Ethereum after Merge – what have changed?
What is a consensus algorithm in the blockchain? Since decentralized networks require tools to agree on decisions and to ensure overall reliability, a mechanism for coordinating system processes has been developed. This mechanism is called a consensus algorithm. It is a decision-making procedure aimed to prevent a network from centralized control and to ensure that everyone follows the rules.
One of the main differences between various cryptocurrency networks is the type of consensus algorithms used.
In the article about Ethereum Merge (http://www.inmost.pro/blog/ethereum-merge/), we talked about the two currently most commonly used algorithms: proof-of-work and proof-of-stake. Both have their pros and cons, their supporters and opponents. And while the crypto industry rapidly evolves, developers will continue to come up with new solutions searching for the perfect one.
Let us now take a look at what alternative consensus algorithms exist, although they are less popular than proof-of-work and proof-of-stake.
Unlike the proof-of-work, this algorithm is not very energy consuming. Miners do not need to invest in physical resources - powerful hardware. Instead, they invest cryptocurrencies (coins) to be selected for mining and validation of a new block. Coins sent for burning can no longer be returned. The more coins burned, the higher the chance of being selected as a validator. The system provides a reward for miners to cover the initial cost of the burned coins within a certain time.
One of the main drawbacks of this algorithm is that it does not really reduce energy consumption, since in most cases bitcoin coins mined with proof-of-work are used for burning.
Also, this algorithm lacks speed, and since it is not yet widely used, its efficiency and security still need to be tested.
Proof- of- Authority(PoA)
This algorithm is based on a reputation concept that uses a limited number of block validators. Blocks and transactions are verified by pre-approved participants with confirmed identities who act as system moderators. These system moderators validate blocks and transactions.
To be selected as a validator, a candidate must be trustworthy and have no criminal record. Reputation is a major investment here, as confidence in the identity of the validator ensures the security and reliability of the entire network.
It is clear that this approach, in addition to disclosing access to the identity of the validator, has another significant flaw - centralization. However, this factor makes PoA attractive for large enterprises and private use.
Delegated- Proof- of- Stake (DPoS)
DPoS consensus is achieved by voting of the delegates (third parties) authorized by the stakeholders, with voting power proportional to the number of coins each user holds. We can admit that the mechanism of this algorithm also relies on the reputation of voters. In case of suspicion of manipulation or rules violation, the community can replace the delegate at any time.
Delegated-proof-of-stake was designed to be more efficient than the proof-of- stake and proof-of-work consensus algorithms, especially in terms of speed of transaction processing.
One of the main problems with DPoS consensus is the possibility of collusion between delegates. This can lead to centralization of the network and increase vulnerability to attacks.
This is an algorithm that prevents high resource usage and high energy consumption. Its concept was invented by Intel.
Determining the node that gets the privilege of adding a block is a kind of lottery in which all participants of the network have equal opportunities. Each node in the blockchain generates a random wait period and goes asleep for this specified amount of time. The node with the shortest waiting time "wakes up" first and includes a new block into the chain, passing the necessary information to the entire network. The same process is then repeated to find the next block.
The cause of concern regarding PoET is a recently discovered vulnerability in Intel's technology, which serves as a foundation of the protocol. In addition, the reliance of consensus on third-party technologies - Intel, runs against the paradigm that cryptocurrencies are trying to implement with blockchain networks - removing the need for trust in intermediaries.
It allows mining equipment to use the available hard drive space on the network to determine mining privilege instead of using the computing power of the device. The larger the hard drive, the more possible solution values can be stored on it, the higher is the chance for the miner to match the required hash value from his list, providing a better chance of achieving a reward.
Despite the fact that the mining process is part of this protocol, it is considered to be less energy consuming as there is no need for super powerful hardware.The disadvantage of this protocol is insufficient security and vulnerability to malware attacks.
This is far from a complete list of existing consensus algorithms.The listed algorithms are used quite infrequently. They have good potential, but there is still a lot of room for improvement.
Even though proof-of-work is still the most commonly used algorithm today, Ethereum's recent move to proof-of-stake looks like a bit of a gold rush among companies looking for the perfect consensus algorithm to move the industry forward.