Blockchain is a decentralized network that ensures transparency, security, privacy, immutability, etc. Since it is decentralized, no one has central authority to validate, verify and back up the transactions, but still, every transaction is verified and secured under Blockchain technology. This is only possible due to the presence of the consensus algorithm.

Consensus Algorithm plays a vital role in Blockchain technology. It establishes trust between the Blockchain network and the computing environment. The protocol ensures that all the Blockchain nodes agree upon blocks that are added to the Blockchain.

Several proofs ensure that Blockchain can be trusted and verified. Let’s learn about some Proofs in the following sections.

Proof-of-Burn (PoB)  

Proof-of-Burn (PoB) is an alternative consensus algorithm that addresses the issue of high energy consumption in a Proof-of-Work (PoW) System. Validators with PoB send coins to an address where they are irretrievable instead of investing in expensive hardware. In addition to ensuring that the network remains active and agile, this process consumes few resources (except for the burned coins). Miners use a verifiably un-spendable address to burn the coins.

Miners can burn a native or alternative currency, such as bitcoin, depending on the implementation. Tokens of the Blockchain’s native currency are rewarded in exchange. As a result, they gain the right to write blocks proportionately to the number of coins they have burned.

As new blocks are mined, burnt coins lose some power or decay. To stay competitive, miners may need to purchase new equipment every few years as technology advances. For that competitive edge, miners may also need to invest in better technology as new techniques are developed periodically.

Proof-of-Elapsed-Time (PoET)

One of the most ethical consensus algorithms is PoET, which only uses ethical criteria to determine the next block. In permissioned Blockchain networks, it is commonly used. Every validator present on the network has an equal opportunity to create their block using this process. To do this, each node adds proof of their wait to the block after waiting for a different time. The produced blocks are then sent out to the network for review by other users. The validator with the lowest timer value in the proof portion wins. The winning validator node’s block is added to the Blockchain. Additional safeguards in the algorithm prevent nodes from consistently winning the election or producing the lowest timer value.

Proof-of-Stake (PoS)

This method is an alternative to PoW. Several Blockchain networks have shifted to PoS Consensus Algorithm. In this type of consensus algorithm, validators instead invest in the coins of the system by locking up some of their coins as stakes.

The more blocks a validator adds to the Blockchain, the more rewards they receive. This is because they get a more significant share of the reward proportionate to their stake in the network, and their stake increases accordingly. As a result, PoS encourages validators to reach an agreement by providing an incentive mechanism.

Proof-of-Identity (PoI)  

Proof of Identity is a user’s private key compared to an authorized identity. Proof-of-Identity is a chunk of cryptographic evidence linking a user’s private key to a particular transaction.

A Blockchain network allows any authenticated user to generate a block of data that may be shown to others on the network. Proof-of-Identity guarantees data integrity and authenticity. Smart cities can also employ Proof of Identity, a Blockchain consensus technique, to confirm the citizenship of their residents.

Proof-of-Activity (PoA) 

Proof-of-Activity (PoA) combines Proof-of-Work (PoW) and Proof-of-Stake (PoS), two consensus mechanisms that have been around for years but are now gaining popularity. Both consensus mechanisms, the PoW and PoS, can prevent around half of all malicious cyberattacks.

Proof-of-Activity uses a mining concept, but instead of mining blocks of transactions, it allows miners to mine (or add) empty blocks with header information to reward them. Once this almost blank block is mined, the mechanism switches to Proof-of-Stake (PoS).

In Proof-of-Authority, nodes that become validators are the ones that are allowed to create new blocks. These validators are incentivized to secure and preserve the Blockchain network by securing their own identities.

Bottom Line

The consensus algorithms mentioned above are some of the major reasons why Blockchain is sustaining currently. Without this credibility, Blockchain wouldn’t be what it is today. There are also other types of consensus algorithms like Proof-of-Capacity (PoC), Proof-of-Stake-Authority (PoSA), Delegated Proof-of-Stake (DPoS), etc.

Blockchain networks require a consensus algorithm to verify every transaction that is being committed so that no fraud occurs. Thus, it can be concluded that the consensus algorithm makes Blockchain a powerhouse for every industry.