You can think of a blockchain as a distributed ledger held by multiple nodes or computers in a peer-to-peer network. Every node in the network needs to validate all the data recorded on the blockchain, making the network secure, immutable and transparent. Every node on the network needs to reach a consensus to perform change or read/write actions on the network. This is the central mechanism that makes up the blockchain network. All existing blockchains use a consensus mechanism in some way or form.
The most well-known is the Proof-of-Work (PoW) consensus mechanism. It is used by two of the largest cryptocurrencies on the market, Bitcoin and Ethereum. In PoW, nodes need to solve complex computational puzzles, add new blocks to the blockchain, and add transactions to the network. Nodes typically use high-power computing hardware to solve these puzzles, and the first node to solve a puzzle and add a block is given a Bitcoin token. This process is known as Bitcoin mining. PoW mining has been closely monitored over the past year due to its energy consumption and its consequent carbon dioxide emissions. For this reason, the Ethereum Network is moving from Proof of Work Mechanisms to Proof of Stakes (PoS).
The PoS consensus mechanism reduces PoW power consumption issues. PoS allows you to validate a transaction on your network by making a node a validator and deploying crypto tokens in a shared storage pool or mempool (pool of coins). The rewards a node receives from staking depends on the number of tokens the node has stakes. PoS was developed as an alternative to PoS and has become the second most popular consensus mechanism.
However, these are not the only consensus mechanisms used. Consensus mechanism technology is also being revolutionized as the number of blockchain networks appears to be emerging every other day. Some new consensus mechanisms are built on old ones, while others are entirely new. Here are seven consensus mechanisms that you may not be aware of.
This consensus mechanism also does not require large computing hardware. Instead, the concept of coin writing is used, where participants in the consensus mechanism send/write coins to addresses where the private key is unknown. No one can get the private key, so they cannot access the address. These addresses are often referred to as the eater’s address.
Participants promise to be part of the consensus mechanism by burning coins. Coin burners are randomly selected to mine the next block in the chain. This is a sacrificial mechanism in which miners must sacrifice some of their holdings in the short term to make long-term profits. The more coins a miner burns, the more likely it is that a node will be selected to mine the next block.
Slimcoin, an alternative cryptocurrency based on Peercoin, uses write proof as a consensus mechanism.
DPoS is an iteration of the PoS consensus mechanism. This is where the validator uses the coin to select the delegation responsible for verifying the block on behalf of every node in the network. It is very similar to how people in democracies elect representatives to govern the state or the country itself on their behalf.
Suppose Node X bets 20 on a delegate and Node Y bets 2 coins on the same delegate. X is more influential than Y. The delegate with the most votes from the node has the opportunity to mine the next block. This method typically selects 21-100 delegates in the network.
Blockchains such as Cardano, EOS, and TRON use the DPoS consensus mechanism.
PoC is an iteration of PoW to address its shortcomings. With this consensus mechanism, the solution to PoW’s complex computational puzzles is already stored on the storage device. It uses a process called plotting. This process determines all possible solutions for the hash algorithm before the mining process begins.
The user who arrives at the solution earliest (already stored on the storage device) gets the privilege to create a new block in the chain. This process consumes less energy than the PoW model and does not require any special software for users to participate.
Signum/Burstcoin’sBurstcoin’s blockchain operates using a proof-of-capacity (PoC) consensus mechanism.
The PoET consensus mechanism uses only identifiable and verifiable nodes for mining. This is important because the nodes are selected based on how long they have been waiting for the mining of new blocks. This mechanism randomly allocates a specific wait time, and nodes with expired wait times can mine new blocks. No node has permissions or privileges on other nodes because the allocated wait time is random. PoET is, even more, energy- efficient than PoS.
PoA is also a variant of the PoS mechanism, where validators use their ID instead of coins. In the case of PoS, a wealthy participant who can pay the monetary loss of the bet coin can waive the verification obligation, but in the case of PoA, the participant bets on reputation. Nodes that use reputation are the only nodes that can mine new blocks and validate transactions.
VeChain is a smart contract platform that utilizes the PoA consensus mechanism.
In Proof of Activity, a hybrid of PoW and PoS consensus mechanisms, miners initially follow the same path as PoW mechanisms, using hardware to solve complex computational puzzles and introduce new blocks. However, the twist is that the block created is just a template containing reward information and header information.
Then use the header information to select the group of verifiers that will sign the new block. Validators who bet more coins are more likely to be chosen to sign the block. When the validator signs the block, it is added to the network. The generated rewards will be evenly distributed between the miner and the validator. If the validator does not sign the block after mining, the block will be discarded.
Decred (DCR) is a well-known blockchain project that uses the Proof of Activity consensus mechanism.
This is another PoS-based consensus mechanism. In PoI, a node is valued by the coins bet and how long the node owns the node. Other metrics such as the number of transactions a node has in the network, net transfers, and the amount and size of transactions over the last specified number of days are also taken into account in the node’s score.
PoI measures the strength and presence of nodes in your network. Highly rated nodes can first add new blocks to the network. Taking into account factors other than the coins bet, the whale holding the most coins on the network will have less control.
XEM (New Economy Movement), a fork of the cryptocurrency NXT, introduced the Proof of Importance consensus mechanism.
