What Is the Best Consensus Mechanism?
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As the crypto market grows, we watch new innovative consensus mechanisms develop. A consensus mechanism is a way blockchains nodes record and validates all transactions upon a mutual agreement. The most common consensus mechanism is Proof-of-Work(PoW) which both Bitcoin and Ethereum rely on. But, just because it was the first consensus mechanism doesn’t mean it's the best. Consensus Mechanisms are usually designed around the use case of a blockchain. So, it’s important to note that each Consensus Mechanism has its advantages and disadvantages.
Content:
General Information-
What Is a Consensus Mechanism?
Most Common Consensus Mechanisms
Additional Information-
How Layer-2’s Compliment Consensus Mechanisms*
What Is the Best Consensus Mechanism?
General Information-
1. What Is a Consensus Mechanism?
A Consensus Mechanism is a way blockchain nodes record and validates all transaction upon a mutual agreement. The role of a node is to verify and track new transactions as they happen. Per the image below you will see how a transaction is created and completed in a Proof-of-Work blockchain. The consensus verifies and stores data throughout the request. For each Consensus Mechanism, a node operator confirms transaction uniquely such as Proof-of-Coverage(PoC), that the Helium($HNT) network relies on, or Proof-of-Stake(PoS) where stakeholder tokens validate new blocks.
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2. Most Common Consensus Mechanisms
The most prevalent consensuses are (PoW) and (PoS). Since we covered (PoW), we can talk more about (PoS) and how the network operates. (PoS) blockchains allow owners of a cryptocurrency to “stake” their coins and become validator nodes. Nodes review transactions on blocks to see if they are accurate. Once the transaction is reviewed and confirmed they add the block to the chain and receive crypto rewards for their contribution. Another common consensus algorithm is Proof-of-Capacity(PoC) where blockchains allow for mining devices to utilize their hard-drive space to validate transactions and determine mining rights. Blockchains like Storj rely on (PoC) as it is more energy efficient compared to (PoW) and (PoS).
Additional Information-
1. How Layer-2’s Compliment Consensus Mechanisms*
Vitalik Buterin (Founder of Ethereum) introduced the Scalability Trilemma in 2018. Scalability Trilemma refers to a trade-off that blockchains determine when deciding how they will design the architecture of their blockchain. In the image below, you can only choose two sides of the triangle and give up the remaining side. (PoW) blockchains are decentralized and secure, but lack speed, and (PoS) blockchains are fast(speed) and secure but lack decentralization. Today, developers tackle the Scalability Trilemma by creating Layer-2(off-chain) solutions. The Lightning Network is a Layer-2 chain on the Bitcoin network to help solve the speed problem that it faces on the base layer of the blockchain. The Lightning Network settles transactions in 7 seconds which is much faster than the base layer that settles transactions in 10 minutes. While the Lightning Network is still in its early phases, it shows that Layer-2's may compliment a consensus algorithm.
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2. What Is the Best Consensus Mechanism?
As Michael Saylor would say, “there is no second best.” But in all seriousness, there is no “Best Consensus Mechanism.” The more important question is "What's the goal of the blockchain?" Is the blockchain acting as a medium of exchange? Then it should prioritize speed and choose security or decentralization. Is the blockchain acting as a store of value? Then it should prioritize decentralization and choose security. No matter what builders choose there are drawbacks as you can’t have everything in the triangle. But I find it most interesting that Layer-2’s may resolve issues Layer-1 blockchains encounters. This leads me to my final thoughts. We are early in the blockchain revolution and the problem still stands. It's hard to believe with the emergence of Layer-2 blockchains there won't be an eventual resolution.