Consensus Models in Cryptocurrency: Navigating the Agreement Maze

Introduction:

Embarking on the legislative journey in Nigeria involves proposing and voting on laws in the national assembly. New laws are proposed all the time, and the process might be easy or tasking depending on so many factors. However, the next step is to have that law voted on. If the law gets enough votes, the proposed law becomes legal, and now we can say everyone has agreed that the law is the law. Everyone agreeing to this law is what makes it a law. In the cryptocurrency world, achieving unanimity is no less crucial, yet more challenging. Welcome to Xclusive Tech, the number one blogging website for tech education and trends. Here we explain topics of the Tech world using analogies, stories, and examples so you can easily understand them. In this article, we're going to explain what a consensus model is, along with a ton of different types of them. If we break down the phrase consensus model, we get consensus and model. The consensus part means to have a bunch of people agree, and the model part is a routine procedure to get there.

What is Consensus Mechanisms or Models?

Consensus models are the procedural frameworks ensuring collective agreement within the cryptocurrency space. Comparable to legislative processes, they determine what everyone agrees upon in the blockchain realm. The term "Consensus Model" essentially implies the agreed-upon procedure to reach unanimous decisions, particularly in defining the state of a blockchain, encompassing transactions, data, and even smart contracts.

So a consensus Consensus Model is just a fancy way of saying, this is the procedure we are going to use to make sure everyone agrees on something. In the case of cryptocurrencies, what are they agreeing on? Technically, they are agreeing on the blockchain, more specifically, the state of that blockchain. Including individual transactions and even on more advanced blockchains, other stuff like data and smart contracts. Since blockchains are relatively new, there are only two major consensus models that have actually been tested at scale to be successful, including research and investments into them.

Major Consensus Models:

1. Proof of Work (PoW):

Originating with Bitcoin, PoW employs computational work to validate transactions. Miners compete to solve complex puzzles, with rewards granted for successful validations. Its resilience against attacks due to its vast network computing power has proven its efficacy. Bitcoin came up with this idea to use a computer to prove that they put in a whole bunch of work and that since they put in the work, you can reasonably be assured that the transactions that they were working on are valid. click here to read an entire article on Proof of Work (PoW) that explains the technicalities of how it works, including explaining the blockchain puzzle that they're actually solving. But the idea is that you are putting in work. The the more work you put in, you increase your chances of winning a block reward, which the block reward is actually the reward that the blockchain gives you for mining. Now, there are two keys here. Number one, if you want to participate, you can join the network with any computer. But the more computers you you have, or the more powerful computers you have, the more likely you are to win blocks. Number two, if you want to attack the blockchain and give yourself free tokens, you would need 51% of all the computing power. Since networks like Bitcoin and Ethereum are huge, this means literally billions, if not trillions of dollars just to take over the network. This is why proof of work actually works so well and has stood the test of time. It's really hard for someone to have 51% of the network computing power.

2. Proof of Stake (PoS):

So Proof of Stake (PoS) is a little different than proof of work, but it's a fairly similar concept. We commonly use the example of a race on this series to differentiate proof of work and proof of stake. In proof of work, you set up a race. You have a bunch of people line up, and when the race starts, everyone Everyone starts running towards the finish line. Whoever wins that race wins the entire reward, and everyone else, basically, they ran for nothing. But why would they run? Well, proof of work is a luck game, so there's a very small chance that even the smallest players could win. And if they win, they win big. With proof of stake, instead of having everyone race, we actually only pick one runner. This way, we aren't wasting a bunch of electricity on people mining who don't end up winning. We just spend a little bit of electricity to validate the blockchain. But what about the stake part, though? Well, to actually become a runner, you have to put up what is called a stake, which is a predetermined amount of coins that you have to actually lock up. And by locking them up, you are allowing the network to select you. Now, you might be wondering, why do you need to lock them up? Well, if you do something bad, say that everyone gave you a bunch of their tokens when they really didn't, then other people can check your work and prove that you were wrong. And when they prove that you were wrong, your locked up tokens will be taken away. So people are incentivized not to lie and to make sure that the blockchain stays trustworthy and valid. These two consensus methods are the most common, and we briefly went over them for the sake of the summary. But if you want to learn more specifically about how they work, like what is the proof of work math, or how do you pick the proof of stake validator. You can check out our specific article on them. click here to read more on Proof of Stake (PoS)

3. Delegated Proof of Stake (DPoS):

Similar to PoS, DPoS adds a delegation element, allowing participants to vote for validators. This enhances democracy on the blockchain, providing an alternative for those without the resources to set up validator nodes. Now, I didn't explain it earlier, but if you want to be a proof of stake miner, which is actually called a validator, you need a good computer with a reliable internet connection. If you don't have access to these, you can instead lock up your coins and vote on someone else who does if the consensus mechanism is delegated proof of stake. This way, you can still earn staking rewards without having to set up a validator node, other words, a computer. The process of this was to allow easy democracy on the blockchain. This is so delegators can trust that someone else will vote on their behalf. In most cases, a total number of true validators is under 100 and usually run by trustable sources like Binance or a big blockchain organization.

4. Proof of Space and Time:

This mechanism utilizes digital storage space as a requirement to participate. The network periodically checks stored information's presence, and this concept finds application in blockchain projects like Chia and Filecoin. So proof of space and time, also sometimes called proof of capacity, is a consensus mechanism that uses digital storage space as a requirement to participate in the network. In short, these models set up a way to put information onto a hard drive, and then in the In the future, the network will randomly check to make sure that information is still there. It stores completely useless data on the storage devices, but it does work. Now, an alternative to storing useless data is actually storing useful data. Filecoin, along with a few others like Seacoin and the Bittorrent coin, actually store useful data, where people pay using that coin to store their encrypted information across the network around the world. People who store the encrypted data are then paid in the native coin for storing it. Now, of course, you can put redundancies in and add encryption to turn this proof of capacity into a very valuable blockchain tool.

5. Proof of Weight:

Algorand employs this model, using various weight values (e.g., coins, reputation) to determine the likelihood of being selected as a validator. It broadens the possibilities compared to traditional PoS. Thinking back to the proof of stake method, the more that you stake, the more likely you are to be selected and then win the next block. Well, in proof of weight, some other weight value is used. It could be how many coins a user has in their wallets. It could be how long they've had them. It could be how much data they're storing. It could be a unique value like reputation. The possibilities are endless. in fact, some people say proof of weight is a category that other consensus models are categorized under. They just pick a random thing and then use that to create a new consensus mechanism.

6. Proof of Authority:

A modified form of PoS, this model selects trusted nodes, usually non-anonymous, for validation. While more centralized, it ensures quicker transaction processing, addressing scalability concerns. Instead of allowing anyone to become a validator, we only select a few nodes that we trust. These nodes aren't usually anonymous, meaning we usually know who they are. This method is more centralized, but it can process transactions much quicker, which brings up the idea of the scalability trilemma problem.

6. Proof of Authority:

7. Practical Byzantine Fault Tolerance (PBFT):

We also have practical byzantine fault tolerance, which actually sounds like mumbo jumbo, but is the next consensus model. So we're getting into less well-known models, and also ones that use crazy math or economic terms. Employed by Pi Network, Hyperledger, and Xilica, PBFT combines existing and new data to decide on blockchain additions. While fast and efficient, it demands a higher level of trust among fewer nodes. Nodes on the network combine both the data they already have with new transaction data to make a decision on whether or not to add it to the blockchain. They then share their decision and listen to other nodes on the network and then come up with a final decision on whether to add it or not. Now, the benefits of this is they are super fast and they have the ability to process lots of data. Although there is more trust required for each node because there's simply less nodes, which is a factor of centralization.

8. Unique Node List:

Utilized by Ripple (XRP), this model involves creating a list of trusted nodes to sign valid transactions. While seemingly centralized, it streamlines the verification process. Basically, what you do is you make a list of a bunch of nodes that you probably trust, and then you start feeding them transactions and asking them to sign valid ones. They don't actually have to do any work or they don't have to stake anything. They just look at it and sign it if it seems good. Well, if you get a transaction that doesn't get very many signatures, you can probably assume that it's pretty much fraudulent and then throw out. Ripple or XRP actually uses the Unique Node list.

9. Direct Acyclic Graph (DAG):

Employed by Iota, Nano actually uses it as well. They actually call it different words like the tangle or a block lattice. First off, don't be afraid of these crazy words. We are here to save the day. In fact, DAG isn't even for blockchains. DAG provides an alternative consensus mechanism without using a traditional blockchain. It structures data in a web-like network, emphasizing complexity and uniqueness. It's often talked about in consensus models, though. Think of a DAG like a database that connects different pieces of information together. It's more like a web than a chain. They are made up of vertices and edges and are quite complicated, but you just know the acyclic part of it means that the vertices never loop back to themselves. Now, this is a bunch of words, and we're trying to say that DAG is quite complicated. It's not used very often, but it does work.

Conclusion:

Navigating the diverse world of consensus models is essential for understanding the inner workings of cryptocurrency systems. From PoW and PoS to innovative approaches like DAG, each model brings unique attributes to the table. Stay tuned for more insightful tech education on Xclusive Tech, guiding you through the intricate landscapes of blockchain and cryptocurrencies. If you found this breakdown helpful, hit the like button and share your thoughts below. Explore further with our dedicated articles on each consensus model for a deeper dive into their functionalities. Happy learning!