Consensus Algorithms: Concept, Properties and Types

“The interesting thing about blockchain is that it has made it possible for humanity to reach a consensus about a piece of data without having any authority to dictate it.” 

- Jaan Tallinn

 

 

Concept of Consensus Algorithms

 

In computer science, Consensus algorithms play a very important role. It is used to reach agreements between single data values. This concept is used only when there are distributed processes or networks. Normally this term is used with reference to Blockchain or Bitcoin.

 

The main idea behind Consensus Algorithms is that in blockchain there are distributed networks and it is not possible for each system node to be active when there is a consensus. Also, during transmission a lot of valuable information can be lost.

 

With the help of consensus algorithms we can solve this issue. Any issue that a distributed network undergoes can be easily solved through it. The basic advantage that blockchain offers is integrity and transparency. 

 

Through consensus algorithms we can reach consensus by using minimal resources and simultaneously maintaining the integrity and transparency. It is important that systems are fault tolerant. 

 

In order to reach consensus, only 51% of resources need to reply at a time. Let us take an example to understand it better. Suppose a person has to send 0.3 BTC to another wallet from his wallet. 

 

Now what the miner will do is that he will mine the block so the transaction goes through. After sometime the transactions will be validated when system validations are checked. When we talk about BTC only 6 validations are needed for consensus.

 

If we define Consensus Algorithm as a simple layman term then - It is a simple mechanism that helps the machines to coordinate where there are distributed networks. It helps to reach a consensus among different nodes, i.e. all agents agree on a single source even when some agents fail. It makes the system fault tolerant.

 

In a normal centralized network system there is absolutely no complexity in reaching consensus because there is simple governance and power relies on a single entity. 

 

Whereas in a distributed network it is difficult to reach consensus because there are so many strangers that do not trust each other. So, how will you reach a consensus on which entries should be added in a distributed ledger?

 

Also Read | Types of Blockchain Networks 

 

 

Applications of Consensus Algorithm

 

We use Consensus Algorithms for decentralized systems but we can use them for centralized networks as well. There are multiple applications of this mechanism like:

 

1. Whether a transaction needs to be implemented or not in a decentralized network. In most blockchain this basic application of Consensus Algorithm is applied.

 

2. It is useful in giving nodes a leader status.

 

3. It is used to synchronize data across all the decentralized networks to ensure consistency.

 

Over the time there have been many applications of Consensus Algorithms like in the fields of - state machine replication, load balancing, UAV control, clock synchronization etc. But one of the most popular applications of this algorithm has been in the field of “ Blockchain”.

 

In Blockchain also there are multiple applications, thus consensus algorithms are designed based on the needs and demands of it.

 

Also Read | Blockchain Technology in Secured Payments

 

 

Properties of Consensus Algorithm

 

There are multiple consensus algorithms designed as per the requirements of different applications. Yet there are some common properties that it must have. Some of them are:

 

1. Termination

 

The whole process of getting a consensus must come to an end. Every node or agent should decide on a single value.

 

2. Cooperative

 

Every user involved in consensus must work together and put all their individual interests aside. Working as a team is important to achieve consensus.

 

3. Agreement Seeking

 

As the name suggests, each consensus algorithm should be designed to bring maximum agreements from the networks as possible.

 

4. Collaborative

 

The efforts put in by individuals should be collaborative such that results are in unison for the group welfare. It must bring out the best interests of the group.

 

5. Egalitarian

 

Consensus Algorithms should be egalitarian in nature. Here egalitarian means that every vote should have equal value. No vote should have more value or less value than the other vote.

 

6. Inclusive

 

To bring the best results, consensus algorithms should be designed to bring as many entities together as possible. Every entity must feel that their vote holds value in consensus. It should be like a regular consensus wherein some people do not vote because they feel less valued than the others.

 

7. Integrity

 

If a certain value is denoted to correct the processes through consensus then the same value should be actually used to correct the process. In short, it is important to value the results of consensus and apply it. Maintaining integrity is the utmost priority.

 

8. Participatory

Every user should participate in the Consensus actively.

 

Consensus Algorithms are protocols that are needed to make sure that each entity in a decentralized network reaches an agreement. We know that in a centralized system one entity dominates and consensus algorithms are not very much needed. 
 

Opting for a single source of truth is important even if some entities go against it. Achieving a consensus is important to ensure that the network is reliable and unreliable nodes are identified. 
 

The basic idea of voting is to select what the majority wants and neglect the minority. But the way these consensus algorithms are designed, they ensure that whatever agreement is made will benefit the whole community/group.

 

Also Read | Public vs Private Blockchain Network

 

Types of Consensus Algorithms

 

“Ultimately a genuine leader is not a searcher for consensus but a molder of consensus.”

- Lloyd Banks

 

There are 6 different types of Consensus Algorithms that are given below.

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Types of Consensus Algorithm

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1. Proof of Work

 

PoW is a consensus algorithm protocol used in blockchain as well as many cryptocurrencies. For example- Litecoin, Ethereum, bitcoin cash, Zcash and others. This mechanism is one of the oldest ones that was implemented in cryptocurrency. It has sorted many issues like security, reliability etc. 

 

It also helps to reach an agreement faster than the other mechanisms. It also helps to deter spammers as they will not be able to do the heavy computational work to send unsolicited mails. 

 

It is prone to certain disadvantages as well. Electricity consumption is a bit heavy because lots of complex computational work is required. And we know that having uniform electricity throughout is not possible therefore it becomes a major disadvantage of this mechanism. 

 

From this con we can also conclude that PoW has gone more towards a centralized approach because of electricity and mining work. Apart from it, the networks that are smaller in size or distribution cannot implement PoW because of lack of security. 

 

Hackers can easily breach the network and get hold of all the important information. A concept of 51% attack is also very common in PoW. In this the hacker/attacker starts making his private blockchain branch and it gets bigger overtime.

 

If it gets bigger then these attackers will get the chance to mine. Currencies like monacoin and bitcoin gold have been attacked by 51%.

 

 

2. Practical Byzantine Fault Tolerance

 

This mechanism was proposed in 1999 by Miguel Castro. In this all the nodes are arranged in a systematic order such that one node becomes the primary one and the rest are backup nodes.

 

All nodes then communicate with each other and reach an agreement with unity as a source of truth. In this consensus algorithm there are 4 phases. The best part of using this mechanism is that once the decision is made and a block is selected it is final and followed with full integrity.

 

It is more efficient as there are no complex calculations involved. Apart from it there is low reward variance. It has certain cons as well like- to communicate with every node a secure system is needed and when the number of nodes increase, communication becomes tough and lag might occur.

 

 

3. Proof of Stake

 

This mechanism is one of the most energy efficient ones. In this a random block selection method is used and selection is done through a combination of hash value and stake. The combination is such that the block with lowest hash value and highest stake is chosen.

 

PoS consensus algorithms have been used in Peercoin and Ethereum 2.0. There are many pros of using this mechanism like less energy consumption by 99%, easy stakes, environment friendly system and best for decentralized networks.

 

There are some disadvantages of this mechanism as well like:

 

• Users with more coins can influence the whole mechanism.

 

• Long run sustainability of this protocol is not yet proved. As no top cryptocurrency has implemented it.

 

• It requires the users to synchronize their wallets to validate their ownership.

 

Also Read | Altcoin vs Bitcoin

 

 

4. Proof of Burn

 

It is a unique mechanism as in this the validators burn the coins instead of buying expensive hardware and applications. Burning means sending the coins on such an address that they cannot be retrieved. 

 

When these coins are sent to an unreachable or unretrievable place miners get a chance to mine these coins through random selection. The whole idea behind PoB is to suffer a short term loss to get benefits in the long run. 

 

It depends on the applications which coins are burned. Sometimes native blockchain coins are burnt or alternate coins like BTC. The more you burn the coins the more chance you have of their selection in the next block.

 

 

5. Proof of Capacity

 

In this the validators, miners have to invest their drive spaces instead of investing in hardwares. Here you do not have to burn the coins. The logic of PoC is pretty simple. The more hard drive space you have the better. 

 

More space means there is an increased chance of getting selected in the next block and validators will get rewards.

 

 

6. Proof of Elapsed Time

 

Proof of Elapsed Time in short PoEM is one of the most fair consensus algorithms that chooses the next block. In this every user gets a fair chance to get their own block i.e. create their own block. 

 

The nodes wait for a random amount of time while simultaneously adding the proof of wait in the block. Whichever user wins gets appended. Winner is based on the one that has the least time in proof.

 

There are many advantages of this mechanism like: it uses a random timer system to choose the winner. It makes the whole system more efficient. There are no scalability problems and it works properly if the number of participants is increased. And since a random system is used, one node cannot always become the winner. 

 

The only issue with this mechanism is that it is newer in comparison to others and it has not been tested much. So, there can be certain security issues or glitches. 

 

Also Read | Blockchain ETFs

 

In short, Consensus Algorithms do not go for majority votes but for welfare and profit of all the entities present.