Blockchain Consensus Mechanisms: How Transactions Are Approved

‍The benefits of using blockchain consensus mechanisms

By using a consensus mechanism, blockchain networks are able to avoid the need for a central authority to approve transactions. This decentralization of power makes blockchain networks more secure and less susceptible to fraud or manipulation. Additionally, consensus mechanisms can help to improve the speed and efficiency of transaction approval processes.

Consensus Mechanism Types

Proof-of-Work (PoW)

The most common type of consensus mechanism is proof-of-work (PoW). PoW is used by many popular cryptocurrencies, such as Bitcoin. In a PoW system, miners compete to solve complex mathematical problems. The first miner to resolve the problem gets to add the next block of transactions to the blockchain. The advantage of PoW is that it is very secure. The disadvantage of PoW is that it is energy-intensive and can be slow.

Proof-of-Stake (PoS)

Another type of consensus mechanism is proof-of-stake (PoS). PoS is used by some newer cryptocurrencies, such as Ethereum and Cardano. In a PoS system, participants stake their coins in order to validate transactions. The more coins you stake, the more probable you are to be chosen to validate a block of transactions. The advantage of PoS is that it is much more energy-efficient than PoW. The disadvantage of PoS is that it can be vulnerable to attacks from whales (large holders of the currency).

Delegated Proof-of-Stake (DPoS)

Delegated proof-of-stake (DPoS) is another type of consensus mechanism. DPoS is used by some popular cryptocurrencies, such as Steem and BitShares. In a DPoS system, participants elect delegates to validate blocks of transactions. The advantage of DPoS is that it is very fast and scalable. The disadvantage of DPoS is that it can be vulnerable to centralization.

Leased-Proof-of-Stake (LPoS)

Leased-Proof-of-stake (LPoS) is another type of consensus mechanism. LPoS is used by some popular cryptocurrencies, such as Qtum and Ark. In an LPoS system, participants can lease their coins to validators. The advantage of LPoS is that it is very energy-efficient. The disadvantage of LPoS is that it can be vulnerable to pool hoarding.

Byzantine Fault Tolerance (BFT)

Byzantine Fault Tolerance (BFT) is another type of consensus mechanism. BFT is used by some popular cryptocurrencies, such as Ripple and Stellar. In a BFT system, participants reach a consensus through voting. The advantage of BFT is that it is very fast. The disadvantage of BFT is that it can be vulnerable to forks.

Practical Byzantine Fault Tolerance (PBFT)

Practical Byzantine Fault Tolerance (PBFT) is another type of consensus mechanism. PBFT is used by some popular cryptocurrencies, such as Hyperledger Fabric and Corda. In a PBFT system, participants reach a consensus through voting. The advantage of PBFT is that it is very scalable. The disadvantage of PBFT is that it can be vulnerable to forks.

Proof-of-Importance (Pol)

Proof-of-importance (PoI) is used by some newer cryptocurrencies, such as NEM and EOS. In a PoI system, participants are chosen to validate transactions based on their importance to the network. The advantage of PoI is that it is designed to be more egalitarian than other consensus mechanisms. The disadvantage of PoI is that it is still relatively new and untested.

‍Proof-of-Capacity (PoC)

Proof-of-capacity (PoC) is used by some newer cryptocurrencies, such as Burst and Filecoin. In a PoC system, participants use their storage space to validate transactions. The advantage of PoC is that it is very energy-efficient. The disadvantage of PoC is that it can be vulnerable to pool hoarding.

Proof-of-Activity (PoA)

Proof-of-activity (PoA) is used by some newer cryptocurrencies, such as Decred and Ethereum Classic. In a PoA system, participants are chosen to validate transactions based on their activity on the network. The advantage of PoA is that it is designed to be more egalitarian than other consensus mechanisms. The disadvantage of PoA is that it can be vulnerable to centralization.

Proof-of-Burn (PoB)

Proof-of-burn (PoB) is used by some newer cryptocurrencies, such as Slimcoin and Counterparty. In a PoB system, participants destroy their coins in order to validate transactions. The advantage of PoB is that it is very energy-efficient. The disadvantage of PoB is that it can be vulnerable to 51% attacks.

Proof-of-Weight (PoWeight)

Proof-of-weight (PoWeight) is used by some newer cryptocurrencies, such as IOTA and Nano. In a PoWeight system, participants use their "weight" on the network to validate transactions. The advantage of PoWeight is that it is very energy-efficient. The disadvantage of PoWeight is that it can be vulnerable to centralization.

Conclusion

Blockchain consensus mechanisms are a vital part of how transactions are approved on a blockchain. There are many different types of systems, each with its own advantages and disadvantages. Each business must choose which system is best for its needs.