What is consensus? If broadly defined, a consensus is an agreement that satisfies each of the parties involved. This is the key to democracy and decentralization in general, as well as distributed registry technology in particular. Look at BTC: although Satoshi Nakamoto is his mysterious founder, he (or she!) has no power over the community. Bitcoin, like the blockchain, is completely transparent and open, and each node is equal in this network.
In the narrow sense, we use in cryptography, a consensus is a decision-making procedure. Its goal is to ensure that all network participants agree on their current status after adding new information, a data block or a transaction batch. In other words, the consensus protocol ensures the chain is correct and provides incentives to remain honest participants. This is an important structure to prevent a situation where someone alone controls the entire system, and it ensures everyone abides by the rules of the network.
A short review of a blockchain protocol
A protocol is a set of rules.
- ensure the viability of online transactions;
- eliminate the possibility of double waste;
- make sure participants do not cheat.
Blockchain protocol is the amount:
- deterministic logical rules;
- cryptography and encryption as a basis for security;
- social encouragement to support the network protocol.
Let’s review what blockchain protocols exist today, where they are used, and what are their pros and cons.
Disclaimer: the article will be supplemented and edited to provide the most accurate information.
We will start with the mastodons of the industry. Proof of Work (PoW) and Proof of Stake (PoS) are the pioneering protocols that often serve as the prototypes for other modern consensus protocols.
Proof of Work (PoW)
Principle: it is difficult to find a solution, but it is easy to check the result.
DLT environment: public blockchain.
Example of use: Bitcoin, Ethereum, Litecoin.
The bitcoin blockchain is probably the most copied blockchain protocol. Numerous nodes confirm transactions in accordance with the PoW consensus algorithm. To add a new block, the participant must prove he/she has done a certain job. To be precise, it solves a very difficult task of finding a hash that complies with certain rules. The first who was lucky to find the right combination gets the opportunity to add a block to the chain.
As a result, participation in PoW implies the cost of computing resources, but the advantage is that it can be implemented in an environment where participants absolutely do not trust each other. Anyone can join the network, as it is a blockchain, which does not require permission (it’s permissionless). And although the peer-to-peer scalability is high, the transaction rate remains low.
Another problem is the motivation of network members — they usually join in to get rich, and not to maintain justice. Reducing mining fees over time and lower commissions in the future can greatly affect network security.
Proof of Stake (PoS)
Principle: the network trusts the validator, who puts his own resources as a pledge for the ability to create blocks: the larger the share, the higher the probability that the network will allow the creation of a block.
DLT environment: public / private blockchain.
Example of use: NXT, Tezos, soon Ethereum.
The technical feature of PoS is the absence of complex and unnecessary calculations. Instead of competing with others, network participants pledge their crypto actives, such as ether (Ethereum) in Ethereum, and wait for them to be selected to create a new unit.
Here participants are interested in security, as they themselves own the coins of the system. The algorithm selects one validator, based on the share belonging to it. Therefore, if the participant owns a 5% share, then 5% of transactions will be checked. The idea is that the higher the proportion of validator underlying cryptocurrency, the less interest he/she has in manipulating the validation process.
As in the case of the PoW algorithm, the completion of a transaction in PoS is probabilistic. Although transactions are relatively fast compared to transactions on the Bitcoin network, tokens are still required for this. Moreover, skeptics point to the fact that validators with large stakes will be chosen more often and, therefore, will receive even more tokens: the rich are getting richer.
Delegated Proof of Stake (DPoS)
Principle: Participants delegate the production of new blocks to a small and fixed number of elected validators. High competition, but very profitable.
DLT environment: public/private blockchain.
Usage example: EOS, BitShares.
Delegated Proof of Stake (DPoS) enables creating blocks at high speed and process more transactions per second by reducing the number of validators. During the voting, coin holders choose validators to form the blocks. The weight of each vote is defined by the sum of the assets of the voter. Coin holders can vote for validators at any time. This determines the high flexibility of the network: if the majority of performers fail, the community will instantly vote to replace them.
The production of new blocks occurs every 1–2 seconds. This protocol is faster and fairer compared to PoS since the “delegated” validator later shares tokens with its voters. Although, the confirmation of the finished blocks still lies on the shoulders of all the other members of the network.
Proof of Activity (PoA)
Principle: a hybrid of PoW and PoS.
DLT environment: public.
Usage example: Decred.
Proof-of-Activity (PoA) combines the PoW and PoS protocols, which means that participants can mine or lay down a share to validate the blocks. So, the PoA protocol provides a balance between miners and ordinary members of the network.
Principle: beacons are used to notice a node in a synchronized state, and then to mark its presence with a temporary stamp.
DLT environment: public.
Usage example: FOAM, Platin.
Proof-of-Location (PoL) allows users to secure a specific GPS location and thus authenticate themselves on the network. Interestingly, this blockchain protocol relies on BFT beacons, which record geolocation and time markers in the blockchain, which prevents disruptions and fraud in the system.
Principle: like PoS, but with additional properties that affect your ranking.
DLT environment: public.
Usage example: NEM.
The algorithm acts almost like PoS, but includes three components:
- the number of tokens in the account;
- account operations activity;
- the time spent by the account holder on the network.
The first parameter plays an essential role in the rating for verifying transactions; the second and third parameters just help to establish the “value” of the account. The smaller the sum of tokens, the stronger the influence of other parameters.
Consequently, an account that lays hundreds of thousands of tokens can increase the coefficient of importance by almost 3 times due to its activity and constant presence in the network. On the other hand, it does not matter for those who own hundreds of millions of tokens.
Principle: blocks are created in a trusted environment with equal periods.
DLT environment: private blockchain, with and without permissions.
Usage example: Intel.
Intel did not lag behind and developed its own blockchain protocol called IntelLedger.
This system is similar to Proof of Work but utilizes less electricity. Instead of participants solving a cryptographic puzzle, the algorithm works in a Trusted Execution Environment (TEE) environment, such as Intel Software Guard Extensions (SGX). The PoET protocol guarantees that the blocks are generated randomly and without any necessary efforts.
Proof of authority (PoA)
Principle: semi-centralized blockchain for banks and insurance companies
DLT environment: Public, private or consortium.
Example of use: Kovan, Rinkeby, Giveth, TomoChain, Rublix, Swarm City, Colony, Go Chain.
Similar to PoS and DPoS, in PoA validators secure the blockchain and are able to produce new blocks. New blocks on the blockchain are created only when a supermajority is reached by the validators.
By identifying pre-selected authorities, PoA consensus becomes centralized. Therefore, it’s suited for private blockchains and consortiums, such as a group of banks or insurance companies for better scalability. The identities of all validators are public and verifiable by any third party. Having their identity at stake, validators act in the best interest of the network.
Proof of Burn (PoB)
Principle: burning a mined PoW cryptocurrencies in exchange for mining privileges or the coins/tokens of an alternative currency
DLT environment: Public
Example of use: Slimcoin and Counterparty
Miners send coins to an unspendable address (an eater address) in such a way burning them (coins can no longer be accessed and spent again). As PoB transactions are recorded on the blockchain, there’s undeniable proof that the coins are inaccessible, and the user is rewarded.
The idea is that a user demonstrates a willingness to undergo a short-term loss for long-term investment — a lifetime privilege to mine on the system. The more coins a user burns, the higher the chance to mine the next block.
Proof of Capacity (PoC) or Proof of Space (PoS)
Principle: The amount of “work” a miner will perform depends on the amount of free disk space to devote to the plotting process.
Performance: high and efficient
DLT environment: public
Example of use: Burstcoin and Bitcoin Ore
PoC is similar to PoW with a considerable difference — in PoC, rather than doing a large amount of work to verify each block, the work is done in advance in the process called “plotting”; the results from this process are used later to verify each block.
Plotting is the process of producing special files called “plot files” which store a large number of precomputed hashes. The shortest solution to the mining algorithm grants the rights to mine the next block. PoC is efficient, cheap, and distributed.
Principle: introducing a stake-time component, where the probability to stake increases over time enhancing security and decentralization.
DLT environment: public
Example of use: VeriCoin Blockchain Explorer
PoST enables an almost instant and free transaction system across the globe; independent of border, nation, government, and bank. PoST maintains the efficiencies of PoS, but at the same time increases the distribution and security with a certain probability to find proof and receive a reward.
This is achieved through a cyclic time-acceptance function equivalent to the coins held and corresponding to network strength. The time-acceptance model guarantees that relatively active staking increases compensation and a chance to build consensus via proof.
Principle: the protocol enables smart, a social currency for publishers and content businesses
Performance: fast and efficient
DLT environment: public
Example of use: Steemit
PoB is a scalable blockchain protocol for openly accessible and immutable content accompanying a fast and fee-less digital token — STEEM — which helps people earn money by using their brains thus the name. STEEM is a means for creating unceasingly growing communities with members adding value through the built-in rewards structure.
PoB is a public publishing platform called Steemit from which any Internet application can share data in such a way rewarding those who contributed this valuable content.
Proof-of-Physical-Address (PoPA)/ Proof-of-Bank-Account (PoBA)
Principle: identity verification DApp
DLT environment: private
Example of use: ConsenSys and POA Network
Proof of Physical Address (PoPA) is a DApp which connects a real-life physical element with blockchain technology. This helps in verifying an individual’s identity. PoPA connects a person’s physical address with a wallet address in which they control the respective private key.
Every time a user verifies his/her card in the DApp, the PoPA protocol refreshes its own record and calls the ERC780 congenial contract to store the user/address connection.
Principle: demonstrates the feasibility of any blockchain project
DLT environment: private
Example of use: unknown
A Proof of Concept (POC) can be used in any field such including Voting trackers, Record storage, Legal documents, etc. A POC can either be a prototype without any supporting code or a Minimum Viable Product (MVP) with a base feature set. A POC is a model used for an internal organization to have a better understanding of a particular project.
Consensus protocols are an integral part of distributed systems. They help to achieve justice, to avoid system failures when one of the participants — the node — fails. Secondly, a decentralized environment requires solutions which will help move forward and change the general state, even in an environment where no one trusts anyone. Certain rules help to reach “consensus”.
We reviewed the most popular protocols which are already used in dozens of projects. Still, there are also Cross-resiliency (XFT), Paxos, Sieve, Raft protocol, Byzantine resiliency (BFT), direct acyclic graphs (DAG), and even non-blockchains conducted through a mental experiment which we’ll describe later.
If you have questions and requests (for instance, to review a certain blockchain protocol), leave comments below the article.
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