Blockchain consensus algorithms

A consensus algorithm is a mechanism which allows the participants (users or machines) to cooperate in a distributed setting. It is necessary to ensure that all agents within the system agree on the same single source of truth even if some of them fail. A consensus protocol makes it possible to verify and validate any transaction and reach a common agreement. Consensus algorithms help to establish trust between peers and make sure any new block added to a certain blockchain states the truth and is signed with a unique identifier. These protocols imply several specific goals, like coming to an agreement, collaboration, cooperation, equal rights of all nodes and their mandatory participation in the process.

Types of Consensus algorithms

Several types of consensus algorithms exist, each of them best in their own area:

• PoW (Proof of Work). The ‘first and foremost’ ancestor of the consensus algorithms. The aim of this decentralized mechanism is to select which node in the network has the right to generate the next block, and set out the conditions which make the block valid. It is also called ‘mining’ (because the members receive reward for the certain amount of work which was completed), and as it comes from its name it requires the participants to make an effort to solve a puzzle. The algorithm helps to solve mathematical tasks which require a huge number of computations, and hand out a solution. However, it also needs huge amounts of energy.
• PoS (Proof of Stake) and dPoS (delegated Proof of Stake). PoS can be called the ‘second common’ algorithm in the list. Ethereum has recently shifted to it. Instead of solving complex puzzles and spending efforts on ‘hard labor’, the algorithm implies ‘staking’ amounts of coins by freezing them on specific accounts. Then, a betting process takes place with the rewards given proportionally to the bets.  The winning stake designates a validator from among the nodes, which has the right to generate the net block. DPos is a type of PoS algorithm, in which betting votes can be delegated. The mechanism is almost similar: users (also called delegates) delegate their votes to someone else (called witnesses) and the reward will be distributed to the one who receives the delegation of vote. They have to verify and sign the transactions in the block, create new blocks and receive the reward (which will be shared with those who voted for their election). However, the task is time-limited, and if a validator fails to verify all transactions, the block will be missed and no reward will be given (the transactions will be passed on to other witnesses and the block will be called ‘stolen’). Delegates can also take part in the process, but in another way. They can offer to change the block size or the number of witnesses who should be paid for the block validation, but they do not take part in the control of transactions.
• PoA (Proof of Authority). PoA is a reputation-based algorithm most efficient in private networks. Instead of coins, validators stake (and risk losing) their reputation level. Validation is thus carried out by trusted entities, but the number of participants is limited, which creates a scalability issue. PoA can be used in a number of cases (for instance, it is a good solution for supply chains or systems, which do not require a native currency). It also helps companies to experience the benefits of blockchain while retaining their privacy.
• PoB (proof of Burn). PoB validators earn the right to create a block by ‘burning” coins (sending them to a specific address where these coins are blocked).. It means that validators gain commitments for a long period in return for a short-term loss. Validators can burn a native currency of the application of the blockchain or some currency from another, alternative chain, depending on the implementation of the protocol. The more coins are burnt, the higher is the chance to win.   
• PoET (Proof of Elapsed time). This algorithm strives to choose validators based on the principle of fairness. Each validator has an equal chance to create their own block. The nodes are waiting for a random period of time and issue proof of the waiting. All the blocks are broadcasted to the web. The validator who shows the least timer value wins the race and this block is added to the chain. The algorithm also checks out to prevent nodes from winning constantly or generating the lowest timer value.
• Proof of Capacity. Proof of Capacity consensus cares about the fact that validators invest their hard drive space instead of burning coins or doing some work. The possibility of getting a block reward or mining a new block depends on the amount of hard drive capacity provided by a validator.
• Proof of Activity (PoA) is a hybrid of PoW and PoS consensus mechanism. In PoA systems, the mining process begins as PoW, with miners competing to solve a complex mathematical problem using computing power. After the block is mined, the system switches to PoS, with the successfully generated block header being broadcast to the PoA network. A group of validators is then randomly selected to sign the hash, validating the new block. As with PoS, the more coins a validator has, the higher its chances of being selected. Once each selected validator signs a block, it is added to the blockchain network and is ready to register transactions. The reward for the block is distributed between the miner and the validators. 
• Proof of History (PoH). Provides evidence of historical events. Developed by Solana, PoH allows "timestamps" to be embedded in the blockchain itself, verifying the passage of time between transactions without having to rely on other nodes
• Proof of Importance (PoI). Selects its miners based on certain criteria in a process called 'harvesting'. Common factors include the number and size of transactions in the past 30 days, the amount of vested currency, and the activity of the network. Based on these factors, nodes are assigned an importance score. The higher this score, the more likely a node will be selected to harvest a block and receive the appropriate transaction fee.
• BFT (Byzantine Fault Tolerance). Provides networks with the ability to work correctly and reach consensus even if some nodes faile or spread incorrect information among the peers. It may mitigate the impact of such actions and consequently helps to defend the system against dramatic failures. Then only the ‘honest’ nodes can reach the consensus.

Conclusion

While PoW and PoS are the most common consensus mechanisms to date, many new and evolving algorithms continue to emerge, as there is no universal approach when it comes to authentication of distributed blockchain platforms. Each consensus mechanism has its own set of benefits and trade-offs.