Blockchains have some crucial components that make up significant differences between different blockchain platforms. These components such as block sizes, consensus mechanisms, and validators give unique properties to their respective blockchains, and each come with their strengths and weaknesses. Three of the leading blockchain platforms, Bitcoin, Ethereum, and Neo, all use different consensus mechanisms for achieving a shared ledger. Let’s explore the basics of these protocols and look at which one you should use.
What is a Consensus Algorithm?
A consensus mechanism or algorithm is one of the key aspects of a blockchain as it helps achieve a universal shared ledger in real time. Public blockchains are shared ledgers that exist on millions of devices across the world and are updated in real time. Due to the decentralized nature of a blockchain, no centralized authority verifies and updates the ledger with new transactions. Therefore, the managers of the network, the miners, have to decide among themselves as to which transactions are to be added to the blockchain. Miners also have to make sure that every other miner and user also agrees to add the transactions in the same order as them to have a single shared ledger. This gives rise to the problem of achieving consensus in a decentralized network.
A consensus mechanism is a protocol that is followed by all the network participants in a decentralized network so that they can all reach a shared ledger state in a fair manner. For instance, the most commonly used consensus mechanism, Proof of Work, helps Bitcoin miners agree upon a single ledger by employing the computing power of the miners. Proof of work operates with the rule of one CPU equals one vote for administrative changes in the Bitcoin protocol. The next section consists of a summary of the main consensus mechanisms employed by the various blockchain platforms.
Picking the Best Consensus Algorithm
As discussed above, the best algorithm for achieving consensus depends on some factors such as the use case for a particular blockchain. In this section, we summarize the most popular consensus mechanisms and their strengths and weaknesses.
Proof of Work – Undoubtedly the most popular consensus mechanism that is employed by blockchains such as Bitcoin, Ethereum and Monero for its simplicity and resistance to a wide variety of cyber attacks. Proof of work relies on the computational power of the miners to solve complex cryptographical problems to solve the blocks containing transactional data. Due to its simplistic design, it is easy to employ and provide a high degree of security as any successful attack on the network would require greater than 50% of the hash rate of the network. Its greatest drawback remains that of wasteful computation that causes a lot of electricity use throughout the world. By some estimations, Bitcoin uses upwards of 32 TWh electricity annually, which is about as much electricity as the entire country of Denmark uses in a year. When the blockchain gets congested, as it did in November 2017, an average Bitcoin transaction can utilize as much as 250 kWh, which is enough electricity to power an average home for about ten days.
Casper or Proof of Stake – Proof of Stake is a much greener alternative to the power-hungry Proof of Work model that Ethereum is betting big on. Proof of Stake relies on a probabilistic model for selecting validators where the probability of a validator getting a block to solve is directly proportional to the amount of Ether they have staked to secure the network. The staked Ether is held as collateral which can be seized if any wrongdoing was seen on the part of the validator. The underlying math puzzle is similar to that employed in Proof of Work. However, the complexity of the problem is significantly reduced. The Ethereum platform is actively working on switching from its current Proof of Work model to a hybrid Proof of Stake model which is called Casper.
Delegated Byzantine Fault Tolerance – dBFT is a more niche protocol employed by Neo that offers unmatched security against a chain split. dBFT has evolved from a solution of an old mathematical problem referred to as the Byzantine Generals Problem (BGP). In the problems, the Generals have to attack a city in a coordinated way such that their assault is successful. To succeed, they must agree on a time of coordinated attack or retreat. However, some of the other Generals may be traitorous, so they have to plan for such a rebellion. It’s the same problem encountered when trying to achieve consensus in a distributed ledger. Such a consensus mechanism is very useful for applications where chain cohesion is of the utmost importance such as in a digital asset management platform which Neo is building.