A central administrator can maintain and update any centralized system, such as a database with vital information about a nation’s finances. With public blockchains, this is different since they are decentralized, automated systems that operate on a global scale without any one central authority.
They operate thanks to hundreds of thousands of participants working on block mining and the blockchain’s verification and authentication of transactions. Alex Reinhardt explains that a procedure known as the consensus mechanism secures this crucial responsibility executed by the blockchain.
What Is a Consensus Mechanism?
When distributed processes or multi-agent systems, such as those used with cryptocurrencies, need to agree on a single data value or a single network state, a consensus method is fault-tolerant employed.
According to Alex Reinhardt, a consensus mechanism can refer to any techniques employed to establish security, trust, and agreement within a decentralized computer network. Although there are others, Proof-of-work (PoW) and proof-of-stake (PoS) are two of the most used consensus techniques in blockchains and cryptocurrencies.
Types of Blockchain Consensus Mechanisms
Consensus mechanism algorithms come in several varieties, and they all operate according to unique principles. They include:
Proof of Work (PoW)
The most well-known cryptocurrency networks, including bitcoin and litecoin, use the proof of work (PoW) consensus algorithm. In this kind of consensus mechanism, the participating node must demonstrate that the work they have completed and submitted qualifies them to be granted permission to add new transactions to the blockchain.
Proof of Stake (PoS)
The proof of stake (PoS) algorithm, which Alex Reinhardt adds is another popular consensus algorithm, emerged as a low-cost, low-energy replacement for the PoW technique. It entails assigning a participant node the duty of keeping the public ledger in proportion to the number of virtual currency tokens the node possesses.
Proof of Capacity (PoC)
Other consensus algorithms like Proof of Capacity (PoC), which permit sharing of memory space of the contributing nodes on the blockchain network, exist. In PoC, a node is awarded more rights for managing the public network based on the more memory or hard disk space it has.
Delegated Proof of Stake (DPoS)
Alex Reinhardt elucidates that the Delegated Proof of Stake (DPoS), which should not be confused with the PoS method, is considered a more effective and democratic variation of PoS. This algorithm relies on delegates or witnesses casting votes for their preferred validators to reach a consensus.
A hybrid PoW/PoS technique balances the drawbacks of PoW and PoS algorithms. New blocks are added to a blockchain by PoW miners. The PoS miners decide to accept or reject the blocks after they are formed. They stake some of their tokens as is done in the PoS algorithm during the procedure.
Proof of Activity (PoA)
The Decred blockchain’s Proof of Activity (PoA) protocol is a hybrid that combines elements of PoW and PoS.
Proof of Burn (PoB)
Proof of Burn (PoB) is another method that forces users to send small amounts of money to unreachable wallet addresses to effectively “burn” them out of existence.