Wondering What Seals Your Crypto Transactions? Let’s Talk About Consensus

People were using shared databases to access logged data when networks and workstations took off, starting with the 1980s. Companies like Novel broke new ground with what was about to revolutionize the whole world, setting the basis for what we’re about to dig up. Most of these systems used a centralized database that granted intended users permission to access the stored information from different computers. From here on out, this arrangement transformed into centralized networks that relied on administrators to safeguard the data’s integrity and grant the appropriate rights to database users. 

Some of these communal records evolved into programs that disseminated processing power and storage across more devices. The widespread accessibility to these databases came with a complex challenge – that of maintaining data’s integrity and keeping it at bay from malicious actors. This is how the program that makes it possible to invest in digital currencies was created, bearing the inclusive denomination of cryptography or cryptographic techniques. Without this development, the $2.8TN-worth industry of cryptocurrencies that made millions of investors rich wouldn’t exist. You couldn’t invest in Bitcoin, pay for your flight with Ethereum, or even check the XRP price prediction to strategize your next investment plan. 

Curious about the final step in crypto transactions—the consensus mechanism? Here’s the scoop.

The Starting Point

The blueprint for consensus mechanisms is the autonomous consensus that uses cryptographic solutions to allow programs on said networks to settle databases’ states. An agreement would need encryption techniques to exist, entailing hash – lengthy strings of alphanumeric characters, in plain English. The program was created to compare these numbers to ensure they matched and could only be altered if the data logged into the hashing algorithm suffered modifications too. 

All programs on the network developed matchy hashes, and the network’s consensus agreed upon the information introduced. This is how the ubiquitous consensus mechanism appeared and made Bitcoin possible. The credits for this development are usually, and unfairly, given to Bitcoin’s creator, Satoshi Nakamoto. But as expected, a single developer or a team of developers couldn’t develop such a technological masterpiece overnight. More individuals worked hard at creating the consensus mechanism years before the moment Bitcoin broke into the market in 2009.

With history behind us, let’s explore the most popular consensus mechanisms out there.

1. PoW

Proof of Work (PoW) is known as the problematic consensus mechanism as it needs enormous amounts of energy to wrap up a crypto transaction. It’s a prevalent mechanism that fuels some of the most common crypto networks, such as Litecoin and Bitcoin. It needs guarantees from the participant node of the originality and validity of the work performed and the output submitted while an extensive program network checks the state. It’s mainly its high energy appetite that makes it a no-go for many devs, as well as the long time spent on transactions’ processing. 

2. PoS

The Proof of Stake (PoS) model brightens the path darkened by the PoW. It’s the consensus mechanism made famous by Ethereum, the blockchain that rings in people’s ears for being the fundament and face of smart contracts and decentralized apps (dApps). It was created as a cheaper variant of the PoW and managed to slash the energy consumption need by over 99%. The system basically needs validators who are used randomly in order to build new blocks and confirm transactions. In short, the PoS is a consensus mechanism that needs distributed crypto validator programs to validate transactions collectively. And in contrast, PoW relies on a competitive validation technique to attach fresh blogs and validate transactions.

3. PoDS

PoDS, short for Proof of Delegated State, is a particular model of blockchain consensus protocol that uses and rewards validators through individuals known as delegators. That is, it doesn’t need to spend possessed money for incentives. These delegators have the right to share the recompenses received from the validator. Moreover, there’s a unique election model that’s carried out to pick delegates who work as validators. It’s only the validators who possess the innate governance token who have the right to vote. Among the main PoDS-based blockchains out there, EOS and Tron are the most popular.

4. PoH

Proof of History is a special type of consensus mechanism created by Solana – aka the Ethereum “killer”. This system entails time-stamping blocks through a solution known as the Verifiable Delay Function. It logs the time at which a block is validated, as well as the blocks’ ordering. The function is created to prevent exterior attacks and works as a computation-intensive function. It can’t work on its own, so other ledger consensuses are needed to confirm individual crypto transactions. In Solana’s case, it’s the Proof of History that approves transfers. Solana’s PoW also works at a supposed transaction speed of 100.000tps. When it comes to unique feats, it’s worth noting that this consensus is popular for its resistance against Replay Attacks and its double protective layer. 

5. PoET

The Proof of Elapsed Time consensus mechanism entails that all validators create a random waiting time through a function before assigning blocks. After that, they introduce transactions to the block and wait for the following validator to take over the subsequent block’s development. It originated in 2016 in an affiliation with Linux Project, IBM, and Hyperledger. The project’s main goal is to slash the energy needed in PoW systems like Bitcoin and Litecoin.

6. PoC

Validators use hard drive space to store solutions in this model when a computer has extra space, improving their probability of validating transactions. There are a few Proof of Capacity (PoC) consensus mechanisms, such as Chia, Signum, and Spacemint. But there’s also a downside, namely its vulnerability to hackers who can receive a virtual workstation on the cloud and leverage unlimited storage, consequently mining crypto legally.

Bottom Line

More types of consensus mechanisms exist, including PoCo, PoB, PoDA, and PoA. Each excels in its own area. Proof of Work is energy-intensive but it’s the best choice for safety. If you want a lean mechanism, Ethereum’s PoS might be the best fit. And if you prioritize centralization, you may want to look into PoA. Variety exists – it’s only you who needs to do good market research.