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Hello, my fam. I hope you are doing great.
Here I am again, with an article on one of the very basic concepts of distributed public ledger technology, Blockchain.
Since the blockchain systems are not controlled by any single party, it must use a mechanism, to attain consensus among the distributed network of participants (Nodes).
The concept of consensus is very important on the blockchain, to determine which are the legit blocks, that are required to be appended in the chain next. Without a way to find it, will leave the network clueless regarding any agreed snapshot of the blockchain, at any point in time.
In real-time, the network has a dynamic state. Which is, that at any given point in time, the transactions that are happening, do not reach all the participants immediately. Some of the participants (Nodes) receive the transaction details before others, an inevitable consequence of network latency. Hence, every mined block on the blockchain, contains the agreed state of the chain, at a particular timestamp.
This basically means the block contains information, regarding who has what number of units in an account/wallet, at a particular point in time, in the recent past. The block headers has an identifier, that depicts the identity of the previous block, inherited by this block.
For Example, If A has 10 units, B has 20 units, and C has 30 units at any given point in time, this information will be saved on the block. Let us assume this state as (i-1) and the present state as (i). I am trying my best not to make this a math class. Haha. But please go along, it is not that hard.
Now,
- A sent 3 units to B.
- B sent 2 units to C,
- C sent 8 units to A.
So, now the state of the system has changed, and the new state is the present state (i). So, this snapshot of the new state will be saved in the next block. A has 15 units, B has 21 units, and C has 24 units.
Simple? Now, this was a very primitive example. There are thousands of transactions that are getting generated every second, and surely it will be a lot of data to be saved. Hence, all this data is bundled into a hash and is then saved. Now, what is this ‘Hash’ can be a topic of another discussion. For now, we can say that ‘Hash’ is something that changes any input into the form of a ‘String’ of a predetermined length.
I can smell, it is getting technical, so let’s stick to this much information for now. Till now, we have understood, the importance of the data that is saved on a block in a blockchain, and why it is important that it should not be tampered with. But, to achieve this on a decentralized network, the blockchain needs a consensus mechanism.
The good part is there are already many available.
Proof of Work (POW) is one of the most known consensus protocols, simply because Bitcoin runs on it. The mechanism is very simple, every transaction will be broadcasted to every node of the network. And every node will compete to mine (create) the next block of the Bitcoin chain. And, whoever solves a mathematical puzzle first, will get an opportunity to mine the next Bitcoin block, and earn rewards in the form of bitcoins + the sum of Transaction fees paid by each transacting parties.
Why must the nodes solve the mathematical puzzle? This is because, the mining node must demonstrate the Proof of computational work, to get a chance to mine. Who so ever solves it first, broadcast it to the other nodes. Once at least 51% of the other nodes accept the block, it is added to the blockchain.
So, every node must ensure, that they first capture all the valid transactions up to a point in time. And secondly, they spend enough computational power to solve the mathematical puzzle. The Proof of Work protocol makes it hard for hackers to get in, as it requires a lot of computational power to do it. Making an attack very expensive, while rewarding the honest participants.
Proof of Stake (POS)
We can understand POS, simply from our learning of POW. So, to mine in POW, a participant needs fast computers, a lot of them, which run on electricity, are required to be kept cool. Basically, it requires a considerable amount of capital investment. In Proof of Stake, rather than using this capital to buy servers and electricity. The capital is staked in a secure wallet, making the participant eligible to mine the next block.
The system randomly chose a participant to create the next block. If that participant do foul deed, other nodes will identify it, and all the capital staked by that node will be confiscated. On playing fairly, the participant earns the transaction fees paid by the transacting parties. Making the arrangement rewarding for honest nodes, and harshly punishing for dishonest nodes. Another popular cryptocurrency Ethereum runs on Proof of Stake.
There are other blockchains as well, and they use different methods to reach consensus over the network. Moreover, consensus mechanisms for public and private blockchains are different. Bitcoin and Ethereum are examples of Public blockchains.
Proof of Capacity (POC)
If we search analogies in the real world, POW is like hiring very powerful labourers, who can do fast work, In POS, the same amount of money is not used in gathering fast resources, rather is staked/deposited in a particular bank account, as security. While Proof of Capacity is buying and dedicating a big piece of empty land, with no labourers, and no deposit.
In POW, the computers run in real-time to find the solution to the puzzle. In the proof of capacity, all the probable solutions are already computed and stored in the memory. Hence, it requires more memory space and low computational power. Some of the systems that run on POC are Burst, Chia, and SpaceMint.
Proof of Activity (POA)
Proof of Activity is a marriage of Proof of Work and Proof of Stake. The mining process of a new block happens in 2 phases. First, the skeleton of the block is mined, which means mining the header details of the block. Once the system reaches a certain level of Proof of Work, and an empty block is mined, the system switches to Proof of Stake.
This means, that once the skeleton is finalized, the system picks random participants, who have locked certain stakes with the protocol. This group of participants vote to validate the transaction details, that are going to be added in the recently mined empty block. In return, the mining participant and the validating participants are rewarded.
The POA does not solve the resource intensiveness of POW, and the hoarding tendency of POS, but it surely makes the block creation faster, through focused phases. Every block is estimated to be around 5 minutes, which is half of what is currently happening in Bitcoin Blockchain (~10 minutes). Since Proof of work makes it hard for hackers to tamper with the chain, POA does a good job in the security and immutability aspect of the chain. The currency that is currently using POA as the consensus mechanism is the Decred.
Proof of Burn
In Proof of Burn, to be eligible to mine the next block, the participants must send funds to a certain wallet, from which they cannot be retrieved. Imagine it like putting loads of dollars in the fire hole. The more currency a participant burns, the higher their chance to mine the next block, and earn the reward.
This also ensures that the participants are extensively invested in the network, and hence have a lot to lose, if they act maliciously.
Proof of Elapsed Time
Intel Corporation created this consensus suited for private blockchain, where the system randomly picks participants using a just criterion. Once a participant successfully creates a block, it is put to sleep from mining, unless its their turn again. At this time, the node can spend its energy on the other tasks of validating the blockchain transactions.
It is good for organizations, where the entry of the participant is approved and authorized.
Proof of Authority
Proof of Authority is also an example of a private blockchain consensus mechanism. In this, the participants are authorized to participate, post a screening mechanism, deem fit by the already approved participants of the network. Could be locking the funds or reputation. Once, the participant is part of the network they must reveal their identity.
This works for private blockchains, that can be used to make the decentralized system further robust and efficient.
All the consensus mechanisms on the blockchain, try to create a balance, or an agreed trade-off between the Blockchain Trilemma (Security – Decentralization – Scalability) If you want to learn more about the Blockchain Trilemma, you can check out my earlier article on blockchain.
The exciting thing about blockchain is that it is a way of doing the same things, differently. I know, there are tons of people, who are like, why do we change? The world is doing just fine, at least there are no World War 3s, till now. The world of consumerism of physical products is not going anywhere. Humans will keep on innovating with new stuff, to make the life of other fellow humans, smoother and more convenient.
My friends, we must understand that change happens in every paradigm of human pain and desire. The blockchain is not fulfilling the desires of humans, it is trying to relieve the pain. The physical experiences are not going anywhere, in fact, they are being embedded with digital experiences. The switch is in our hands, where we want to be.
The thing that is changing is the way we own, trade, and transfer value, services, and experiences. Since there are barriers in the current system, the change is inevitable, the change is the only constant.
It is time for us to make the choice, at what point in time, we will at least start learning, and mint our first block, of the journey on Blockchain. 🙂
Best Wishes,
~R
Featured Image credit : Oodles Blockchain
An Observer 