Consensus Mechanisms

Consensus mechanisms are at the heart of blockchain technologies, enabling distributed networks to agree on the state of the ledger in a trustless environment. There are actually more than 20 different consensus mechanisms, so we'll only delve into the most common mechanisms that govern how transactions are verified and blocks are added.

Proof of Work (PoW)

As we have previously mentioned, Proof of Work is the original consensus mechanism pioneered by Bitcoin. Let's quickly recap what we already know. PoW requires miners to solve complex cryptographic puzzles, and the first miner to solve the puzzle gets the right to add the next block to the blockchain and is rewarded with the cryptocurrency. This mechanism ensures network security through the sheer difficulty of the puzzle, making attacks prohibitively expensive. However, its energy-intensive nature has sparked a search for more sustainable alternatives.

Proof of Stake (PoS)

Proof of Stake emerged as a greener alternative to PoW and is also used in major blockchains, such as Ethereum. Instead of mining, validators are chosen to create blocks based on the number of coins they hold and are willing to "stake" as collateral. This mechanism significantly reduces energy consumption, as the security of the network does not depend on performing energy-intensive calculations.

Moreover, PoS also encourages more participants to hold the cryptocurrency, potentially increasing its value. However, concerns about centralization have been raised, as those with larger stakes have a higher chance of being chosen as validators.

Let's take a look at the following illustration comparing PoW (left) and PoS (right):

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is an evolution of the Proof of Stake consensus model. In DPoS, cryptocurrency holders vote to elect a fixed number of witnesses (delegates, validators) responsible for validating transactions and creating blocks.

This system is designed to enhance efficiency and scalability by delegating the task of block production to trusted nodes, thus reducing the number of nodes required to achieve consensus. DPoS aims to strike a balance between decentralization and efficiency, offering a more energy-efficient alternative to Proof of Work without requiring every node to participate in the consensus process directly.

Here is an illustration of selecting witnesses:

Leased Proof of Stake (LPoS)

Leased Proof of Stake (LPoS) is a variation of Proof of Stake (PoS) that allows coin holders to lease their staking power to validators without transferring coin ownership. Similar to PoS, validators in LPoS systems are chosen based on the total stake they control, which includes tokens leased to them by other holders. This increases their staking power and thus their chances of being selected as validators. Consequently, this mechanism enables more participants to contribute to the network's security and consensus process by supporting validators with their staked coins.

Let's take a look at the following illustration to make things clear:

Other Mechanisms

The other four consensus mechanisms covered in this chapter are summarized in the tale below (you may disregard them, this information is optional):