Understanding Different Types of Blockchain Consensus Mechanisms
In the previous article, we have looked at Proof of Stake, Proof of Work and even the newer blockchain network type, Delegated Proof of Stake. However, there are several consensus mechanisms developed for cryptocurrency and blockchain building.
They are all variations and improvements of the PoW and PoS but they all want to make it easier to be a part of the networks. There is a lot to unpack, but below, we summarize the main kinds you will encounter when you get into the Different types of blockchain consensus mechanisms.
We will look at the rest of them and what they mean. At the end of this topic, you should be able to know what they all are and how they work.
1. Proof of Elapsed Time (PoET)
Let’s imagine it this way. A bunch of you sit in a room and then one of you looks at the clock and says ‘sixty seconds remaining’. One minute later, you are all out of the door to whatever it is you need to do.
The PoET consensus mechanism works in the same way. First, we use the method on a permissioned blockchain. Every node in that system is identifiable and accepted into the network.
Everyone knows everyone, and you all have to do is enroll to take part. There is a twist in there somewhere. Every time you have a participant given a random amount of time to wait, the first participant to finish waiting will get to commit the next block to the blockchain.
It is very similar to pulling straws. This time, however, the shortest straw is the stack that will win the bet.
This method is the brainchild of Intel developed in 2016. It is usable on the Hyperledger Sawtooth. That is a platform that can build, deploy and run the blockchain. The difference from proof of stake is that it requires each node to rest before coming back to commit a block to the chain. This makes the PoET method more energy efficient.
2. Proof of Authority (PoA)
As much as blockchain is the cutting edge in transactional technology, the thing is that they have their limitations just like anything else. Blockchains have tradeoffs. Vitalik Buterin calls it the ‘Scalability Dilemma’.
The three attributes desirable in a blockchain are:
Do you remember that thing you did in college where you had a triangle and, on each point, you had; Good Grades, Enough Sleep and Social Life, but you could only choose two? With the number of dApps on a cryptocurrency like Ethereum and others, the short-term scaling solutions are in demand.
Proof of Stake uses nodes that stake monetary value. Proof of Authority takes the identities of the nodes in the system. It is a slight variation on the PoS mechanism. It gets into the details of the risk of how a stake is valued by the people taking part in the network.
- Financial Capital V Social Capital
PoS puts your financial stake on the line, PoA aligns the incentives by putting the social capital you have at risk. Let’s say we have someone who is staking their coins with the PoS mechanism and they have a net worth of $100 million.
The incentive here is to act in the best interests of the network if they have a lot of their net worth tied to a node. Wealthy participants cannot go AWOL because they risk losing a lot.
- Mind the Validators
These are the nodes that stake reputation on the network. For compensation, they get to be the only ones that validate the blocks. When talking to them, always remember these three things;
- Use a standard process to identify validators
- They should be scarce
- Have a process that establishes their authority
In action, the proof of authority is inherently centralized. It is best used by private consortiums and blockchains like in a group of banks or companies in insurance. Some of them include; Kovan, Giveth, Rinkeby, Rublix, and Go Chain among others.
3. Proof of Capacity
You know by now that the mechanisms are variations or improvements of the PoW and PoS mechanisms. So, let’s try to explain this one using a breakdown of the components that you need to know about.
We have so many altcoins from hard forks and others that seek to overthrow the grandfather of them all, Bitcoin, or be better and helpful than Ethereum. With this kind of competition, you will find several analogies that work when trying to explain what is happening here.
Let’s say you are in school and the bell rings, all the buses take you all home and each of the buses has a different number of seats are somewhere between 50 and 100. Each day, students walk into a bus at random.
The boarding process is the first step in PoC and we know it as plotting. It is all about finding the possible solutions to the hashing algorithm before mining starts. The second step is mining (the energy that drives the bus).
The gist of PoC is that the more seats, the better. The solution that seems shortest and easiest to use for mining algorithms, gives the rights to mine the next block. The PoC solution here is like the student who lives closest to the school and probably does not need the bus.
This student gets:
- Efficiency- less energy used
- Low prices- no need for special equipment to mine
- Distributed- the excess storage space is more accessible
Examples that use this method include Burstcoin. IRL, the excess space you have in your hard drive is what the network uses to mine the solutions plotted in advance.
4. Proof of Activity
At the core, all these mechanisms have one thing in common. They are all here to prove something. PoW is to show that the equipment the miners have worked to solve the puzzle. PoS shows that there is staked financial capital.
What is being proved in Proof of Activity? The activity. The long answer here is that there needs to be direct involvement in the mining process and the validation of the next block added to the blockchain.
In PoA, it is not an attempt to reinvent the wheel like the others are trying to do. PoA is a hybrid of PoW and PoS. The mining process starts like PoW and then shifts to PoS when the miner finds the next block.
The main differences are:
- New blocks only have a block header and the address of the miner being rewarded. In PoW, more data is available in the blocks.
- They require a random group of nodes that validate to sign a new block. Odds of being a validator increase with an increase in purse size.
- They split mining fees between the miner who finds the block and the nodes that help sign it into existence.
PoA is used in Decred (DCR) and has been around since 2016.
5. Proof of Burn
So, you might wonder; how do you burn digital currencies which are strings of code? What is PoB all about? Here are some answers you will find helpful;
- Eater Addresses
We also know these as unspendable addresses and are on the receiving end of burn transactions. They are storage cells for coins sacrificed to make proof of burn work. Because it randomly generates addresses, we assume that no one can determine the private key. So, the coins are essentially eaten.
- Why Burn Your Coins?
A user who gives up short-term earnings proves that they are following the consensus and will be rewarded with a lifetime privilege to mine the next block on the chain. The more coins you burn, the greater the chances that they will select you.
Stakes decline over time meaning that you will need to burn your tokens once in a while to continue getting the block rewards at a consistent rate. Christopher Nolan’s version of the joker would be great at this game.
As much as PoB sets you back when you burn coins, it is only short term. Thee possibility of future gains is enough incentive to burn coins. However, like the game of Plinko, burning coins is not a guarantee that they will select you to mine future blocks.
6. Byzantine Fault Tolerance
A long time ago, think 1000 years, a collection of generals from the Byzantine era surrounded a city with several divisions under each general. For the attack to work, they had to go in coordinated well. If they did not coordinate, they would fail.
This is an allusion to a problem in the cryptosphere where a group of validators who confirm that the information they get is trustworthy has no absolute assurances What if someone tampered with it on its way to them? What if it was captured and never reached them?
Much like the messenger who would need to relay the plan of attack to the generals in the invasion, something could happen in between.
People who use this include Hyperledger Fabric, Stellar, and Ripple among others. There are two types of this mechanism; Practical Byzantine Fault Tolerance and Federated Byzantine Agreement.
You need to keep in mind that there is a lot that will change and improve in the blockchain. Most of these advances are all about making sure that the blockchain works better. Check out Proof of Importance and Direct Acyclic Graphs to learn more about what we have done to improve the cryptosphere.
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