Blockchain Consensus Types: PoW, PoS, DPoS, PoST

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Blockchain consensus types: PoW, PoS, DPoS, PoST

We have all come across cryptocurrency in some way or other and tried to compare the coins amongst themselves. The basis of these comparisons is often aligned to how popular they have been or how much they have gained for the currency market. Although true to some degree, this would not be an ideal way of comparison.

Cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), as well as the others, follow a decentralized idea at their basics. Drawing parallels to decision-making processes, there is a strong need to follow some guidelines to arrive at a system that takes into account all of the views in a timely and respectable manner.

When it comes to standard organizations, you always have a centralized source of power in the form of a manager or a board of directors. They work collectively towards the process of making decisions to ensure the smooth flow of the organization and to make it as efficient to reach their end goal as possible. But in the case of decentralized blockchain technologies, it gets difficult to achieve this due to them not having a central authority figure. This is where the idea of coming to a consensus using various consensus algorithms comes into play.

What is consensus mechanism

What is a consensus mechanism?

Consensus is aimed at reaching a fair agreement for all parties involved. In part, it does two essential things:

  •    It ensures that the next block on the blockchain is the only valid block
  •    It ensures that no powerful adversaries can be successful in forking the chain

Consensus mechanisms are the dedicated methods to achieve this consensus. They mainly focus on solving what is called the “Byzantine Generals Problem” in decentralized peer-to-peer currency systems. So without further ado, let us get into the different consensus mechanisms that seem to solve the Byzantine Generals Problem to a great degree.

Proof of Work (PoW)

The first mechanism to feature on our list is also the most widely used consensus mechanism and one of the oldest ones at that. Satoshi Nakamoto, the creator of Bitcoin, has been credited with the invention of this protocol. Considered a legacy technology in the blockchain revolution, many giants have still not given up on it. PoW has been responsible for the extensive mining operations and power consumption. According to experts, Ethereum ETH is well on its way to migrate to another consensus algorithm (PoS). MinerGate has listed a few of the best cryptos to mine in 2018, and most of them still use PoW.

In PoW, miners strive to add the next block in the chain by competing to solve difficult, albeit useless problems and the first one to reach is awarded for his efforts in the form of newly minted coins. It works on the principle that “the longest chain wins” which essentially goes to show that the chain which has the most number of productive miners would grow faster and be reliable.

Pros: It has been proven to work.
Cons: Criticisms about it requiring a lot of energy and it not scaling well with enormous issues in transaction confirmation have been raised a lot.
Coins: Ethereum Classic (ETC), ZCash (ZEC), Monero Original (XMO)

Proof-of-Stake algorithm

Proof of Stake (PoS)

Proof of stake is the apparent common choice if not PoW. This algorithm essentially moves away from investing in expensive computer equipment and instead chooses to bring in ‘validators’ or stakeholders to invest in the right fork. This resembles quite a lot of the modern day stakeholders to the point of giving the power of having the most say in how decisions are made to whoever has the more substantial stake.

PoS doesn’t work by miners doing the actual mining, but by these ‘validators’ staking their owned coins on betting which blocks would be valid to be added to the chain. When a fork occurs, they are again consulted on which fork to support correctly. At the fairness point, the validators who chose the wrong fork would “lose their stake” in the correct fork.

The chance of being picked to create the next block is strictly dependent on how much of the coins in the system are owned by you. But here’s the twist. The ‘nothing-at-stake’ problem works as a pun and an issue that essentially means that there is nothing to stop a validator from creating two blocks and claiming two sets of transaction fees. As is rightly said, a user who has nothing to lose has no reason to not stray along the wrong path.

Pros: Energy efficient, more decentralized.
Cons: The nothing-at-stake problem.
Coins: Dash (DASH), Neo (NEO), PivX (PIVX)

Delegated Proof of Stake

Delegated Proof of Stake (DPoS)

DPoS derives its name from Proof of Stake but is very different in its implementation. Founded by Daniel Larimer, it works on the principle that token holders don’t vote to validate blocks but instead vote to elect delegates who in turn would validate on their behalf. Much like the senators in a democracy who would represent the people’s views whose votes have elected them. Having a lesser number of decision makers paves the way to efficiency in the process as each delegate is responsible for the timely publishing of their allocated block. If a delegate fails to do so, the stakers can vote them out and bring in someone who they can agree on would achieve the desired result.

The way DPoS differs from PoW and PoS is that here miners work collaboratively instead of competing with each other to make blocks. It leads to quicker block times at the expense of partial centralization.

Pros: Highly Scalable, cheaper transactions.
Cons: Partial Centralization could lead to problems.
Coins: Lisk (LSK), Ark (ARK), Rise (RISE)

Proof of Stake Time (PoST)

This proposes a solution to a number of the major deficiencies in current Proof-of-Stake models achieved by introducing a nonlinear proof function that defines a fraction of time active and idle, at a given block. Idle-time is defined as the fraction of age that no longer supports the distribution of consensus and instead begins to degrade it. This quantified idle-time is unique to each stake, as it decreases the probability to meet the proof and impacts the fraction of earnable matured interest via consensus.

In this method, actively staking is incentivized to maximize both the likelihood to sign a block, and to earn all of the matured interest in reward. The Stake-Time function is used both in the proof and in the quantification of reward. Since this protocol is based on receiving a reward proportional to the activity done, it affects how the highest coin holders are involved in the staking.  So even if someone has fewer coins but they have been in the system as a regular for a long time, they can have a more significant role in the consensus.

Pros: Addresses the nothing-at-stake problem of PoS. Distributed threats are discouraged and heavily penalized.
Cons: None at the time of writing.
Coins: VeriCoin (VRC)

Next time we’ll browse such consensus algorithms as Proof of Capacity, Proof of Activity, Proof of Burn and Delegated Byzantine Fault Tolerance, who use them and why there are plenty more fish in the sea, then just PoW algorithm.

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