This post took a little more time and more research than I am used to. I myself wanted to know how different blockchain consensus algorithms work and how they were chosen.
Today I want to talk about different blockchain consensus algorithms. There are many different types, these all have advantages and disadvantages. Because of this you no longer see the differences and you can easily get lost in these differences. That is why I want to explain to you in a easy way what the most important Blockchain consensus algorithms are. Hereby I have added a number of other Blockchain consensus algorithms to the research that are less known. I will try to indicate which coins work with the different blockchain consensus algorithms. The following is important to know that these are not all types of Blockchain consensus algorithms that exist.
I will discuss the following blockchain consensus algorithms:
- Proof of Work
- Liquid proof of stake
- Proof or Stake
- Leased and delegated PoS
- Proof of Importance
- Proof of activity
- Theoretical Byzantine Fault Tolerance
- Practical Byzantine Fault Tolerance
- Federated Byzantine Fault Tolerance
- Delegated Byzantine Fault Tolerance
In this picture you see more blockchain consensus algorithms, also the ones we didn't described:
Proof of Work
The Proof of work system is the best known Blockchain consensus algorithm that everyone in the crypto space knows. It was conceived to be able to combat DDoS attacks. At Proof of work everyone thinks about the creator of the Bitcoin Satoshi Nakamoto. This is not entirely right, because the Proof of Work protocol is an idea of Cynthia Dwork and Moni Naor and was published in 1993. No, I didn't know that either! That's why I thought it would be a good idea to mention that. In the white paper from the Bitcoin from 2008 the concept of Proof of Work comes out well and in my opinion is actually the greatest idea at that moment ever.
This consensus system ensures that Bitcoin no longer requires a third party to send and receive payments. This means that the third party in this story is the bank for convenience. Banks keep a register of all cash flows. At Bitcoin, everyone has a copy of this register. There is no need for a third party to arrange this because everyone can view these registers and verify all payments.
This protocol does have a number of requirements for it to work properly. For example, heavy calculations have to be done and these calculations are becoming increasingly difficult. And so more and more computing power will be needed. This means that you need more and faster computers. This is called mining in the crypto space.
This mining is necessary because:
- The transactions must be verified in a reliable manner.
- And it is necessary to be able to make new Bitcoin. Or other cryptocurrency that also works through proof of work.
As you now know, mathematical puzzles must be solved to meet the above 2 points. This means the first to solve such a mathematical problem is assigned a new cryptocurrency.
A disadvantage of Proof of Work is:
- It takes more and more power (energy) to make these calculations. This is a shame as they are often useless calculations.
- And it can be seen as unfair because not everyone has the knowledge, money and time to mine.
Liquid proof of stake
There is also a so-called Liquid proof of stake which is used by Tezos. It is a kind of Proof of stake but with a different staking method.
People can stake their Tezos in a wallet or through an exchange. This keeps the protocol safe, but you can also earn extra passive income. Tezos has a unique stake name also known as Baking. Bakers are the people who have more than 10k XTZ and are therefore eligible to become a validator. They will also receive a reward for this.
But as the price of XTZ rises the harder it gets to get to that 10k XTZ. For this it has been thought that you can delegate your coins to a validator that you can choose from.
Proof of stake
The Proof of Stake system actually has the same purpose as the Proof of Work system. But as you already thought this system works very differently. At Proof of Stake it is the person who has the most stake. For example, those who have the most coins in their wallet can choose to stake and he can then create this new block in the blockchain chain. This person will therefore receive a reward for making transactions on the blockchain.
what are some of the advantages of Proof of Stake:
- Proof of Stake has the advantage that unnecessary energy is not lost.
- And it is much harder to carry out a '51% attack '. A '51% attack 'is an attack by a person who gets 51% or more computing power. This actually means that this person is in control of the entire blockchain of the coin that is a under attack.
A disadvantage of proof of stake is:
- People with few coins will not be able to participate in staking.
Leased and delegated Proof of Stake
Leased Proof of Stake is a system that wants to solve the following problem. Proof of stake owners with few coins will not be able to participate in staking. This can then ensure that the major players, also referred to as nodes in a network, only maintain the network. Whether this will improve safety is questionable.
There are various blockchains that use the Leased Proof of Stake system by offering the possibility that people with few coins can lend it to the major coin holders. This gives them the opportunity to add a block to the blockchain. Waves uses the leased Proof of Stake system.
delegated Proof of Stake is a system that is roughly the same as the Leased Proof of stake system. However, the difference is that with Delated Proof of Stake no coins are lent. The people with few coins can choose which node blocks can add. As a result, they do not lose control over the creation of the blocks. The blockchain Bitshares uses this system.
Proof of Importance
Another type of system is Proof of Importance. This is not about the so-called balance but about the productivity of the node's network. The NEM blockchain uses this protocol.
The well-known NEM blockchain works in this way and rewards users for the transactions (number and value) that have been carried out.
Proof of Activity
The Proof of Activity system is a combination of Proof of Work and Proof of Stake. Each block is created by the Proof of Work system, but the block does not yet contain any transactions. After this the system switches to Proof or stake system. As a result, a random group of validators is now being searched who complete the block and can thus receive the reward. Validators that actually check whether the block is valid for use. The transaction costs are shared by the miners and validators. The Decred blockchain uses this system.
Byzantine Fault Tolerance
The consensus problem that occurs for this in computers is being compared by people to the Byzantine Generals problem. This is a coordination problem in which a group of generals each control part of an army. Hereby they have surrounded a city and together they have to decide to attack or withdraw. If a general now decides to attack while something else has been agreed, problems will arise. These types of consensus algorithms are resistant to this problem (51% attacks). There may be forks that are temporary.
Practical Byzantine Fault Tolerance
The Hyperledger blockchain uses the Practical Byzantine Fault Tolerance consensus mechanism. The solution they propose for the problem of the above mentioned story is the following: The nodes must be approved and known in advance. The scalability is limited to 2o nodes, which is a limitation that they encountered. With more nodes, too large an overhead is created by sending all messages between the nodes. This makes this solution suitable for permissioned blockchains, but not for permissionless blockchains.
Federated Byzantine Fault Tolerance
To be able to create a scalable system for a permissionless blockchain, Ripple and Stellar have opted for a Federated Byzantine Fault Tolerance mechanism. This is an open network that works without central authority. The transactions are carried out by a so-called federated voting (vote, accept and confirm).
Delegated Byzantine Fault Tolerance
The Neo blockchain uses the Delegated Byzantine Fault Tolerance system. This is because it would ensure better scalability and performance than other systems. The Delegated Byzantine Fault Tolerance system uses so-called consensus nodes. This is expressed in two forms, the Speaker and Delegates. NEO owners do not have to participate in validating a block, so do the delegates and the speaker. There are different requirements for delegates. The speaker will be randomly selected from these delegates if a block is added to the blockchain. The speaker determines the hash of the block and if 66% of the delegates agree, this block will be added definitively.
This system is very reliable and has the advantage that when adding a block to the blockchain the concencus takes place immediately. I also read that it is impossible that forks are created as is possible with the Proof of Work system.
There are many different types of consensus algorithms that are used by different block chains. One system is more difficult to understand than the other system. Proof of work is the oldest system used by Bitcoin. Every system has its advantages and disadvantages. Different systems are tested by many different block chains. Many of these systems exist for less than the Proof of Work system. In my view, the perfect solution does not yet exist. I therefore cannot say which system works best for me. It also depends on what the blockchain will be used to determine which system is most suitable for the purpose.
What do you think is the most perfect solution of all blockchain consensus algorithms? Thank you for reading and i hope to see you next time.
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I'm not giving any financial advice, this is just a blog for more information.
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- Never give someone your 12 / 24 pass phrase!
- Never give someone your private keys!
- Not your keys not your coins!
- Just don't send any coins to strangers that ask for coins to double your investment!
- Don't use a centralized exchange as a wallet!
- Don't use centralized exchanges if this is not required!
- If you send your coins or tokens think twice before doing so!