The mining process allows you to work on the infrastructure of the blockroom. Since there are no central servers in the distributed network and a corporation that would support them, all the necessary calculations for the network must be provided by its users. It turns out that the structure of the blockade is decentralized. Therefore, there is a need for a distributed consensus.
Consensus in the blockroom
In any block-network, two basic types of messages are transmitted: transactions and blocks (which, in turn, are transaction lists). Transactions are formed by participants in the system and their consensus algorithm does not apply: in order to initiate, say, dispatch of bitcoins, no agreement is needed, it is sufficient to know the correct key. Blocks are quite another matter. They are the main product of the consensus algorithm and determine in which order the transactions will be included in the transaction log.
Blocks are created by a special category of nodes of the network of blockrooms – the so-called consensus nodes. In the case of bitcoins and other crypto currency, these nodes are called miners, since they are rewarded for their work (mining) by the generation of new portions of the crypto currency. Miners actively participate in the formation of the block, constantly grouping incoming transactions into blocks and distributing them across the network.
A key condition for the operation of the entire system is that the network must collectively coordinate the contents of the register: it is distributed among all participants in the chain instead of transferring centralized accounts to one entity-for example, a bank.
For this network, and it is required to maintain a consensus around the information recorded in the blockroom. The way to achieve this consensus affects the security and economic parameters of the protocol. Here are some examples of how to achieve it:
Proof of Work (PoW)
The proof of the work was “invented” long before bitkoyna back in the early 90’s and was used in a different context: to protect against spam.
In the case of PoW, all computers on the network that are tasked with maintaining the security of the block are working on calculating a mathematical function called a hash. This is a fairly simple task, but it is constantly repeating and, therefore, expensive in terms of calculations. The computer that calculates it first will receive confirmation that it has completed the necessary work and can add a new transaction block to the block system. As a reward, he will receive the extracted crypto currency and all small fees for conducting transactions that users paid for sending coins.
PoW operates on the principle that it is very easy to check whether transactions are valid, thanks to the transparency of the register. Miners collectively confirm the reality of the whole blockbuster, and transactions are not considered fully “confirmed” until several new blocks are added to them. If an attacker tries to use coins illegally, his transactions will be ignored by the rest of the network.
Proof of Stake (PoS)
The abbreviation PoS is translated as “proof of the stake / stake”. This is an alternative method that does not require special equipment and has become very popular in recent years. In the case of PoW, the probability that the participant will add the next block of transactions to the chain is determined by the hash level. In the case of PoS, this probability is determined by the number of participant coins. In other words, each network node is associated with a specific address, and the more coins belong to this address, the more likely it is that they will be blaming the next block.
The advantage of using PoS is that it takes a lot of money to conduct an attack, which makes it impractical from a financial point of view. At the same time, if there is a large number of tokens at the disposal of the attacker, he himself will suffer from the attack, as this will destroy the stability of the crypto currency.
But if we talk about obvious drawbacks, then this is the fact that PoS gives additional motivation to accumulate funds in the same hands, which can negatively affect the decentralization of the network.
At present, confirmation of a share is a well-established mechanism for reaching consensus, but it is not often used in its original form. Certain advantages are offered by two of its varieties, LPoS and DPoS.
Leased Proof of Stake (LPoS)
Translated as “rented confirmation of the share.” The essence of this algorithm is that participants with a small number of coins can rent them out for large, and as a bonus receive a share of the reward, which otherwise would not have been possible.
In the case of classic PoS, network participants with a small balance are unlikely to be able to add blocks to the chain – just as small low-hash miners are unlikely to be able to create a block in the transaction chain. As network security increases with the number of participants, it is important to encourage these small participants to participate in it. The LPoS mechanism allows you to do this.
The leased funds remain under the full control of their owner and can be transferred or spent at any time (after which the lease ends). Leased coins increase the “weight” of the network node, increasing its chances of adding a block of transactions to the block.
Delegated Proof of Stake (DPoS)
Delegated share confirmation is a more complex algorithm for reaching consensus in a decentralized environment. If we briefly formulate the basic principle of the work of DPoS, it will look like this: the division of voters and validating participants. As a result, network participants who have the right to vote in the system (coin holders) are not the transaction validators. Thus, one subset of the participants selects another subset, which in turn will generate the blocks.
The conditions in which this consensus algorithm works differ from the conditions in which PoW and PoS operate. Specifically, validators need to disclose their identities and declare their readiness to maintain a full-fledged network node, to perform transaction verification and create new blocks in a timely manner.
This type of consensus is best suited for building an ecosystem that includes both regular users (mobile customers) and many companies (full nodes that can play the role of validators). DPoS is designed in such a way that it maintains a high frequency of generating new blocks and is capable of processing a large number of transactions per unit of time compared to other consensus algorithms that work in a distributed environment without trust. DPoS is well suited for the design of open access systems where no user identification is required.
Proof of Importance (PoI)
Another important algorithm is PoI – confirmation of importance. NEM became the first crypto currency platform for implementing this method. In the case of PoI, it is important not only the number of coins. The consensus building system of NEM is based on the idea that it is worthwhile rewarding for productive network activity, and not just for owning coins.
The probability of creating a block depends on a number of factors, including available funds, reputation (determined by a separate special system) and the number of incoming and outgoing transactions from this address. This gives a more complete picture of the “useful” member of the network.
Less common consensus building algorithms
Proof of Burn (combustion proof) – “burning” occurs by sending coins to an address from which it can not be guaranteed to be spent. Getting rid of their coins in this way, the user gets the right to lifetime mining, which is also arranged as a lottery among all owners of burnt coins.
Proof of Activity is a standard hybrid scheme combining PoW and PoS.
Proof of Capacity (the proof of resources) is the realization of the popular idea “megabytes as resources”. It is necessary to allocate a significant amount of disk space to get involved in mining;
Proof of Storage (proof of storage) – similar to the previous concept, in which the allocated space is used by all participants as a shared cloud storage.
In conclusion, we can conclude that Proof-of-Work and Proof-of-Stake are the two most popular consensus algorithms in the world of crypto-currency, but in addition to these, there are a number of mechanisms that have their own subtleties and features.