Consensus Protocols in Blockchain

In this miserable world of insecurities and deceptions, we have to give a proof of everything we do, so that people would believe that the work is legitimate then. And to talk about the blockchain world, nobody is ready to trust one another. So, it’s the most unavoidable thing to validate the transactions occurring, by some pre-approved techniques. These different bunches of techniques are collectively called as ‘consensus protocols’.

Consensus :

While voting just settles for a majority rule without any thought for the feelings and well-being of the minority, a consensus, on the other hand, makes sure that an agreement is reached which could benefit the entire group as a whole.

1. Proof-of-Work (PoW)

Satoshi Nakamoto, Bitcoin’s creator, was able to invent the proof of work protocol.
First, let’s see how it works:

• The miners solve cryptographic puzzles to “mine” a block in order to add to the blockchain.
• This process requires an immense amount of energy and computational usage.
   The puzzles have  been designed in a way which makes it hard and taxing on the system.
• When a miner solves the puzzle, they present their block to the network for verification.
• Verifying whether the block belongs to the chain or not is an extremely simple process.

As a result of this, bitcoin isn’t as decentralized as it wants to be. Let’s check the hash-rate distribution graph:

As you can see, ~65% of the hash-rate is divided among 5 mining pools alone!
Theoretically speaking, these big mining pools can simply team up with each other and launch a 51% attack on the bitcoin network.
The cryptocurrencies using Proof-of-Work currently are: Bitcoin, Ethereum.

2.Proof-of-Stake (PoS)

The Proof-of-Stake algorithm replaces the hash function calculation with a simple digital signature which proves ownership of the stake. The network selects an individual to approve new messages based on their proportional stake in the network. 

With Proof of Work, the probability of mining a block depends on the work done by the miner (e.g. CPU/GPU cycles spent checking hashes). But with Proof of Stake, the resource that's compared is the amount of cryptocurrency a miner holds - someone holding 1% of the Bitcoin can mine 1% of the blocks. 

But as a result, larger and older sets of coins have a higher probability of signing the next block, but the problem is that richer users are more likely to sign the next block, and the more blocks they obtain, the richer they get. 

Cryptocurrencies using Proof-of-Stake currently are: DASH, Neo, NextCoin, and NAVCoin

3.Proof-of-Importance (PoI)

Proof of Importance is the algorithm where a user's importance is determined by how many coins he has and the number of transactions made to and from his wallet. In PoS systems, a person needs to have large numbers of coins to form a block, but in PoI transactions volume and trust become factors. In PoS, Many of the richest do not actively use their money, meaning that they are contributing very little to the community. This was designed to encourage users to not simply hold coins but instead actively carry out transactions.

NEM has introduced this Proof-of-Importance concept.

To be more specific, every account on the NEM blockchain is assigned a “trust score”. This score will influence how individual users can “harvest” the blockchain. One could say harvesting on the NEM blockchain is almost the same as what miners do on the Bitcoin blockchain. The objective is to add people’s transactions to the blockchain, in exchange for a small financial reward. As people’s importance score grows higher, they will have a better chance at getting these rewards.

In order to be eligible for the “importance calculation,” NEM users need to have at least 10,000 XEM in their balance. Considering there are just under 9 billion XEM in circulation, achieving that goal is not overly expensive by any means.

4.Proof-of-Burn

The idea is that miners should show proof that they burned some coins - that is, sent them to a verifiably unspendable address. The act of burning coins can be compared to the act to buy a mining rig (hardware). In Proof of Burn, every time you burn coins, you buy a virtual mining rig that gives you the power to mine blocks. The more coins you burn, the bigger that virtual mining rig gets.

That’s exactly how Slimcoin’s Proof of Burn mechanism works:

If you burn coins, you not only get the right to compete for the next block. A mining rig is something more durable, and so are Slimcoin’s virtual mining rigs. You burn coins and this raises your chance to get blocks for a long time - at least for a year. And with some patience, in most situations, miners will eventually get significantly more coins that the ones they burned.

Mining rigs eventually become obsolete because there is better technology available. So miners, to stay competitive, must burn coins periodically.

5.Proof-of-Existence (PoE)

The Proof-of-Existence is not exactly a consensus algorithm, but a blockchain notary service. We can Select a document and have it certified in the Bitcoin blockchain. The cryptographic proof is calculated client-side. Your documents are NOT stored in our database or in the bitcoin blockchain, so you don't have to worry about your data being accessed by others. 

To use the service, you need a Bitcoin wallet, and the ability to send payment to a specified address, in order to certify your document on the Bitcoin network.

6.Proof-of-Capacity (PoC) / Proof-of-Space

A proof-of-space is a piece of data that a prover sends to a verifier to prove that the prover has reserved a certain amount of space. It uses your existing free space on your hard drive to mine coins. 

In Proof of Capacity, miners do the mining work once up-front (this is called plotting), and save the results which they can continue to use for each block without the need to work continuously. Mining is the act of using these plotted hard drives to power the network.  While mining, miners package all transactions they see on the network that have not yet been submitted into ‘blocks’. Then miners pull those Proofs off of the hard drive using a predetermined set of rules and submit them to the network. 

Cryptocurrency using this protocol is BurstCoin. Their avg. block time is about 4 minutes.

So, we can say that the use of a particular consensus algorithm is according to the requirements of the smart contract code of the token and the crowdsale as well as the needs of the mining and miners. And as always, every technique has its pros and cons!