What is blockchain consensus mechanism?

• The consensus mechanism refers to various approaches used to achieve agreement, security, and trust in decentralized networks.
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• The most prevalent consensus mechanisms for blockchain technology and cryptocurrencies are proof-of-work (PoW) and proof-of-stake (PoS).
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• Bitcoin miners argue that PoW is too energy-intensive, which has led to the development of new, more efficient algorithms.

A consensus mechanism is a system employed in blockchain technology to meet the required agreement on a single data value or network state. This is alongside other distributed processes and systems such as cryptocurrencies. It was a versatile machine used in record keeping and other algorithms applications.

For example, the consensus mechanism used on the Bitcoin blockchain is called the “Proof of Work.” This is because it requires the use of computational power to find solutions to arbitrary puzzles to keep all the nodes intact and inter-connected.

In a centralized database, a central administrator has permission to maintain, alter, and update the information on the database. There is no public organization or permission as only the administration has this particular access.

Public blockchains that operate using a decentralized system work without a single governing body, e.g., the Ethereum blockchain. They use open systems where there can be contributions from users worldwide to verify, authenticate and validate transactions and other peculiar information on the blockchain.

In an ever-changing blockchain such as this, there is the need for a functional, real-time, secure, and reliable mechanism that coordinates the activities on the network. This mechanism is in charge of ensuring that all the transactions are genuine and that all the participants involved agree to the status of the ledger. The consensus mechanism performs this task. It is a set of rules and algorithms that validates the contributions made by participants on a blockchain.

Blockchain Consensus Mechanisms

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There are several kinds of blockchain consensus mechanisms. Each of them works with their unique set of principles and modus operandi. They are:

1. Proof of Work (PoW)
The Proof of Work (PoW) is a popular consensus mechanism used by large cryptocurrencies, e.g., Bitcoin and litecoin. With the PoW, there is always a participant node that validates the work done and qualifies it to receive more transactions in the blockchain. This mechanism, however, consumes a lot of energy and takes time to process.

2. Proof of Stake (PoS)
The proof of stake (PoS) is another popular consensus mechanism. Compared to the PoW, its activities require less energy consumption and lower costs. Its algorithm works by allocating the responsibility of coordinating the public ledger to a node. It chooses this node based on the volume of the virtual currency it holds. The drawback of this mechanism is that it makes people hoard more of their coins rather than spend them. Examples of PoS projects are; Ethereum, Dash, QTUM.


3. Proof of Capacity
Although PoW and PoS are the most popular and, by far, the most used globally, there are other consensus mechanisms, e.g., PoC (Proof of Capacity). PoC gives room for sharing memory space among the participating nodes on the blockchain. The more memory space a node has, the more preferred it’ll be in maintaining the public ledger. Projects that use PoC include Filecoin,iExec, and Burstcoin.

4. Proof of Activity
There is also PoA (Proof of Activity). PoA is used in the Decred, VeChainThor, Ripple blockchain. It is a hybrid algorithm that fuses the functionality of both PoW and PoS. PoA consensus relies on identity as a form of stake rather than actually staking tokens by validators. Validators are pre-approved groups of individuals who stake their identity by validating transactions and blocks on the network.

5. Proof of Burn
PoB (Proof of Burn) is more dramatic as it mandates participants on the blockchain to send small amounts of the cryptocurrency to wallet addresses that cannot be accessed. The effect of this is that they are burned out of existence. Every proof of burn transaction is sent to the eater addresses. These addresses act as storage cells for sacrificed coins in PoB consesus. Example of projects utilizing PoB are, Slimcoin, and Factom.

6. Proof of Elapsed Time
Proof of elapsed time (PoET) is an algorithm developed by Intel Corporation that enables permissioned blockchain networks to predict who will create the next block.

With PoET consensus, participants are not required to mine anything, as a randomized timer system replaces the need for mining. As a result, high energy and resource usage are prevented. it keeps the process more efficient by following a fair lottery system; the chances of winning are equally distributed among participants.

How does this apply to investors?

Understanding how your cryptocurrency works behind the scenes is critical since different mechanisms result in varying transaction costs and times. This could affect the currency's long-term value.

You should understand the consensus mechanism used by the blockchain if you're interested in mining or running your node. This will determine how much money you'll have to invest in mining if you have a fighting chance at mining and your rewards.



Author: Gate.io Observer: M. Olatunji
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