Blockchain has become a common technology among not just tech-savvy but even non-tech people in recent years. Decentralization, speed, and scalability are the most important elements of the blockchain. But how will it be able to reach those features? The answer can be found in the Consensus Algorithm Blockchain, which is required for a blockchain to exist. It is the fuel that keeps blockchain ecosystems running and secure. While Bitcoin and Ethereum rely on the Proof-of-Work (PoW) consensus, Solana, a new Ethereum Killer, has adopted a completely different sort of consensus: Proof-of-History (PoH). So, what kinds of consensus models are there? And how do you pick the best one to keep the blockchain running smoothly? Continue reading to discover about numerous algorithms, their pros & cons, and find out which one will be a good fit for your particular case.
1. What Is Consensus Algorithm In Blockchain?
A Consensus Algorithm is a mechanism that allows all Blockchain peers to agree on the true state of the blockchain in real-time. In other words, such a solution assures that all nodes in the blockchain network are in sync and that transactions are authorized and safe. The transaction is accepted and then recorded on the blockchain when the nodes agree on its legality. After that, the block will remain in place indefinitely.
The consensus algorithm not only ensures the security of the entire blockchain but also helps in the establishment of trust between strangers in the decentralized network. This is possible because the algorithm determines which nodes to trust in order to validate and enable transactions. Such aforementioned features also explain why it is an essential component of every Blockchain app development and dApp project in the distributed ledger environment.
2. Some Common Types Of Consensus Algorithms Blockchain
a. Proof of Work (PoW)
The first consensus introduced to the Blockchain was Proof of Work. It is also known as mining, and the nodes that participate in it are referred to as miners. These individuals will compete to solve complex cryptographic puzzles, and the first to do so will be awarded the right to mine the next block. Furthermore, the "winner" receives a newly created cryptocurrency.
The blockchain core network prevents double-spending by verifying each transaction using the Proof-of-Work (PoW) mechanism. After verification, minors finalize and approve transactions. If someone tries to duplicate a transaction, the network will detect it as counterfeiting and it will not be accepted. Once a transaction has been approved, you cannot double spend.
Some blockchains relying on PoW algorithms are Bitcoin, Ethereum, Litecoin, Monero, etc. However, it is also necessary to mention that Ethereum is gradually shifting from PoW to PoS in order to make the blockchain faster, cheaper, and greener.
b. Proof of Stake (PoS)
PoS, as an alternative to the PoW model, necessitates fewer CPU computations for mining. Though this is also an algorithm with the same goal as PoW, the process is quite different. In the same way that a miner is rewarded for solving mathematical problems and creating new blocks in PoW, the creator of a new block in Proof-of-Stake is chosen in a deterministic manner based on its wealth, also known as stake. This means that there is no block reward in the PoS mechanism. As a result, the miners take the transaction fees.
Besides, when compared to PoW, Pos is more environmentally friendly. For instance, previously, Ethereum ran on the PoW model. It consumes 113.01 TWh of electrical energy per year, which is equivalent to the energy usage of the Netherlands. By switching to PoS, its energy consumption will drop by 99.95%.
Some blockchain platforms that use PoS now include Cardano, Polygon, and Tezos - popular platforms in the crypto community. Meanwhile, NBA Top Shot can be mentioned as a notable blockchain project powered by the PoS model. To date, the platform has made $961 million in sales by displaying and selling NFT collectibles featuring famous basketball players.
c. Proof of Authority (PoA)
This consensus algorithm blockchain is better suited for private blockchain networks. Rather than staking coins, validators in the PoA model are staking their own identity and reputation. Since it impacts directly their right and identity, it seems that people will work effectively and adhere to strict rules.
Besides, the algorithm chooses only a small number of nodes to be responsible for validating transactions, constructing blocks, and maintaining the network. Validators do not need to constantly monitor the network because they use special software.
d. Proof of History (PoH)
This is the latest type of consensus, with the only blockchain Solana platform now using. If you wonder “What is the Proof of History?” or “How does Proof of History work?”, here is the answer. PoH is a totally new timekeeping technique to solve the problems related to transaction time of the previous consensus models. When validating transactions, nodes in many decentralized networks must rely on external sources of information to assign a "median" timestamp. However, the PoH algorithm includes an internal clock that displays the same time for all nodes in the network at all times. Thanks to this characteristic, it enables high transaction throughput — up to 65,000 transactions per second while the transaction cost is low — only $0.00025.
3. How To Choose A Suitable Consensus Algorithm For Your Blockchain Development Project
Before choosing a Blockchain Consensus Algorithm, let’s consider the following questions to find out the most appropriate one:
- Are you planning to build a public or private app?
If your final product is intended for a large audience, platforms with PoS, PoW, or PoH can be considered. This is mainly because anyone can participate in block validation using these algorithms since they match the network's standards (e.g. have the necessary hardware or the specific number of coins staked). PoA, on the other hand, maybe more suited to private, enterprise-scale applications.
- Do you want a full or limited decentralized application?
PoW and PoS algorithms offer complete decentralization and high network security. Meanwhile, PoA has limited decentralization because it requires only a small number of nodes to validate transactions and maintain the system. PoH appears to be inferior in this competition, and the degree of decentralization of this consensus is a source of contention in the blockchain community.
- Do you care about sustainability?
In case your business follows the friendly-environmentally solution and wants to contribute to saving the surroundings, Proof-of-Work may not your choice. This consensus model is the most energy-consuming. At that time, other types can be better, such as PoS, PoH, PoA, etc.
- Whether the number of transactions per second your concern?
If the answer is yes, PoH can be the best choice at that time. Proof of history allows Blockchain to process up to 65,000 transactions per second.
- Who will act as block validators?
If these are miners, you should use the PoW algorithm again. If you want your nodes to be regular users who only need to stake coins and do not need to purchase specialized hardware, PoS or PoA are viable options.
4. Final Thoughts
To summarize, there is no blockchain consensus algorithm that can claim to be perfect. Each has its own set of advantages and disadvantages. Therefore, it is critical for your company and organization to carefully consider your project requirements to find the best solution.
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