The basis principles of decentralized system and Blockchain is the consensus protocol. It understands predetermined rules and regulations of agreement. Read more below.

Blockchain was developed on the promise that it will create a system where the community itself will verify the genuinity of the transactions and a system where there is no need of trust. The question that arose was: Is that possible? The simple answer is yes with the assistance of consensus protocols, which set the rules that define the networks’ operation.

In today’s article we try to explain the protocol’s operation and some known and popular protocols that are used nowadays.

Consensus Protocols: Definition

One of the main notions behind blockchain is that a ledger is distributed along the nodes that check the transaction on the net.

The outcome of this is that every individual can deliver data which are to be saved on blockchain and this is why it is of crucial importance to set processes which guarantee that the participants are concurrent about the type of info to be added or rejected. The set rules represent the consensus protocols. These protocols check the verification of the transactions and assist in keeping the net security.

The protocols are usually defined first and then the blockchain is designed, although this is not a rule and as in the example with Ethereum that introduced changes in its operational protocol while keeping the net live. Read more about this below.

The operation of the Consensus Protocols

This type of protocols are the foundation of the network of blockchain and they provide a special verifying method that confirms the validity of a transaction. It reviews and confirms which data are to be added in the record. Blockchain is a decentralized network that does not have one controlling unit so in this case the nodes are the ones that have to concur whether to accept or reject something by close observation of predetermined regulations or in other words protocol.

Talking about Bitcoin, the protocol is PoW which understands work proof where the mining of data verifies every transaction. In addition, there are other two protocols: PoS where S is for stake and P is standard for proof and the other type is PoA where A stands for Authority.

Consensus is agreement, and protocol is rule. Simply put the protocols are predetermined rules on which all the parties agreed.

Consensus Protocols: Their Job

There is no single controlling unit

In order to reach consensus all nodes that take parts would have to agree on this. Afterwards this information is considered truthful and the network can operate with bigger number of data that is registered as transactions and smart contracts can be conducted.

If you are not sure about blockchain, then you can check our articles on this topic.

Enables clients to trust other clients without the need of middlemen and controlling unit

With this type of protocols there is no unit that controls the entire network or influencing what is to be added or rejected.

The natural question that occurs is but what will happen is one unit tries to do that? We have an answer for that too. It is called double spending. This means that a hacker can spend some cryptocurrency and then change the block that is to be registered on blockchain so the blockchain does not register the spending. The hacker can show its version, minus the spend record. This means that the hackers uses Bitcoin but they are not registered as spent and he can spend them again.

The PoW’s job is to prevent this from occurring on the basis of comparison. The protocol compares the version to other ones that are stored on the nodes and if there is a slight difference between them then this version will not be accepted by the nodes.

Consensus Protocol and Types

Proof-of-Work (PoW): This protocol is used by Bitcoin. In order to approve the financial transactions the miners on Blockchain have to solve numerical sums or cryptographic problems with the help of the computer. Those who succeed are compensated with bitcoin.

Proof-Of-Stake (PoS): When Ethereum was developed it started using PoS. What are miners in PoW, in PoS are called forgers. A forger stakes a cryptocurrency and this gives them a chance to become a validator for blocks. When a forger succeeds he is awarded with corresponding transaction fees for the blocks. In this way the forger are motivated to work for the network instead of tricking it because if they do this they are the first ones to lose.

Delegated Proof-of-Stake (DPoS): Very similar operating as PoS. This type the owners of cryptocurrency can give votes that they possess in accordance to their share and they appoint witnesses. These on the other hand secure and verify the blockchain so they basically require votes and not currency. These compared to other protocols are more centralized. EOS, Steem and BitShares use this protocol.

Proof-of-Authority (PoA): This protocol is identical to PoS. It possesses predefined block validators. The number of blocks depends on the number of validators. They are transparent and held accountable for establishing the eligibility and function to be PoS validated. PoA is used by Elysian (new blockchain), for testing blockchains and Ethereum.

What to expect

Consensus protocols, are developing and growing to deal with different challenges that arise from the growth of decentralized networks. Nothing is perfect and we all have to bear this in mind that we need to accept some of the compromises.

One of the disadvantages of PoW is that it uses great computing power and thereof electricity as well as it is time consuming to verify the truthfulness of a transaction. This makes it inconvenient for use in day to day use. New solutions are being worked out and one example for such is Lightning Network.

Another thing to take into account is decentralization. If we want to improve the speed of the network, we have to think about centralizing of power. As opposed to that PoW is decentralized in a big way and there is a big number of nodes that verify blocks mathematically. There is a heated discussion over the acceptable degree of decentralization and we are certain that it will last for some time more.