenever they discover a block and move to validate it, they stake their locked coins. If the block gets appended on the blockchain, the validator is rewarded according to the amount of coins staked. There are different variations of PoS used by blockchains.

Ethereum consensus mechanism uses Casper protocol

Ethereum for example proposes a variant called “Casper Protocol”. The Casper Protocol was put forward to address the ‘Nothing at Stake’ flaw in Proof of Stake networks. This flaw gives room for malicious activities amongst validators. In a Casper Protocol PoS, validators who try to exploit the ‘Nothing at Stake’ get punished by forfeiture of part of their staked coins. In short, on-chain decision making and validation will be improved.

PoS variants: Delegated Proof of Stake and Leased Proof of Stake

The Delegated Proof of Stake is arguably the most deployed variation of PoS. For instance, it is used by EOS and numerous other small ecosystems. In a DPoS consensus, coin holders are required to vote for ‘delegates’ who validate transactions. Also, the number of blocks produced by each delegate is a function of the total votes received with respect to other delegates.

The Leased Proof of Stake is another modification of PoS used by Waves blockchain. LPoS allows users to earn income from mining activities without the need to take part. In addition, anyone can lease out their mining nodes and get a share from the profit.

Proof of Stake consensus mechanism: The pros

• No technical skills required for running a node
• Exit strategy with PoS is simple and quick
• PoW requires miners to upgrade in hardware. PoS is simple and profits can be used to re-invest

Proof of Stake consensus mechanism: The cons

• It’s easy for a group of ‘whales’ to buy up the majority of coins which lacks the principles of decentralization
• The ‘Nothing at stake’ problem is a clear shortcoming in PoS blockchains

Proof of Authority(PoA)

This consensus algorithm bears striking similarities with PoW and PoS. It can be described as a hybrid of both mechanisms. As a result, in a PoA mechanism, miners compete to solve a complex arithmetic problem just as in PoW. Furthermore, if there are no transactions in the mined blocks, the network switches to a PoS.

Validators that hold a higher amount of coins have great chances of being assigned to the new block. If the selected validators do not complete the block, new ones are selected until they complete the block. Currently, Decred and Syscoin are good examples of projects using a PoA algorithm.

Pros of the PoA consensus mechanism

• Increased efficiency and speed
• They are easily scalable

Cons of the PoA consensus mechanism

• PoA consensus platforms lack decentralization. Also, they are slightly distributed centralized systems.
• There is a possibility of validators blacklisting transactions or censoring vendors if it favors them. This invalidates the immutability feature of a blockchain.
• Validators may carry out dishonest acts under third party influence if their gains outweigh the network reward.

Byzantine Fault Tolerance

BFT is a consensus that serves the purpose of identifying and correcting failure in the network. Especially, in a decentralized network, nodes can deliver unreliable and inconsistent information because of failure.

Consensus mechanisms like Pow and PoS are solving the Byzantine Failure problem

This condition in distributed system is referred to as Byzantine Failure. Furthermore, this condition can negatively impact on the network’s reliability, especially as there is no central authority to checkmate the menace. BFT is the dependency on fault tolerant computer systems that eliminate the risk of Byzantine failure. However, a BFT system is designed to keep running even if certain nodes fail or act maliciously. Also, having an efficient network communication along with a good consensus mechanism is vital to any blockchain ecosystem.

Conclusion

Consensus mechanisms or governance models play a major role in determining the efficiency of distributed systems. Moreover, widely used mechanisms such as PoW and PoS still possess obvious shortcomings that impact network efficiency. As a result, future technological innovations could see these issues addressed, or even birth new efficient and reliable consensus algorithms that will revolutionize blockchains.