As we have come to know that the key to the blockchain operation is the maintenance of the consensus of the information or data recorded on the blockchain within the network. It also influences the financial variables and security of the operation. There are many types of consensus algorithms. In this article, we are going to look only at the most popular ones only. So, let’s get to the point.
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(1) Proof of Work(PoW)
Proof of Work is the most admired consensus algorithm. It has been used by Bitcoin, Litecoin, and Ethereum frameworks. Satoshi Nakamoto invented this and he used it in his Bitcoin execution. However, it requires a considerable amount of computational power and hence it is also the most ineffectual way to achieve consensus in a blockchain.
Its working is described here: It works by asking miners to solve complicated mathematical problems. Once the hash is resolved, the block is mined and the transaction is validated at the same time.
After solving, blocks are generated are later added to the blockchain. 50% of the work always has to be honest for this to work.
(2) Proof of Stake(PoS)
Proof of Stake is the following famous consensus algorithm out there. The plus point about PoS is that it is not computational power-hungry. It is implemented by Peercoin, Decreed, and soon Ethereum. It runs by staking coins in a wallet. When a consensus needs to be achieved, the nodes that have staked their coins will have their say.
Well, the tokens themselves act as a spending resource. A staking node can lose its stake if in case it fails to vote for the correct transaction. There are even chances that it will hold better chances to stake when the next transaction takes place and if it triumphs. However, it has bad sides too. It is “Nothing at Stake.” It works by validating both sides of a fork.
(3) Delegated Proof of Stake(DPoS)
Delegated Proof of Stake may look like PoS but its approach is definitely different. First of all, DPoS is not entirely decentralized. In this system, the stakers choose delegates but don’t validate the blocks. Every transaction is been validated by delegates. It is used by EOS, Steemit, and others.
Generally, to verify the transactions, in any decentralized system, we need 20-21 delegates. This makes DPoS exceptionally efficient.
(4) Proof-of-Authority(PoA) Consensus Algorithm
Proof-of-Authority is used for an entirely centralized system. It is primarily used in private networks due to its centralized nature. This means that sanctioned accounts (chosen by the system administrators) have the authority to do the validations across the network.
In the upcoming articles, we will see each type in detail.