There are a lot of debates out there about how public blockchain networks are going to advance the world. However, to function on a comprehensive scale, a shared public ledger needs a practical, adequate and secure consensus algorithm. Let’s go through each protocol separately.
Proof of work
A consensus algorithm, like bitcoin’s ‘proof of work’ (which most of us are familiar with), performs two actions: it establishes that the following block in a blockchain is the one and only form of truth, and it keeps authoritative competitors from hindering the system and effectively forking the chain.
Let us go through a little detail of how proof of work is executed. In proof of work, miners battle to add the next block in the chain by galloping to crack a very difficult cryptographic puzzle. The one to ace this puzzle-solving gets the reward i.e. 12.5 newly minted bitcoins and a small transaction fee.
Although it is no less than a model of perfection in its own right, it is not quite concise. Common reviews suggest that it involves an enormous amount of computational work, lack of scaling and that the process of mining is usually rationalized in an area where electricity is cheap.
Bitcoin architect Satoshi Nakamoto, popularized the potential of blockchain technology, it does not imply that we keep inquiring for faster, less rationalized and more energy efficient consensus algorithms to lead us into the future.
While not a comprehensive list, the following are a few substitute, experimental approaches.
Proof of stake
The most frequent alternative to proof of work is ‘proof of stake’. This type of consensus algorithm deals with the ‘validator’ investing in the coins of the system rather than investing in expensive computer equipment for mining blocks. Observe the term validator; validators are different form miners. That is because no mining takes place in proof of stake. In fact, the coins exist from day one and the stakeholders are paid in transaction fee. In this protocol, your possibility of creating the subsequent block depends on the fraction of coins you have. After a party is picked for the creation of a block, the block still needs to be merged with the chain. Contrasting proof of stake systems differ in ways they choose to handle the merging. Tendermint, for example needs every node in the party to approve on a block before consensus is reached. On the other hand, there are systems which choose random groups of signers.
An obstacle in the way is ‘not at stake’ problem. In this is scenario, what is to stop the stakeholder from creating two blocks and claiming two transaction fees? Additionally, what is the way to stop a signer from not approving both of these blocks? After all a party with nothing at stake doesn’t need a reason to behave badly, right?
Researchers in cryptography are working hard to crack this nut. One possible solution can be locking the currency in a vault. Peercoin was the first coin to adapt this solution, followed by blackcoin.
Proof of Activity
To control currency floods in a system, bitcoin will only produce 21M bitcoins ever. This cap indicates that at some point, the block reward subsidy will terminate and miners will have to make do with transaction fees only. There are assumptions that the cap might create a security issue and so to tackle the problem, ‘proof of activity’ was created as a substitute structure for bitcoin. It is a hybrid approach that has both proof of work and proof of stake as ingredients. In proof of activity, the process of making a block starts out in the natural puzzle-solving manner, same as in the case of proof of work. Depending on the structure, the mined blocks do not store any transactions, so the victorious block will only contain a header and the miner’s reward address. Decred is the only coin to have adapted this protocol.
Proof of Burn
Using this protocol, rather than transferring your coins into expensive computer equipments, you may ‘burn’ your coins and send them to a destination where they are irreplaceable. Depending on the structure of the proof of burn, miners may burn the natural currency or the currency of a different chain like bitcoin. If you burn a lot of coins, you might be next in line for creating more blocks. The criticism involved claims that this protocol wastes a lot of resources. Another loophole in the system is that the mining process will only be handed to the party who is willing to keep burning coins. The solo coin that uses proof of burn is Slimcoin.
Proof of Capacity
The key role in ‘proof of capacity’ is the availability of hard drive space. The more hard drive space you have, the better your opportunity to mine the next block. In the proof of capacity system, the algorithm issues large sets of data known as ‘plots’. The more plots you have, your chances of finding the next block and gaining a reward are higher. The only cryptocurrency trusting this protocol is Burstcoin.
Proof of Elapsed Time
Chipmaker Intel has come up with an innovation called ‘proof of elapsed time’. It is similar to the proof of work protocol but, on the brighter side, it consumes a lot less power. Additionally it eliminates the need to solve a cryptographic puzzle and encourages the use of TEE (Trusted Execution Environment) such as SGX to make sure that the blocks get produced in a random fashion but, without the required work executed.
According to Intel, the proof of elapsed time will run smoothly on any Intel processor that supports SGX. The only hindrance is that Intel will require you to put your entire trust in them – and that is actually what we are trying to stay away from with the adaptation of public blockchain technology.
Which of the above protocols will be the ultimate consensus algorithm? Let us know below.
Feelium is a blockchain technology platform offering smart contracts and escrow services for trust-less online transactions. Learn more about Feelium at www.feelium.co