Blockchains are revolutionizing the way we conduct business by adding layers of autonomy and trust to networked databases. Underpinning every blockchain is an algorithmic consensus method providing those characteristics. How do consensus methods work, and which are the most widely used today? Continue reading to learn more.
Purpose of consensus
Achieving consensus within a given blockchain is crucial to its functioning. The only way to verify a transaction on a blockchain is to have every node on the network agree that the transaction is valid. When a blockchain network validates a transaction through consensus, this prevents faulty occurrences, such as double-spending.
Furthermore, monitoring a high throughput of activity is difficult without the autonomy and trust that blockchain consensus methods provide.
Since Bitcoin’s inception in 2009, various consensus methods have developed that go beyond the original “Proof-of-Work” model, which will be explained below.
So what are the most popular blockchain consensus methods used today?
A word on Byzantine Fault Tolerance (BFT)
Before jumping into the most popular consensus methods, Byzantine Fault Tolerance is worth mentioning first. Although it is often referred to as an independent consensus method, it seems to act as a precursor to the other consensus methods explained in this article. Most consensus methods utilize the BFT framework in some fashion.
BFT is a computational answer to the Byzantine Generals’ Problem. A philosophical thought-experiment developed in the ’80s, the Byzantine Generals’ Problem proposes a communications dilemma across a distributed network. Imagine multiple military generals stationed around a massive castle that they wish to either attack or retreat from. Separated between large distances around the castle, they can only communicate by sending each other letters. How will the generals come to an agreement as to when to launch a coordinated move?
For decentralized networks such as blockchains, this same dilemma plays out while attempting to validate transactions. Fault tolerances in the form of majority rule are implemented into these networks to provide a level of redundancy. If any nodes send out faulty data, verification is still possible so long as two-thirds of the other nodes on the network send matching data.
That being said, below are the main consensus methods driving popular blockchains today.
Explained in detail in the original Bitcoin whitepaper, Proof-of-Work is the first and most well-known consensus method used today. It’s the method behind the whole idea of “mining” for Bitcoin. In order for “blocks” on a blockchain to become verified, a miner needs to spend computational resources solving difficult (albeit useless) mathematical problems. Each time a miner verifies a block, they are rewarded with a small amount of a cryptocurrency, which incentivizes miners to keep verifying blocks.
One issue with the PoW method is that it is energy-intensive. Massive mining warehouses have sprung up all over the world (mainly in China) that use large arrays of computers to mine for cryptocurrencies. Computers programmed to mine for cryptocurrencies require a proportionate amount of energy to continuously run.
Still, it is a tried-and-true consensus method that has revolutionized digital ledger technology into what it is today.
As Bitcoin mining operations face increased scrutiny over energy usage and scalability, developers are utilizing novel methods to achieve consensus over blockchains.
Instead of using an ever-increasing amount of energy to mine for blocks, miners on a Proof-of-Stake blockchain validate blocks based on how much of the cryptocurrency they are already holding. The more tokens they hold (and the longer they are holding them), the higher chance they have of validating a block.
This solves two problems with the PoW method: 1) miners selling their tokens in order to fund their mining operations, thus driving down the cost of the token, and 2) the potential for “51% attacks” as fewer miners are incentivized to mine due to the reward decreasing over time (see: controlled supply, or halving).
Removing the need to mine for cryptocurrencies in the first place also implies that the total amount of tokens available is in existence from the start. So what is the incentive to validate blocks on a PoS blockchain if miners are not rewarded with crypto? The answer: stakeholders on a PoS blockchain are incentivized to continue holding their tokens by receiving a small percentage of the transaction fees accrued by trades.
Delegated Proof-of-Stake (DPoS)
As the name suggests, Delegated Proof-of-Stake is similar to PoS except that it features an added democratic tool. Block validators (stakeholders) on a DPoS blockchain elect delegates (block producers) to produce blocks. Those with more stake (amount and age) in the tokens have more influence over who becomes an elected block producer. Additionally, stakeholders can vote to remove a block producer that fails to do its job consistently.
On a DPoS blockchain, the number of elected block producers is determined at the time of the blockchain’s development.
DPoS is able to greatly increase transaction speeds by sacrificing some of its decentralization. Anyone can become a delegated block producer, but having more delegates on a DPoS blockchain decreases its throughput. For this reason, DPoS blockchains allow anywhere from 21-101 delegates on the system. This model can validate blocks in a fraction of a second. Compare this to the 10 minutes it takes to validate blocks on a traditional PoW blockchain network.
Heading into the realm of centralization, Proof-of-Authority establishes tighter control over validation. Only approved validators are able to validate blocks. Upholding reputation is the main incentive for validators on a PoA blockchain. Potential validators must reveal their actual identities in order to become a trusted node on the network. In this sense, PoA is simply a modified version of PoS. But instead of staking tokens, validators are staking their true identities.
PoA is more likely to appear in private blockchains, controlled by companies for internal use, due to this level of centralization. Companies best poised to implement PoA are those with supply chain needs. However, PoA systems sacrifice immutability, so there is a risk for block data manipulation by the authorities. But what PoA blockchains lack in immutability, they gain in throughput.
The above-mentioned consensus methods are what many consider to be the most robust in blockchain technology today. Consensus methods not mentioned in this post include Proof-of-Burn, Proof-of-Capacity, and many more. Some small projects utilize lesser-known methods, while others are still being studied for their practicality.
Although PoW is the tried-and-true method, it has issues with scalability and energy consumption that need to be addressed. Blockchains like PoS solve some of PoW’s issues, and others offer advantages of their own. Consensus methods of the future may combine elements of multiple models, just as there are slight variations to existing ones today. Already, blockchains and their associated consensus algorithms are helping to solve major problems in tech-centric industries today.