Consensus protocols are the core mechanisms that allow decentralized blockchain networks to function securely without a central authority. These rules determine how transactions are verified, recorded on the ledger, and ordered chronologically.
There are a variety of consensus models used across major cryptocurrencies and platforms. Understanding these protocols provides important insight into the performance, use cases, and trade-offs of different blockchain-based systems. This guide will explore some of the most significant consensus protocols in the world of crypto.
The proof-of-work (PoW) consensus model was pioneered by Bitcoin and remains the most widely recognized. PoW requires miners to use specialized hardware to solve complex computational math problems in order to add new blocks to the chain. Solving these problems and validating transactions requires major computing power.
PoW is very secure but incredibly energy-intensive. However, PoW systems like Bitcoin have stood the test of time over years of operation. Variations like Kadena’s Chainweb use parallel chains with PoW for improved throughput. Major PoW cryptocurrencies include Bitcoin, Litecoin, Monero, and Dogecoin.
Proof-of-stake (PoS) has emerged as an alternative consensus model that is far more energy-efficient. Rather than mining, PoS systems enable token holders to validate transactions and add blocks based on the stake they hold. The more coins held in a wallet, the greater chance of being selected to validate blocks.
Ethereum has transitioned to PoS with the Beacon Chain and ETH 2.0 upgrade. PoS chains include Cardano, Tezos, Polkadot, and Solana. Critics argue PoS is less decentralized and secure, but advocates highlight its scalability and efficiency. Hybrid models like proof-of-history also exist.
PBFT and DPoS
Practical Byzantine Fault Tolerance (PBFT) and Delegated Proof-of-Stake (DPoS) are two similar consensus models common for private, permissioned blockchains. Both involve a voting mechanism by a predetermined set of node operators.
In PBFT, transactions are verified once two-thirds of nodes reach consensus. Hyperledger Fabric uses PBFT for enterprise networks. DPoS also relies on trusted nodes but allows token holders to vote on delegates. EOS and NEO leverage variations of DPoS. These models offer high throughput for internal business networks.
Proof-of-Authority (PoA) is an alternative that relies on approved, trusted validators known as «authorities» to verify transactions and add blocks. Unlike decentralized models like PoW, PoA requires entities to obtain permission for validating status on the network based on identity verification.
PoA proponents argue this centralized approach ensures low transaction fees, faster throughput, and protection against 51% attacks. Major PoA cryptocurrencies include VeChain and Cartesi. PoA critics suggest it is not truly decentralized.
Federated consensus bridges the gap between open, permissionless systems and closed, permissioned ones. Also known as consortium blockchain, it involves a group of pre-selected nodes that must achieve a majority consensus to validate transactions.
Ripple uses a federated consensus algorithm. Hashed Timelock Contracts are also associated with federated consensus. The decentralized model retains aspects of centralization. Stellar uses a variation of federated consensus as well.
There is no definitive «best» consensus mechanism, as each protocol carries unique trade-offs between security, efficiency, decentralization, and other factors. New models continue to emerge, including hybrids that combine aspects of multiple major protocols.
Understanding consensus algorithms provides insight into blockchain trilemmas. Most developers aim to find the optimal balance between scalability, security, and decentralization for their platform’s intended use case. The evolution of consensus mechanisms will shape the trajectory of cryptocurrencies and blockchains for years to come.