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What is Consensus Algorithms? And which Algorithms exist?

The consensus algorithm is extremely important for blockchain. It allows the network of a blockchain to work together. Without this algorithm it would be a big mess. So we can be happy with this algorithm. However, there are many different types of consensus algorithms. Which consensus algorithms actually exist?

In this article we explain more about Proof of Work , Proof of Stake , Delegated Proof of Stake , Proof of Capacity , Proof of Participation and Proof of Reputation.

Proof of Work

The best known and most widely used blockchain consensus model is Proof of Work (PoW). Anyone can add new blocks and anyone is allowed to validate those blocks. When someone sends a solution to the network, it has to be validated by the so-called miners.

However, often only the miners with the best hardware can find the solution for new blocks. They do this by solving a mathematical puzzle. Whoever manages to solve the puzzle gets to validate the block and then gets a reward.

Proof of Work seems like a safe way to validate new blocks on the network, although it has some drawbacks. People are building bigger and bigger server rooms to validate blocks. Those who have the best equipment get the chance to get a reward.

It takes a lot of energy to validate all those blocks, and it’s also not fair for people who don’t have good hardware. Proof of Work also leads to people starting a mining pool. This is a group of people who join forces to validate blocks together. You can imagine that this leads to centralization of the blockchain.

Proof of Stake

Proof of Stake is a consensus algorithm for the validation of blocks of the blockchain network, founded in 2012. In a Proof of Stake, people are randomly chosen to validate blocks. The people who are elected are not called miners, but strikers. The process is not called mining, but staking.

If you want to become a striker, you have to put a certain amount of coins into the grid as a bet (think of it as a deposit). The size of the bet determines the odds of being picked as a striker, so more money means a higher chance of being picked as a striker for the block.

When a striker commits fraud, he loses his bet. This should ensure that strikers do their best for the network. When the striker leaves the network, they get their stake back after a certain amount of time.

Delegated Proof of Stake

A Delegated Proof of Stake model is actually like a representative democracy. Blockchain participants vote with tokens on nodes they trust to be representative of them. Selected nodes are called a delegate. The selected delegates validate the blocks in the network. If one of the delegates does not do their best and the network is dissatisfied, the network can vote the delegate out.

Advantages of this model are that it increases scalability, has a better distribution of rewards and has real-time voting protection. The downsides, however, are that this model allows for more centralization, witnesses cartels, and makes it easier to stage an attack on the network. Delegated Proof of Stake is used by EOS , BitShare, Lisk , and Steem .

Proof of Authority

In the Proof of Authority algorithm, the transactions are validated by pre-approved accounts. We also call these accounts validators. These validators are therefore already approved in advance. Proof of Authority is therefore mainly used for private blockchains.

The transaction time of blockchains with Proof of Authority is much higher than with other blockchains. It is also a lot more scalable and cheaper than other algorithms. However, this algorithm also has enough drawbacks. It is very susceptible to censorship and blacklisting. Also, the bad behavior of validators cannot be prevented automatically in all cases. In most private blockchains, however, this is not necessary either. Private blockchains are blockchains that are used internally by companies, for example. Think of Microsoft Azure and VeChain .

Proof of Reputation

This consensus model depends on the reputation of the participants. The reputation is based on their transaction activity such as the social activity, time and calculation. Nodes that fall in the highest reputation value of 5% are placed in a candidate pool. The system then randomly selects nodes from this pool to verify transactions in the network.

This consensus algorithm leads to faster transactions and is highly scalable, but the drawbacks are that it is only for private blockchains and is vulnerable to a 51% attack. Proof of reputation is used by GoChain, Menlo One and Bitconch.

Proof of Capacity

By plotting, participants of the Proof of Capacity network can calculate possible outcomes on their memory. After plotting, the results are compared with the actual ones. Whoever has the correct answer gets to add the block to the blockchain. It means that participants who can deploy more storage space can plot more possible outcomes, and thus have a greater chance of validating new blocks in the blockchain.

The biggest advantage is that it is energy efficient. The memory of a miner can be used for different purposes. When someone wants to stop mining , they can delete everything from their hard drive, and then use the hard drive completely as before. However, miners have to give up a lot of space, and that can be seen as a disadvantage.

Proof of Participation

A somewhat newer algorithm is Proof of Participation. It has been used since 2019 for ZooBC, among others. This is a blockchain developed by Blockchain Zoo. It is all about ensuring that the rewards are distributed in the right way. As a result, there will also be more decentralization within the blockchain network.

Anyone can request to add a block to the network. Then a request is automatically accepted by means of the network protocol which consists of specific rules. Every node has an equal chance to join the network. However, participants who participate better in the network do have a greater chance of being allowed to validate a block.

When you do your best within the network, you get points. You will therefore be judged on the basis of how well you participate within the network. This also makes the algorithm a lot more economical than, for example, Proof of Work. However, a disadvantage is that newcomers may have difficulty validating blocks.


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