This is a continuation of our previous posts on consensus algorithms, if you’ve not read part 1 and part 2, it is recommended that you do so before reading part 3.
Having already touched upon the strengths and weaknesses of the Proof-of-Stake and Proof-of-Work consensus mechanisms, it’s important to note that there are a wide range of other consensus algorithms which are in the works, or being worked on, and while Proof-of-Stake and Proof-of-Work remain the two main forms of consensus algorithms today, the blockchain industry is moving at such a fast pace, there’s no telling which consensus process will be used tomorrow.
It’s important to reiterate that all consensus algorithms are attempting to solve the same problem: namely, how to ensure all nodes are using the same blockchain, and how to prevent miners from adding false blocks, or changing the blockchain history. In order to do that, all consensus algorithms require miners to sacrifice something, Proof-of-Work the sacrifice is time and resources, Proof-of-Stake is currency, and the following consensus algorithms are no different. They will all follow the exact same model in order to solve the same problem, but in slightly different ways.
Here are a few of the more commonly used consensus algorithms along with a brief explanation of how they work.
Proof-of-Space or Proof-of-Capacity
Similar to Proof-of-Stake, this is a consensus algorithm which requires users to set aside a large amount of storage space on their system, in place of currency. Their stake in the mining process will be based on the relative space in comparison to the total space staked by all miners in the pool.
This consensus algorithm attempts improve upon the Proof-of Stake process in two major ways.
- Proof-of-Stake time will not only reward users who have significant amounts of currency staked but will also reward the amount of time that user has been staking.
- In order to prevent major currency holders from monopolizing the mining rewards and preventing those who cannot obtain as much by connecting currency staked to activity performed.
Similar to Proof-of-Stake Time, this algorithm attempts to reward those users who are important to the network. As such, it weights rewards towards users who have shown to be active and supportive for the blockchain network. This includes statistics such as, currency held, total number of transactions over a set period of time, and total number of transaction partners over a set period of time.
This consensus algorithm attempts to improve upon the Proof-of-Stake Time consensus, where not only are you rewarded for being active as well as holding currency, but your currency is weighted by how recently it was minted (created via mining).
The consensus gives more value to recently minted currency, and less for older currency. This not only gives incentive to be active, but to be consistently active.
A really interesting evolution of Bitcoin’s Proof-of-Work consensus, where instead of the work being a race to solve an equation is replaces by a virtual race. The algorithm will select a random Satoshi (the smallest measure of bitcoin. It is 0.00000001 Bitcoin) in circulation, and all miners will race to track it from the block it was minted (created) through, to the current wallet where it resides. The first miner to report the correct wallet address will be able to mine the next block.
While much of this consensus algorithm follows the idea of Bitcoin’s Proof-of-Work, it also takes some functionality from Proof-of-Stake, where the more Bitcoin a user owns, the greater the chances that their Satoshi would be selected.
This form of consensus algorithm is similar to Proof-of-Stake, with the major difference being that each miner’s stake is actually burned. In order to mine on the blockchain, tokens or coins need to be sent to a wallet address that is verifiably inaccessible. Meaning that once the tokens are sent to that address, they are lost forever. This consensus method effectively forces miners to actually spend currency, in order to mine on the blockchain and have chance to get some of the rewards.
All of these consensus mechanisms are examples of new technologies attempting to make blockchains more efficient, reliable, and effective. The developers of each of these algorithms are aiming to address the shortcomings of the current consensus mechanisms, and create a pathway to mass adoption. As the technology continues to evolve, grow and shift, this will be a truly exciting area to watch evolve as the blockchain of the future is built.