A consensus algorithm is a protocol containing a set of rules in the blockchain to achieve agreement or we can say it’s a set of steps with a common goal whose target is to validate the block and add them to the chain. Consensus algorithms play a vital role in blockchain. Consensus is a fundamental concept in blockchain technology that helps maintain consistency among all the participants in a distributed ledger system. Every algorithm has different characteristics, advantages, and speeds.
One of the most popular algorithms is proof of work which is considered the first algorithm in the blockchain domain.
The fundamental concept of Proof of Work (PoW) involves network participants, referred to as miners, employing their computational resources to perform the hashing process (SHA-256). The miner who first discovers a hash value that is below the specified target receives a reward and gains the authority to add a new block to the blockchain. PoW maintains the security of the blockchain by necessitating significant computational effort and achieving consensus among the majority of the network.
Proof-of-Stake (PoS) is another widely recognized consensus algorithm. Unlike Proof-of-Work (PoW), which requires significant computational power, PoS introduces the idea of coinage, defined as the unspent asset multiplied by the time since the last successful validation.
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Importance of consensus algorithm
- Ensuring fault tolerance, consensus algorithms enable systems to remain operational in the event of node failures or malicious behavior.
- Maintaining data integrity, these algorithms ensure that all network participants have access to the same information, preventing discrepancies that could undermine trust.
- Promoting decentralization, consensus algorithms eliminate the need for a central authority, empowering users and bolstering security against vulnerabilities at single points.
- Creating a trustless environment, participants can conduct transactions without having to rely on trust, as the consensus mechanism provides a dependable way to validate and reach consensus on transactions.
Types of consensus algorithm
Maintaining data integrity and consistency in distributed systems relies on achieving consensus without relying on a central authority. Collaborative nodes must reach an agreement on a common state while addressing challenges such as resilience to unpredictable or malicious node behavior (Byzantine Faults), handling network splits to prevent inconsistencies (Network Partitioning), and efficiently managing complexity without compromising security or speed as the number of nodes increases (Scalability).
PoW: Proof of Work: PoW is a consensus algorithm that was used in the Bitcoin blockchain. The main work of the pow algorithm is to distribute accounting rights and hashing power among nodes. The node calculates the nonce value based on its previous block. The node who calculates the hash value or nonce first that block is added to the chain and the node also gets some reward.
1) Difficulty of block: The Bitcoin mining algorithm sets some difficulty of block or nonce value when mining. It adjusts for the hash rate of the network. Miner mines the block and gets this difficulty value and then the block is added to the ledger.
2) transaction collection: This process collects all the pending transactions after the production of the last block. After collection, it calculates the Merkle root of the transaction and fills the version of the block with appropriate numbers.
3 ) Calculation of nonce: Calculate the hash value with sha256. If the hash value is less than or it is equal to the target value, the block is considered as valid block and it is broadcasted to all the nodes.
Advantage and Disadvantage
- High security as it required a lot of computation to attack the network.
- Fully decentralized.
- Energy consumption is high.
- The speed of transactions is slow compared to others.
- Bitcoin is a prominent example of a power chain.
PoS: Proof of Stake This is the alternative algorithm to proof of work. The proof of stake consensus algorithm is used for validation confirming the transaction to the chain. As proof of work use miners to solve the complex mathematical value known as nonce. Pos depends on validators who have staked more cryptocurrency in the network to add and verify the transaction. Staking huge amounts of crypto makes it possible for miners to be chosen among them. Validators are incentivized to add a block and confirm the transaction.
Advantage and Disadvantage
- High security as it required a lot of computation to attack the network.
- Fully decentralized.
- Energy consumption is high.
- The speed of transactions is slow compared to others.
- Bitcoin is a prominent example of a PoW chain.
PoS: Proof of Stake
This is the alternative algorithm to proof of work. Proof of stake is a consensus algorithm used in blockchain for validating and adding the transaction to the chain. As proof of work use miners to solve the complex mathematical value known as nonce. Pos depends on validators who have staked more cryptocurrency in the network to add and verify the transaction. Staking huge amounts of crypto makes it possible for miners to be chosen among them. Validators are incentivized to add a block and confirm the transaction.
Advantage and Disadvantage
- Energy efficient in comparison to POW.
- Transaction speed is faster because of the proof of stake mechanism
- Participants with high staking may dominate the network
- Ethereum is the best example that uses Proof of Stake
Delegated Proof of Stake (DPos):
There exists consensus models such as the dpos consensus algorithm which is prevalent in some blockchains to approve transactions and integrate them into the blockchain. It is relied on by a smaller number of validators referred to as delegators, to check the transactions, and append new blocks to the chain. In DPos token holder votes for delegates to represent the members in the validation process. Selector delegates validate the transaction and add a block to the blockchain.
Advantage and Disadvantage
- High transaction capacity
- A democratic system that includes network participation.
- Immune to centralization risk if few delegates are not being honest
- Eos is the best example of Dpos.
Leased Proof of Stake (LPoS) :
Some blockchain networks utilize a leased proof of stake consensus model in the process of validating the transactions and the new blocks added to the chain as a way through which the small token holders will be able to be involved in the leasing of the tokens. In the Leased Proof of Stake algorithm token holders give their tokens in terms of lending to increase their values in staking. By doing this they try to improve and have a chance of becoming a validator in the chain. If the validator is successful then they distribute rewards based on staking of the token internally.
Proof of Authority (PoA):
Means of proof of authority is used to validate transactions and to integrate new blocks in the chain, consensus algorithms exist in different networks of blockchain. An authorized group of trusted validators is relied upon instead of a decentralized network. In Proof of Authority, a group of validators is chosen to validate the transaction based on their reputation and experience. Advantages and Disadvantages High speed in terms of transaction and efficiency. The cost of energy is low when comparing PoW and PoS. Centralized in nature. Depends on validators.
Advantage and Disadvantage
- High speed in terms of transaction and efficiency.
- The cost of energy is low when comparing PoW and PoS.
- Centralized in nature.
- Depends on validators.
Byzantine Fault Tolerance (BFT):
Byzantine Fault Tolerance is referred to as the system’s ability to do its work perfectly and reach consensus even when some part may fail to perform. In the context of blockchain technology, Byzantine Fault Tolerance is a consensus algorithm that makes it possible to achieve and reach an agreement even when some malicious attackers try to attack or a hacking attempt is made.
Byzantine fault tolerance is meant to combat general issues, where a set of generals all need to command an attack, but some of them give out false information. Byzantine Fault Tolerance addresses this problem by making some nodes add blocks by confirming valid transactions. If two-thirds of the total nodes agree on transaction validity then the block is considered verified and is added to the network.
Practical Byzantine Fault Tolerance (PBFT):
Practical Byzantine fault tolerance simply generalizes Byzantine fault tolerance to allow for very high levels of decentralization. It is commonly used as a private blockchain to secure an organization’s internal data. The system breaks down the consensus process into a series of steps that each node in the network repeats for each transaction, verifying its validity before passing it on to the next node.
Advantage and Disadvantage
- High throughput
- Low latency
- Not scalable with large networks
- Lack of bonding as the number of nodes increases
- Hyperledger fabric is the best example of PBFT.
Directed Acyclic graph (DAG)
A directed acyclic graph (DAG) is one type of data structure used in a distributed ledger in blockchain technology. Unlike traditional blockchain, the data is stored in linear and chronological order, Directed Acyclic graph uses its unique way for storing and validating the data. A directed acyclic graph is made up of vertices and edges, where each vertex is represented by a transaction and each edge indicates a relation between transactions. Directed Acyclic graph transactions are not linked as linear chains but they are organized in complex data structures where each transaction is linked to multiple others.
Conclusion
Blockchain technology is incredibly promising in many ways not only in the crypto-currencies market but also in different fields of ICT from different aspects such as security and privacy in the case of the IoT Field. In blockchain consensus algorithms have been used as a key technology. Consensus algorithms have promised stable operation in this technology, This is very important as of this writing. In a consensus algorithm, nodes get to have a specific value or transaction in the consensus protocol.