BLockchain technology is a distributed system, which allows the creation of a digital ledger in an orderly manner over time, based on the consensus of several actors, they are the nodes that make up the network.
This consensus is achieved from a very sophisticated codification (encryption), which gives security to the network, recording the transactions of the system with immutability over time.
Each new transaction is included in a block, up to a certain capacity limit, and then the block is added to the chain, following the previous block, thus building the chain in an orderly fashion over time, as they are forged.
If you want to know more about blockchain features, I leave you an article at the end.
In this article I will tell you about the blockchain consensus mechanisms, which are codified protocols, as base software for the operation, something like the Operating System of the blockchain.
There is a lot of variety of protocols, and each one provides different levels of security, scalability and decentralization. In turn, each type of consensus has variants that each blockchain project implements.
To make the sustainable network there is an economic incentive, for which consensus participants receive cryptocurrencies from the blockchain as a reward.
I will mention the most commonly used consensus mechanisms, with their main advantages and disadvantages.
Proof of Work (PoW)
Proof of Work was the first blockchain consensus mechanism, used in Bitcoin by its creator Satoshi Nakamoto, starting activities in 2009.
PoW is based on competition between computers to solve a mathematical algorithm. Each node in the network, called miners, tries to find the solution in order to forge a new block.
Among the best known blockchains, Ergo and Ethereum Classic also employ PoW.
Advantage : it requires high computing power to attack PoW to control 51% of the hash power and take over the network.
Disadvantage : it requires high power consumption and special hardware to solve the test.
Proof of Stake
Proof of Stake (PoS) is a newer consensus mechanism, launched in 2012 by Peercoin, through which cryptocurrency holders can participate in the consensus, as validator nodes, or as holders who delegate their funds to those validators to empower them in the consensus.
Cardano, Ethereum, and Tezos are the most popular PoS blockchains.
Advantages: validators do not need specialized or expensive equipment efficient to set up nodes, and the network is energy efficient.
Disadvantages: in some blockchains there may be a tendency to concentration of funds and thus greater power of some actors in the consensus, which can be mitigated with a good incentive design (game theory) such as Cardano, which has a reduction in rewards from a certain amount of excessive delegation. In some PoS consensus mechanisms validators and delegators must lock their assets to operate (pledge), but this does not apply in Cardano.
Delegated Proof of Stake
Delegated Proof of Stake (DPoS) is a modified PoS consensus mechanism, which implements a voting system with two actors: delegates and voters. Voters contribute their assets and elect delegates to validate transactions in the network. A delegate’s ability to remain a validator depends on his or her reputation. Delegates who make mistakes or show bad intentions can be replaced.
Wax and EOS are DPoS blockchains. We can also consider Algorand as a variant of DPoS, with its PPoS (Pure Proof of Stake) mechanism.
Advantages: Transactions are fast in a DPOS network due to the limited number of validators, allowing faster consensus, while maintaining a good level of security through voting. Any delegate behaving suspiciously can be reported instantly. It is also a very energy efficient network.
Disadvantage: a 51% attack may be possible with delegate collusion, as fewer validators result in greater centralization of these networks.
Proof of Authority
Proof of Authority (PoA) is a consensus model that may be better suited to private networks. Instead of rethinking the digital assets of the chain, a committee is entrusted to perform the validation.
The PoA consensus mechanism determines a fixed set of nodes to perform the maintenance of the chain, which gain the exclusive right to validate transactions.
Vechain and private networks, such as JP Morgan’s coin systems, use this mechanism.
Advantages: this model is energy efficient and does not require expensive hardware or high computational power, and is quite fast given the low friction in the validation competition.
Disadvantages: decentralization is one of the weakest points. Becoming a validator requires a lot of capital, making it difficult for most people to participate in the process.
Proof of Capacity
Proof of Capacity (PoC), also known as Proof of Space, requires miners to have disk space available to obtain entitlements and be able to validate transactions. Similar to PoW, but instead of computational power, the rights to produce a new block are allocated proportionally to the space each miner dedicates to the system.
The best known blockchains are Chia, Signum , Spacemint and Storj.
Advantage: blockchain mining does not require high power consumption and no sophisticated equipment, as any standard hard disk is compatible.
Disadvantages: demand for higher storage capacity to increase a miner’s chances of validating a block.