You are probably familiar with the Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanisms. For the uninitiated, a consensus mechanism is a fault-tolerant system through which network participants achieve the agreement that a transaction is legitimate.
The Ever-Evolving Consensus Algorithms
Two of the world’s largest blockchains – Bitcoin and Ethereum – use the Proof of Work (PoW) consensus to validate transactions and keep the network secure.
The PoW consumes a lot of electricity and isn’t fast enough to meet the growing demands as more people and businesses start using blockchains.
The Bitcoin network, for instance, consumes 91 terawatt-hours of electricity per year, which is more than the country of Finland.
Ethereum is switching to the Proof of Stake consensus with the upcoming Ethereum 2.0 upgrade to reduce its carbon emissions and handle more transactions.
Polkadot and Cardano are a few other leading blockchains that use the PoS mechanism. The PoS overcomes the drawbacks of PoW such as high barriers to entry, high energy consumption, scalability issues, and the lack of speed.
Each consensus algorithm has unique implications for usability, security, accessibility, and sustainability.
Neither PoW nor PoS is perfect for every application. That’s why various iterations of them have popped up. For instance, the Delegated Proof of Stake (DPoS) is an evolution of the PoS where network users stake their tokens and link them to a particular delegate to elect the delegates for validating the next block.
The Proof of Activity (PoA) combines the PoW and PoS. In the Proof of Activity consensus algorithm, miners find the solution to a cryptographic puzzle to claim rewards. But the blocks created contain only mining reward address and header information.
Then the header information is used to select a random group of validators for signing a block.
Novel “Proofs Of” for Novel Use Cases
There is a huge variation in how different blockchain networks are structured depending on the purpose they are designed for.
Raiinmaker, an influencer marketing platform that combines smart contracts with marketing budgets and influencers, has come up with a proprietary algorithm called the Proof of Influence. It enables brands to work directly with influencers and reward them for their engagement and results.
The Proof of Influence protocol allows brands to measure the impact and return of their influencer marketing campaigns based on specific metrics such as the earned likes, shares, comments, and views.
Another unique consensus algorithm is the Proof of Randomness (PoR). QANplatform has found the Proof of Randomness reliable enough to build a futuristic, quantum-proof, fast, and scalable blockchain.
QANplatform is a hybrid blockchain with lattice-based cryptography to secure the network from quantum computer attacks.
The PoR is a generalization of Algorand’s Pure Proof of Stake (PPoS) consensus mechanism with enhanced scalability. It involves node operators as well as randomly selected block validators, who are both incentivized to participate.
The validators are selected from among those who have staked their tokens. However, the stake isn’t weighted, giving everyone an equal opportunity to get selected.
Blockchains designed with enterprise use cases in mind often have special mechanisms to ensure that they comply with regulations and keep specific information private for competitive or regulatory reasons.
Concordium, a regulatory-complaint blockchain built for businesses, uses a unique Proof of Stake consensus mechanism. It takes a two-layer approach to consensus. Concordium has developed a provably fast and secure finality layer that runs on top of a Nakamoto-style (NSC) blockchain.
Though transactions make it into the blockchain quickly, they may still be subject to a rollback until they are finalized.
Users have the choice to accept transactions after a certain number of blocks or wait until a transaction is finalized to insure against the possibility of a rollback.
The Concordium network has three types of participants: Bakers who author the blocks and run consensus, Finalizers who finalize the blocks and secure the networks, and Delegators who extend support to Bakers by delegating the blockchain’s native GTU tokens.
Wrapping It Up
In centralized systems, a central authority is responsible for maintaining and updating the database. But blockchains are different.
They are self-regulating, decentralized systems without a central authority. So, network participants from around the world work to verify transactions and keep the network secure.
Not all blockchains are equal, and no single blockchain can meet the needs of everyone. While Proof of Work started it all with Bitcoin, others are taking the ecosystem forward.
We will see more and more “Proofs of” in the future as blockchain proves itself useful in more and more industries.