Blockchain Consensus Mechanisms Beyond Proof of Work and Proof of Stake


The most well-known consensus mechanisms are PoW and PoS, thanks to Bitcoin and Ethereum, although the blockchain ecosystem is powered by a variety of different consensus mechanisms.

Summary

While Proof of Work (PoW) and Proof of Stake (PoS) is the most frequent consensus mechanisms, there are a number of interesting alternatives, each with their own set of strengths and disadvantages. Many of these options combine elements from various encryption and consensus systems. The list of existing consensus mechanisms is always growing and evolving, and you can read about some of the most notable iterations in blockchain consensus types here.

Contents

Blockchain and Consensus: A Single Source of Truth

Blockchains are distributed databases that record, communicate, and transact data without the need for a centralized authority.

The majority of blockchains are constructed on a network of distributed individual nodes that collaborate to provide the transactions that occur on the network they all share.

As a result, any blockchain network must have a system in place to ensure that all of its nodes are in sync with one another and that they agree on which transactions are valid and should be added to the blockchain.

A consensus mechanism is a decentralized approach for establishing the genuine state of the blockchain. Consensus techniques can have a direct impact on the financial parameters and security of the network they underlie, in addition to ensuring the essential operations of a blockchain.

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Most blockchains must have three key characteristics: scalability, decentralization, and security, all of which must be encoded into the network’s algorithmic DNA by developers. Vitalik Buterin, the co-founder of Ethereum, coined the phrase “Blockchain Trilemma” to describe these three competing priorities.

The attempt to create and implement a decentralized network governance architecture that balances all three of these characteristics is a never-ending task.

As a result, many networks have devised blockchain consensus techniques that best suit their strategic objectives. Outside of Proof of Work (PoW) and Proof of Stake (PoS), the most common blockchain consensus types are listed below.

Proof of Activity (PoA) Consensus Mechanism

Proof of Activity (not to be confused with Proof of Authority, which has the same “PoA” prefix) is a hybrid of PoW and PoS protocols that allow users to mine and stake their tokens to validate blocks.

Miners compete to mine new blocks in return for token rewards in most PoA settings. The blocks, on the other hand, do not contain transactions; instead, they are empty templates with the transaction title and block reward address contained in them.

Only token holders are qualified to act as validators, and the information in the transaction title is used to select a validator node at random to sign the block and confirm it to the blockchain ledger.

The network security charge is then distributed between the miners and validators who worked on the block’s processing and signing.

Because of the PoA blockchain consensus mechanism’s structure, it’s nearly hard to forecast which validators will sign a block in each subsequent iteration, and competition among miners and transaction signers helps strike an effective balance between diverse network players.

However, because a significant amount of energy is still required to mine blocks during this protocol’s PoW phase, and major token holders still have a disproportionately high chance of signing new transactions and accumulating rewards, this system is vulnerable to many of the criticisms leveled at traditional PoW and PoS systems.

The Decred and Espers blockchain projects both use Proof of Activity.

Proof of Authority (PoA) Blockchain Consensus

To help validate transactions and generate new blocks, Proof of Authority (PoA) employs a reputation-based approach. Validators in a PoA consensus blockchain are often persons who have been chosen and approved by other network participants to function as system moderators.

As a result, validators are usually institutional investors or other significant partners in the blockchain ecosystem that have a stake in the network’s long-term success and are prepared to reveal their names for the purpose of transparency.

As a result, while PoS blockchains require validators to put their financial capital on the line in order to assure acceptable acts, PoA blockchains demand that validators put their social capital on the line.

However, in addition to staking their reputation, several PoA blockchains demand prospective network validators invest considerably in the network financially. This allows the network to weed out would-be validators with ambiguous or shady motivations while monetarily rewarding honest nodes that are prepared to commit for the long haul.

PoA blockchains are frequently called centralized (or “semi-centralized”) by nature because of their validator selection method.

The fact that most PoA blockchains limit the number of validators allowed in their network, on the other hand, aids with the scalability of these systems.

As a result, PoA consensus algorithms are typically thought to be incompatible with fully decentralized, permissionless systems, but they can be a good fit for private, permissioned blockchains or consortiums who feel it beneficial to openly disclose their primary ecosystem stakeholders.

VeChain and TomoChain are two projects that use Proof of Authority.

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Proof of Burn (PoB) Consensus and Blockchain

To earn a proportional right to mine new blocks and verify transactions, miners purposely and permanently destroy, or “burn,” tokens under PoB.

The more tokens a miner burns, the more likely he or she is to be chosen as the next block validator. Miners in a PoB configuration can use significantly less energy than miners in traditional PoW systems by demonstrating their commitment to the network through intentional token destruction rather than using computational resources and utilizing sophisticated mining hardware.

Counterparty, Slimcoin, and Factom all use the PoB consensus technique.

Proof of Capacity (PoC) / Proof of Space (PoSpace)

Instead of using processing power, Proof of Capacity (also known as Proof of Space) uses the available hard drive space in a miner’s device to determine mining rights and validate transactions.

Even before the mining activity begins, a list of possible cryptographic mining solutions is saved in the mining device’s hard drive under PoC, with larger hard drives capable of storing more potential solution values.

As a result, the larger a miner’s storage capacity, the more likely he or she is to match the needed hash value of a new block production cycle and earn the mining reward.

This protocol was created to circumvent both the energy inefficiencies of traditional Proof of Work (PoW) methods and the hoarding incentives that certain Proof of Stake (PoS) configurations induce. The Proof of Storage consensus technique of Filecoin is comparable to this technology.

Permacoin, Burstcoin, and SpaceMint all use the Proof of Capacity consensus process.

Proof of Contribution (PoC/PoCo) Consensus Mechanism

During each consensus round, Proof of Contribution (PoC or PoCo) protocols use specialized algorithms to monitor the contributions of all active nodes in a network and then award the right to generate the next block to the node(s) with the highest contribution value.

Every executable action can be given a specific confidence threshold under PoC, which establishes the minimum level of confidence required for the network to validate the calculation associated with that action.

Users who want to do an on-chain computation must place a security deposit before they can do so in a PoC consensus mechanism.

The contribution level of each user is determined by their historical performance and stake amount, as well as the accuracy of their calculated result for every particular activity.

For each consensus round, a series of eligible users provide relevant computation results until one of them succeeds in proposing a result with a confidence level that meets the computation’s needed confidence threshold.

The nodes that compute the validated result will then be rewarded with the transaction fee from the user who requested the on-chain activity that just occurred, as well as the stake lost by users who calculated an incorrect result before the reputations of all involved users, is readjusted.

In almost every case, many users will provide the same precise result for every given computation. In these cases, the users’ confidence levels are combined to calculate the total confidence score, and the consensus rewards are distributed amongst them.

While not widely used, PoC has been successfully deployed in projects such as iExec, where the network must authenticate on-chain activities that are initiated off-chain in a secure and visible manner.

Delegated Proof of Contribution is a modified version of Proof of Contribution used by the ICON Network (DPoC). In DPoC, elected entities can validate blocks on behalf of a delegate (on a Proof-of-Contribution basis), earning token incentives in the process.

Proof of History (PoH) Blockchain Consensus

The Proof of History protocol is based on a built-in historical record that certifies the precise time when each on-chain event took place.

Unlike most other blockchains, which rely on several validators to agree on when each transaction occurred, each Solana validator keeps track of its own internal clock by encoding the passage of time in a simple SHA-256, sequential-hashing verifiable delay function (VDF).

When Solana’s validators communicate, cryptographic verification of each message’s relative order and time is maintained on the network ledger, allowing the network to ignore local clocks and accommodate all conceivable network delays on their own time.

This enables the rapid distribution and reassembling of all transaction data without the need to wait for sequential block confirmations across the whole network.

Solana is able to achieve impressively rapid confirmation times without losing security while still preserving a relative degree of decentralization by obtaining blockchain consensus via PoH.

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Proof of Importance (PoI) Consensus and Blockchain

PoI is a fork of PoS that aims to take a more comprehensive approach to analyze nodal contributions rather than relying primarily on capital needs for consensus involvement.

While classic Proof of Stake (PoS) consensus mechanisms simply assess the amount of capital a node has vested when calculating its proportional governance capabilities, Proof of Importance (PoI) consensus mechanisms weigh other elements when weighing each node’s level of on-chain influence.

While the actual score criteria employed in PoI vary, many of these consensus techniques draw elements from network clustering and page ranking consensus algorithms.

The number of transfers a node has participated in over a period of time, as well as the degree to which distinct nodes are interconnected via clusters of activity, are both common criteria.

Because the network’s top token holders do not have absolute authority over the network, PoI helps limit the risk of excessive concentration of agency and wealth on a blockchain network.

Because each node’s relevance score is dynamic and based on network activity, this consensus method discourages inefficient blockchain forks because users would have to spend resources to stay active on both forked networks to preserve their score.

This is in contrast to classic PoS methods, in which the marginal cost of producing a block is zero and users can continue validating blocks without difficulty even if the network forks.

The New Economy Movement (NEM) initiative was the first to use the PoI consensus process.

Proof of Storage (PoStorage), Proof of Replication (PoRep) & Proof of Spacetime (PoSpacetime)

Instead of relying on cash staking, Proof of Storage depends on data. Because of the way Proof of Storage works, it is mostly employed in networks where decentralized data storage capabilities are important.

The quantity of data storage that a node has actively given to the network determines the possibility of that node being picked to mine new blocks under Proof of Storage.

As a result, while Proof of Stake uses staked tokens to decide on-chain clout, Proof of Storage creates consensus by proving that each network participant is truly providing the exact data storage services they claim to be – and compensating them accordingly.

Proof of Replication (PoRep) and Proof of Spacetime (PoSpacetime) are two distinct types of Proof of Storage used by Filecoin, a significant blockchain-based data storage provider.

A node can use Proof of Replication to confirm that a specific piece of data has been replicated to its own dedicated physical storage.

The Filecoin network uses Proof of Spacetime to pick miners at random from whom data is read for verifications and compressed into a PoSpacetime proof.

Following that, miners must publicly demonstrate that the given data encoding has remained in physical storage continuously for a certain length of time, hence confirming if it has performed its functions throughout that interval.

As a result, PoRep is used to prove that a miner saved a unique copy of a piece of data at the time it was sealed, whereas PoSpacetime is used to spot-check random nodes and ensure that they are continually dedicating storage space to the same data over time.

Storj is another famous project that uses the Proof of Storage consensus mechanism, in addition to Filecoin.

Blockchain Consensus Is a Process

Decentralized networks can agree on a single source of truth in a variety of ways.

The design of these consensus processes will have different and important ramifications on each network’s security, accessibility, and sustainability as the blockchain sector matures and establishes more industry conventions.

That said, the following isn’t a full list of prominent blockchain consensus mechanisms, and it’s important to remember that blockchain engineers are continuously coming up with new ways to combine the best features of several consensus algorithms to create totally new protocols.

As a result, these hybridized consensus mechanisms may defy standard categorization, and each mechanism has its own set of strengths and drawbacks that must be evaluated in light of the network’s intended application.