Consensus in blockchain

Consensus is a distributed computing concept that has been used in blockchain in order to provide a means of agreeing to a single version of the truth by all peers on the blockchain network. This concept was previously discussed in the distributed systems section of this chapter. In this section, we will address consensus in the context of blockchain technology. Some concepts presented here are still relevant to distributed systems theory, but they are explained from a blockchain perspective.

Roughly, the following describes the two main categories of consensus mechanisms:

• Proof-based, leader-election lottery based, or the Nakamoto consensus whereby a leader is elected at random (using an algorithm) and proposes a final value. This category is also referred to as the fully decentralized or permissionless type of consensus mechanism. This type is well used in the Bitcoin and Ethereum blockchain in the form of a PoW mechanism.
• BFT-based is a more traditional approach based on rounds of votes. This class of consensus is also known as the consortium or permissioned type of consensus mechanism.

BFT-based consensus mechanisms perform well when there are a limited number of nodes, but they do not scale well. On the other hand, leader-election lottery based (PoW) type consensus mechanisms scale very well but perform very slowly. As there is significant research being conducted in this area, new types of consensus mechanism are also emerging, such as the semi-decentralized type, which is used in the Ripple network. Ripple network will be discussed in detail in Chapter 14, Alternative Blockchains. There are also various other proposals out there, which are trying to find the right balance between scalability and performance. Some notable projects include PBFT, Hybrid BFT, BlockDAG, Tezos, Stellar, and GHOST.

The consensus algorithms available today, or that are being researched in the context of blockchain, are presented here. The following is not an exhaustive list, but it includes all notable algorithms.

• Proof of Work (PoW): This type of consensus mechanism relies on proof that adequate computational resources have been spent before proposing a value for acceptance by the network. This scheme is used in Bitcoin, Litecoin, and other cryptocurrency blockchains. Currently, it is the only algorithm that has proven to be astonishingly successful against any collusion attacks on a blockchain network, such as the Sybil attack. The Sybil attack will be discussed in Chapter 8, Introducing Bitcoin.
• Proof of Stake (PoS): This algorithm works on the idea that a node or user has an adequate stake in the system; that is, the user has invested enough in the system so that any malicious attempt by that user would outweigh the benefits of performing such an attack on the network. This idea was first introduced by Peercoin, and it is going to be used in the Ethereum blockchain version called Serenity. Another important concept in PoS is coin age, which is a criterion derived from the amount of time and number of coins that have not been spent. In this model, the chances of proposing and signing the next block increase with the coin age.

• Delegated Proof of Stake (DPoS): This is an innovation over standard PoS, whereby each node that has a stake in the system can delegate the validation of a transaction to other nodes by voting. It is used in the BitShares blockchain.
• Proof of Elapsed Time (PoET): Introduced by Intel in 2016, PoET uses a Trusted Execution Environment (TEE) to provide randomness and safety in the leader election process via a guaranteed wait time. It requires the Intel Software Guard Extensions (SGX) processor to provide the security guarantee for it to be secure. This concept is discussed in more detail in Chapter 13, Hyperledger, in the context of the Intel's Sawtooth Lake blockchain project.
• Proof of Deposit (PoD): In this case, nodes that wish to participate in the network have to make a security deposit before they can mine and propose blocks. This mechanism is used in the Tendermint blockchain.
• Proof of Importance (PoI): This idea is significant and different from PoS. PoI not only relies on how large a stake a user has in the system, but it also monitors the usage and movement of tokens by the user in order to establish a level of trust and importance. It is used in the NEM coin blockchain. More information about this coin is available at NEM's website https://nem.io.
• Federated consensus or federated Byzantine consensus: This mechanism is used in the stellar consensus protocol. Nodes in this protocol retain a group of publicly-trusted peers and propagate only those transactions that have been validated by the majority of trusted nodes.
• Reputation-based mechanisms: As the name suggests, a leader is elected by the reputation it has built over time on the network. It is based on the votes of other members.
• PBFT: This mechanism achieves state machine replication, which provides tolerance against Byzantine nodes. Various other protocols including PBFT, PAXOS, RAFT, and Federated Byzantine Agreement (FBA) are also being used or have been proposed for use in many different implementations of distributed systems and blockchains.
• Proof of Activity (PoA): This scheme is a combination of PoS and PoW, which ensures that a stakeholder is selected in a pseudorandom but uniform fashion. This is a comparatively more energy-efficient mechanism as compared to PoW. It utilizes a new concept called Follow the Satoshi. In this scheme, PoW and PoS are combined together to achieve consensus and good level of security. This scheme is more energy efficient as PoW is used only in the first stage of the mechanism, after the first stage it switches to PoS which consumes negligible energy.

• Proof of Capacity (PoC): This scheme uses hard disk space as a resource to mine the blocks. This is different from PoW, where CPU resources are used. In in PoC, hard disk space is utilized for mining and as such is also known as hard drive mining. This concept was first introduced in the Burstcoin cryptocurrency.
• Proof of Storage (PoS): This scheme allows for the outsourcing of storage capacity. This scheme is based on the concept that a particular piece of data is probably stored by a node which serves as a means to participate in the consensus mechanism. Several variations of this scheme have been proposed, such as Proof of Replication, Proof of Data Possession, Proof of Space, and Proof of Space-Time.