{"id":24666,"date":"2024-04-17T13:16:40","date_gmt":"2024-04-17T17:16:40","guid":{"rendered":"https:\/\/coincentral.com\/?p=24666"},"modified":"2024-04-18T12:13:05","modified_gmt":"2024-04-18T16:13:05","slug":"the-different-types-of-consensus-algorithms","status":"publish","type":"post","link":"https:\/\/coincentral.com\/the-different-types-of-consensus-algorithms\/","title":{"rendered":"The Different Types of Consensus Algorithms"},"content":{"rendered":"

A consensus algorithm is a procedure used in computer science in which participants of a distributed <\/span>network agree on the state of the network or the state of a single data value and establish trust among unknown peers in the network.\u00a0<\/b><\/p>\n

Consensus algorithms are designed so that members of a blockchain come to an agreement to validate a transaction on the network, change network parameters, decide which nodes are trustworthy to process new blocks, and other important functions.<\/span><\/p>\n

Don\u2019t let the technical nature of this article throw you off\u2013 finding \u201cconsensus\u201d is around us everywhere\u2013 it\u2019s a very human notion, but just applied to something that can be automated.\u00a0<\/span><\/p>\n

For starters, in centralized systems, consensus tasks are carried out by a central authority.\u00a0<\/b><\/p>\n

In decentralized systems like Bitcoin, we have a network composed of hundreds, thousands, and even hundreds of thousands of miners or nodes that join to perform one or multiple tasks and provide a reliable and efficient ecosystem.<\/b><\/p>\n

Thinking about the decentralized consensus with this example, suppose you\u2019re in a group of four friends, and one of the members, Alex, introduces a fifth person, Bob. When Bob leaves, most likely, the group will start talking about Bob (this is the protocol) to see if they liked him (the result will be the \u201cconsensus\u201d)\u00a0<\/span><\/p>\n

Jos\u00e9: \u201cBob seems like a cool guy.\u201d<\/span><\/i><\/p>\n

Kevin: \u201cYeah, cool guy. How\u2019d you meet him?\u201d<\/span><\/i><\/p>\n

Alex: \u201cHe was in one of my finance classes back in college; we would share crypto trading tips, and he ended up being a pretty funny guy.\u201d<\/span><\/i><\/p>\n

Kevin: \u201cNice, but his memes were just super weird.\u201d<\/span><\/i><\/p>\n

John: \u201cYou just don\u2019t get meme culture.\u201d<\/span><\/i><\/p>\n

Jos\u00e9: \u201cYeah you don\u2019t spend a lot of time scrolling through TikTok\u2014I thought they were pretty funny.\u201d<\/span><\/i><\/p>\n

In this example, a \u201cconsensus\u201d was reached on whether Bob integrates well into the friend group. There is often a necessary consensus of opinion even absent of specific commitments or contracts made<\/strong>. One participant, Kevin, is reluctant about letting Bob into the group, but Jos\u00e9, Alex, and John are cool with Bob.<\/span><\/p>\n

In this case, if we were to codify the above example into a consensus algorithm: Then it will be 3 \u201che\u2019s cool\u201d and 1 \u201che\u2019s cool but I\u2019m unsure about XYZ\u201d still results in a \u201che’s cool.\u201d The majority wins, so Bob will get to hang out with the cool kids despite Kevin\u2019s opinion.\u00a0<\/span><\/p>\n

Bitcoin, for example, is built to find consensus on whether new transactions are valid (\u201ccool\u201d) or not.\u00a0<\/span><\/p>\n

Here we\u2019ll review the most popular \u2014and not so popular\u2014 types of blockchain consensus algorithms across public and private networks.<\/span><\/p>\n

What is Proof of Work?<\/span><\/h2>\n

Proof of Work (PoW) is the most popular and oldest consensus algorithm that came with the creation of Bitcoin in 2009 by Satoshi Nakamoto. <\/b>A PoW system consists of a global network of miners \u2014called network nodes\u2014 that compete to solve mathematical puzzles. The miner that successfully solves the puzzle wins the right to add a new block to the blockchain and receives a reward paid in newly-created cryptocurrency.\u00a0<\/span><\/p>\n

Proof of work is basically a miner\u2019s way of showing evidence that they have provided computational power to achieve network consensus and validate the authenticity of each block. Further, each block (transaction) is arranged in sequential order, eliminating the risk of double spending.<\/span><\/p>\n

So far, PoW has been the most secure consensus mechanism for cryptocurrency blockchains. Altering the network would require an attacker to re-mine all existing blocks in the chain. The more the blockchain grows, the harder it\u2019s to monopolize the network\u2019s computing power since it would require enormous energy consumption and expensive equipment.<\/span><\/p>\n

Once a miner solves a puzzle, he finds a <\/span>nonce<\/span><\/a> (short for number used once) that produces a hash with a value lower than or equal to that set by the network difficulty.\u00a0<\/span><\/p>\n

The nonce is a central part of PoW systems since it will allow the miner to create a block header hashed with the SHA-256 hash function, which means putting a reference number for a block in a chain. The block header also contains a timestamp and the hash of the previous block.<\/span><\/p>\n

The Cons of PoW<\/span><\/h3>\n

Miners need to provide considerable computational power to solve the puzzles. But since the computations are complex, the amount of energy that a single S9 Antminer consumes is usually between 1400 – 1500 watts per hour for a hashrate of 14.5 TH\/s. The S19, a more powerful version, consumes 3250 watts per hour at a hashrate of 110 TH\/s.\u00a0<\/span><\/p>\n

With some math, we can calculate the amount of energy that data centers or mining companies consume with hundreds or thousands of mining rigs in a single location daily. High energy consumption and environmental damage is the main criticism drawn from proof of work.\u00a0<\/span><\/p>\n

To put this in perspective, Before Ethereum switched to Proof of Stake, Ethereum miners worldwide were consuming around 10 TWh\/yr, the same as the Czech Republic.<\/span><\/p>\n

The loud noise also harms human hearing levels \u2014above 80 dBa. This is why mining rigs are usually kept in basements or mining facilities to avoid disturbing everyday activities.<\/b><\/p>\n

What is Proof of Stake?<\/span><\/h2>\n

Proof of Stake (PoS) is the second most popular consensus algorithm. Instead of miners, PoS blockchains have network validators who use their coins\/tokens as evidence of their commitment to the network rather than computing power.\u00a0<\/span><\/p>\n

Staking means \u201clocking\u201d crypto assets for a period in a blockchain platform, which, in return, rewards users with more cryptocurrency.\u00a0<\/span><\/p>\n

PoW vs. PoS: Main Differences<\/span><\/h3>\n

In PoS, users can stake a portion of their assets for the sole purpose of generating passive income. The other option is becoming a validator. Unlike PoW systems, validators do not compete to create new blocks since they are randomly chosen by an algorithm. The more coins\/tokens a user stake, the greater their chances of becoming a validator and creating new blocks in the blockchain.\u00a0<\/span><\/p>\n

In PoW systems, the time for generating new blocks is determined by the mining difficulty; the more participants join the network, the bigger the hashpower, i.e., the computational power required to mine new blocks. By contrast, PoS blockchains have a fixed block generation time divided into slots \u2014the time it takes to create a block\u2014 and epochs, which are units of time consisting of slots.\u00a0<\/span><\/p>\n

To explain this better, a slot in Ethereum consists of 12 seconds, which is the amount of time it takes the network to create a block, and 32 slots create an epoch. Therefore, one epoch is 6.4 minutes. Each slot in a PoS blockchain has a predetermined number of validators who vote on the validity of the block being proposed. If the block is valid, it\u2019s added to the chain, and the block proposer and the attestors receive rewards in ETH.<\/span><\/p>\n

PoS blockchains punish malicious actors for attacking the network with 51% style attacks, which is called slashing, where honest validators eject the malicious validator from the network and drain their balance. This discourages malicious actors from attacking the network since the required number of staked funds is considerably high. In the case of Ethereum, 32 ETH.<\/span><\/p>\n

Pros of PoS:<\/span><\/p>\n