Introduction
For a blockchain, such as Bitcoin, Ethereum, etc. to operate satisfactorily, it is necessary for all the nodes in the network to agree on the state of chain and what blocks are correct. Because the network is decentralized and it is generally accepted that nodes cannot be trusted, to agree on the state of chain and what blocks are correct is hard. This problem is solved with the use of a consensus protocol. Thus, it is necessary for each blockchain to use a consensus system to make the decision about what blocks are correct.
What is the purpose of a blockchain consensus system?
Bitcoin and Ethereum are a permission less blockchain. That is, it is not necessary to have approval to operate a node on the network. Thus, it is possible for a node to try to make a new block that has transactions that have been changed for the benefit of the node operator. The purpose of a consensus system is to reject this type of block.
For decentralized systems, consensus is not easy because a node may give incorrect information or may not be always available to communicate reliably. The former is called Byzantine-Generals-Problem and the latter is called Two-Generals-Problem. A consensus system must therefore be fault tolerant.
The two primary types of blockchain systems are:
At this time both Bitcoin and Ethereum use a POW system for consensus. But Ethereum 2.0, which will start to use a POS in Ethereum-2-0-release-in-2020.
Click here to read an article that compares POW to POS.
The POW system for Bitcoin
The Bitcoin network uses a POW system to get consensus. That is, before a new block is added to the chain, a node must find the correct hash value for the block. Then, it is necessary for the other nodes in the network to make sure that the hash value and thus the block is correct. This is the method of consensus.
The POS system for Ethereum
In a POS network, the node (i.e. stakeholder) that adds a new block to the chain is selected. To be able to be selected, the stakeholder must show ownership of some number of the network native cryptocurrency. It is necessary for this amount of cryptocurrency to be ‘staked” or set aside, equivalent to be put into an “escrow” account, to be able to be selected.
There are two primary methods to select the stakeholder:
- Randomized Block Selection
- Coin Age Based Selection
Randomized block selection
The randomized block selection method to select a stakeholder uses a formula that contains the size of a stake and the hash value for the stakeholder. Because the size of the stake for each stakeholder is known, it is easy to predict which stakeholder will be selected to add the next block.
Coin Age selection
The coin age selection method to select a stakeholder calculates the time period (or coin age) for the stake. This is found by multiplying the number of days the cryptocurrency coins have been staked by the number of coins in the stake. It is necessary for a coin to have been staked for a minimum of 30 days. After a stakeholder is selected, the coin age for the stake is reset to zero. Also, this stakeholder cannot make a new block until after a minimum of 30 days.
It is possible to use the randomized selection method with the coin age selection method. In the POS consensus network, after a new block is made, it is still necessary for the new block to be examined before it is added to the chain.
Conclusion
POW and POS are the two primary blockchain consensus systems used in decentralized blockchain networks. Since at this time, POW is used by more blockchains some think that it is better than POS. But after more blockchain networks start to use the POS consensus system, the advantages and disadvantages for POW and POS will be better known.
