Understanding the Various Blockchain Consensus Protocols

Blockchain is the technology behind several cryptocurrencies. The technology has gained wide usage in several sectors of the economy, thanks to its unique and excellent features. Blockchain has many aspects such as cryptography, P2P (peer-to-peer) technology, and consensus protocols.

Since they are complex, most people focus on the cryptocurrencies and their blockchains without necessarily understanding the consensus protocols that guide the distributed ledgers. This post discusses the popular consensus protocols, ensuring you gain a basic understanding of how each works.

The Major Types of Consensus Protocols

The cryptocurrency and blockchain space has experienced massive growth over the past few years. This has led to the creation of new and more niche-focused consensus protocols. However, the popular consensus protocols are still used by most cryptocurrency projects. Here are some of the popular consensus protocols used by cryptocurrencies.

Proof of Work (PoW)

This is the most popular as well as the first one to be created. The proof of work consensus protocol is deployed by Bitcoin and hundreds of other cryptocurrencies. On a very basic level, miners must complete algorithms (work) using computer power to secure the blockchain.

The consensus protocol involves various hashing attempts, and it is energy intensive. With the PoW protocol, miners with a high hash rate have the upper hand when it comes to finding a valid solution for the next block. As such, those with lower hash rates find it harder to mine cryptocurrencies.

For cryptocurrency miners to validate a new block of transactions and add it to the ledger, the nodes have to reach a consensus and agree that the block hash generated by the miner has a valid proof of work.

Although the proof of work consensus is the most popular, it has its disadvantages. The PoW protocol is energy intensive. In recent months, some countries and companies have talked against this protocol due to its massive use of energy and its adverse effect on the environment.

Miners need to deploy high-end computational hardware like GPU and others to aid them in finding solutions to block arithmetic faster. Secondly, it takes miners time to randomly search for the right solution since they need to scan a wide range of possible answers.

Proof of Stake (PoS)

The proof of stake protocol has gained popularity in recent years, thanks to its favorable features. Although the PoS and PoW share similar goals, they are fundamentally different, especially during block validation.

In this consensus protocol, cryptocurrency mining is absent. It is replaced with block validation. The blocks are validated based on the stake of the network participants. This means that the validator of each block is chosen based on the investment of the cryptocurrency itself.

Thus, it is based on the amount of computational power they deploy. While the PoS protocols implement the algorithm in varying ways, the blockchain is usually secured via a pseudo-random election process. The election favors the node’s wealth, reputation and how long the coins are being staked or locked.

In this system, there are network validators instead of miners. This is because the coins are not mined since they are already present. Rather, the validators are rewarded from the transaction fees obtained for approving transactions on a blockchain.

After a stakeholder creates a block, the other validators on the network sign the block, indicating that it has been approved. Once that is done, the block is added to the blockchain.

The PoS protocol has become very popular in recent years. Due to its low energy consumption feature, blockchains such as Ethereum are in the process of migrating to the PoS consensus protocol. One potential downside to proof of stake is that it empowers the wealthy who are able to stake more of their funds.

DPoS (Delegated Proof of Stake)

The delegated proof of stake protocol is also another popular blockchain consensus algorithm. Here, the nodes are charged with voting and choosing the block creators or verifiers. This implies that the stakeholders give the rights to create blocks to delegates they trust and support instead of creating the blocks by themselves. The protocol reduces the computation power consumption by the network stakeholders to nearly zero.

The DPoS works similarly to a parliamentary system. The delegates that don’t generate blocks are dismissed, and the stakeholders have the power to choose new nodes to serve in their place. This protocol uses the votes of the stakeholders to reach a fair and democratic consensus. In comparison to the PoS and PoW protocols, the DPoS is a low-cost and highly efficient algorithm. Some of the leading cryptocurrencies, such as EOS, use this protocol. However, EOS has evolved and changed its protocol to BFT-DPoS (Byzantine Fault Tolerance-DPoS)

PBFT (Practical Byzantine Fault Tolerance)

PBFT, known as the Practical Byzantine Fault Tolerance, is a consensus protocol with a low algorithm complexity and is highly practical within distributed systems. This consensus consists of five phases; request, pre-prepare, prepare, commit, and reply.

In this protocol, the primary node is tasked with forwarding the messaging received from a client to three other nodes. However, if node 3 crashes and is unavailable, a message will still go through the five designated phases and reach an agreement amongst the operation nodes. The nodes will reply to the original message from the client, and the round of consensus is completed.

In the PBFT protocol, the nodes maintain a common state and conduct regular actions in every consensus round. The protocol achieves the goal of strong consistency. Thus, making it an absolute-finality consensus protocol.

EOS has evolved to use PBFT to take care of validation and creation in DPoS. This reduces the time needed to carry out round consensus. Another project using the PBFT is Stellar Lumens. However, Stellar deployed an improved version of PBFT called the FBA (Federated Byzantine Agreement) protocol. In this unique protocol, the nodes choose the federation they trust and conduct the consensus protocol on their behalf.

Why Consensus Protocols are Important in the Cryptocurrency Space

Consensus protocols are important in the cryptocurrency space because they are crucial to maintaining the security and integrity of the crypto blockchains. The protocols provide a way for distributed nodes to achieve consensus on a blockchain.

The digital economy is built on the need for blockchain states to come to common agreements without major disputes. The blockchain protocols highlighted in this post are some of the leading in the cryptocurrency industry.

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