What is Blockchain Consensus Mechanism? Why does blockchain need it?

There are various blockchain consensus mechanisms, each working in a unique way that best suits its blockchain idealogy. In this article, I will introduce you to blockchain consensus and some of the most widely used consensus types.

What is blockchain consensus mechanism?

Blockchain consensus mechanism is a mechanism ensuring that transactions conducted on the blockchain are honest and transparent. At its core, blockchain consists of multiple nodes that create a network. For a transaction to be recorded on the blockchain, it has to be simultaneously agreed upon by the whole network.

The method of agreement that blockchain nodes use is called blockchain consensus mechanism. Up to this moment, there have been dozens of blockchain consensus mechanisms, with the majority of them covered in the next part.

Why does blockchain need consensus mechanism?

Blockchain needs consensus because it is the imperial part that creates and maintains blockchain’s utter important value: decentralization. Instead of one or a few entities controlling the system, blockchain allows everyone to take part in the network as they become a node.

Thanks to consensus mechanism, blockchain itself can ensure that no fraudulent transactions can go through as they will be carefully searched through by random nodes within the network.

There exists no chance for a single party to exploit the blockchain if its consensus is solid and secure enough. The more nodes there are, the more secure the blockchain becomes. This makes Bitcoin and Ethereum the two safest blockchains up to date.

Types of blockchain consensus mechanism

Proof of Work (PoW)

Proof of Work is the first blockchain consensus to exist, as it was introduced by Bitcoin - the first cryptocurrency.

Proof of Work requires nodes to use computing power in order to solve difficult and asymmetric puzzles. The node to first solve the mathematical problem receives rewards in a process called "mining", whereas nodes are considered miners.

Once a node provides a solution and confirms the transaction, it will be verified and confirmed by all other nodes in the network. If the answer is approved, all other nodes will add the transaction to their copy of the blockchain, making the blockchain verifiable and synchronizable.

By using computing power to secure the blockchain, Proof of Work requires a massive amount of electricity usage as well as expense for the compulsory hardware. At the same time, it usually takes longer for a block to be validated and created, making PoW less efficient than other consensus mechanisms.

Proof of Stake (PoS)

Proof of Stake is the second most popular consensus mechanism that is used by Ethereum. Rather than computing power, Proof of Stake requires staking power to verify blocks. Nodes have to stake the native token of the blockchain to participate in the consensus process.

The network usually requires a minimum number of tokens to become a validator. For instance, Ethereum requires 32 ETH (~$56,640 at the time of writing). The staked tokens can be partially lost if the validator goes offline for too long, or fully if the validator conducts fraudulent actions.

PoS validators receive the transaction fees as rewards. Validators for a transaction are selected randomly. Nevertheless, the possibility of being chosen is correlated with the number of staked tokens.

Proof of Stake is believed to be more cost-efficient than Proof of Work, considering it requires liquid cryptocurrencies rather than physical hardware and demands little to no electricity usage.

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake is the evolved version of Proof of Stake. Instead of choosing a validator randomly, delegators who verify a specific block will be voted by users, whereas delegators with the most staked tokens will be chosen.

Stakers will receive a share of the total staking pool if the delegator is selected. The number of delegators for each block is limited and randomized, making it fairer for everyone to participate. Moreover, a limited number of delegators allow the consensus mechanism to operate smoother.

Compared to the original PoS, DPoS is faster and more productive.

Proof of History (PoH)

Proof of History is a brand new consensus mechanism that was introduced by Solana. Instead of taking logic into account, Proof of History uses the timeline as a reference. While previous consensus mechanisms verify the transaction and save it on the blockchain, PoH proves that a specific transaction happens somewhere on the blockchain’s timeline, before and after some events.

Basically, PoH does not and cannot calculate the output directly from the input. Instead, PoH has to execute a cryptographically secure function that uses the previous output as the input. At its core, PoH is a sequence of computations with timestamps that can guarantee how and when data exist before and after the other.

Proof of Activity (PoA)

Proof of Activity is the combination of Proof of Work (PoW) and Proof of Stake (PoS). Proof of Activity involves both miners (from PoW) and validators (from PoS) in the network. Miners compete to mine and receive block rewards, while validators receive token rewards from signing the transaction.

Although PoA inherits the merits of PoW and PoS, it also carries on their flaws: it requires an enormous amount of electricity usage (PoW), as well as the possibility of centralization (PoS).

Proof of Contribution (PoC)

Proof of Contribution monitors the actions of all validators within the network and rates them based on their contribution - a mechanism pretty similar to the social credit system. The credit of a user is evaluated based on the number of staked tokens and historical records.

Before participating in the network and the computation process, users have to stake a security deposit. After completing the computational work, nodes that conduct the validated result will be rewarded with transaction fees as well as the staked tokens from those that do not successfully provide the correct answer.

Proof of Reputation (PoR)

Proof of Reputation is the upgraded and enhanced version of Proof of Contribution. While it works nearly in the same way, the difference lies in its validators. While anyone can become a node on a PoC blockchain, PoR requires a stricter filtering process.

To become a validator on a PoR blockchain, your reputation has to be so big that conducting fraudulent activities on the blockchain can annihilate your identity. They are usually private companies or figures that want a blockchain to serve their specific needs.

Others

Up to date, there have been myriads of blockchain consensus mechanisms, serving both public and private demands. Some other names may include Proof of Location (PoL), Proof of Burn (PoB), Proof of Zero (PoZ), Byzantine Fault Tolerance (BFT), Direct Acyclic Graph Tangle (DAG),...

Since these blockchain consensus mechanisms can never be changed and the only way to innovate is to create a new one, the space of consensus will be constantly evolving with more and more to come. Newer blockchains would want to improve the network’s technological aspects, hence inventing new kinds of consensus to fit their idea.

Conclusion

This is everything you need to know about blockchain consensus. If you have any questions about blockchain consensus mechanisms, don't hesitate to leave a comment below. The Coin98 team will answer your questions as soon as possible.