9 Types of Consensus

Mechanisms That You Didn’t

Know About
Reviewing lesser known consensus mechanisms and their
implementations in distributed ledgers.

*This article is a collection of posts that were originally

published in The Daily Bit.*
Photo by rawpixel.com on Unsplash

Consensus Mechanisms — Class
In Session
Over the next several days, we’ll be taking a closer look at some
of the lesser known consensus mechanisms that are used in
blockchain networks. After breaking down the features of each,
we’ll pivot to a case study (or two) of them in use. Good? Let’s
begin.
From the top — what is a consensus mechanism?
The term is self-defining: Consensus mechanisms are ways
to guarantee a mutual agreement on a data point and the state —
 think of this as the layout — of all data. If applied in the
classroom, a consensus mechanism would make it possible for
every student to submit identical exams.

With blockchains, consensus mechanisms ensure that each

player in the network has a copy of the same ledger. And, as
expected, different consensus mechanisms impact 1) the
security, and 2) the economic framework of the overarching
cryptographic protocol (code of conduct) in varying ways.

One mechanism to rule them all: Not quite. Like a box of

chocolates, consensus mechanisms come in a number of forms
and won’t bring about the same result for every palate, or
blockchain network, where they are used.

And because it’s so early in the process, it’s hard to say what
consensus mechanisms will be the most popular down the road.
Creating consensus mechanisms involves the study
of mechanism design, which is a two-step process:

 Consider the desired outcome.

 Work backward to create a game that incentivizes players to
fulfill that outcome.

Bitcoin’s consensus mechanism: Proof-of-Work. More on

others to come.

1. Proof of Elapsed Time (PoET)

It’s finals season, and thirty students are grinding through their
last exam. Taking a look up at the clock, an undergrad notices
that the timer says “Sixty minutes remaining”. One hour later,
everyone is out the door and off to the races.

The Proof of Elapsed Time (PoET) consensus mechanism

operates in a similar fashion. For starters, PoET is used on
a permissioned blockchain, meaning that every node in the
system must be (1) identifiable, and (2) accepted into the
network. In the class, all students know each other, and
everyone had to be enrolled in the course to take the final.

But, there’s a twist. With PoET, the “timer” is different for

each node. Every participant in the network is assigned a
random amount of time to wait, and the first participant to
finish waiting gets to commit the next block to the blockchain.
Similar to pulling straws, but this time, the shortest stem in the
stack wins the lotto.

PoET In Action: The PoET consensus mechanism was

conceived by Intel in 2016 and can be used by Hyperledger
Sawtooth, a platform that can build, deploy, and run distributed
ledgers.

Difference from Proof of Stake: By requiring each node to

“rest”, PoET is believed to be more energy efficient than PoS.

2. Proof of Authority (PoA)

Blockchains are cutting edge technology, but they have their
limitations. Like most systems, blockchains have tradeoffs.
Vitalik Buterin refers to this as the ‘Scalability Trilema’,
identifying three desired attributes of blockchains:

 Scalable
 Decentralized
 Secure

Take Two
Similar to the collegiate trilema of ‘Good Grades’, ‘Enough
Sleep’, and ‘Social Life’, only two categories can be held at once.
And with the growing number of dApps being built on
Ethereum and other blockchain platforms, short-term scaling
solutions are in high demand.

Unlike Proof of Stake consensus where nodes stake monetary

value, Proof of Authority consensus stakes the
actual identities of the nodes in the system. It’s a spin on PoS
consensus that addresses a risk of how a stake can be valued by
participants in a network.

Source: POA Network

Financial capital versus social capital

While PoS puts financial capital on the line, PoA consensus
aligns incentives by placing social capital at risk. Suppose
someone staking their coins with PoS consensus has a net worth
of $1 billion. There is a greater incentive to act in the best
interest of the network if more of their net worth is lodged in a
node. That means wealthier participants could go AWOL as they
can eat any financial loss they would receive for doing so.
Be mindful of the validators. They’re the nodes that stake
their reputation on the network. As compensation, validators
are the only nodes allowed to validate blocks. Several things to
keep in mind when talking validators:

 Ensure a standard, robust process for identifying validators.

 Validators should be scarce, so there is a desire to hold the
title.
 Have a reliable process for establishing .authority of all
validators

Proof of Authority in action

By identifying validators, PoA consensus becomes inherently
centralized. Therefore, it’s best suited for private blockchains
and consortiums, such as a group of banks or insurance
companies.

Projects using
PoA: Kovan, Rinkeby, Giveth, TomoChain, Rublix, Swarm
City, Colony, Go Chain.

3. Proof of Capacity
After reviewing several consensus mechanisms, we believe that
we discovered a pattern: Most of the lesser known types of
consensus are intended to be an improvement upon either Proof
of Work or Proof of Stake.

Our reaction: Hmmmm. Makes sense. In fact, this is similar

to the concept of hard forks and why there are so many altcoins.
New coins are an attempt to overthrow the “prehistoric”
codebase of Bitcoin, offer a more advantageous solution to
Ethereum, or solve more specific problems in the industry. The
open source nature of the code fosters healthy competition.
Timehop Tuesday
With healthy competition comes… healthy analogies. It’s high
school, and the closing bell just rung. All students take buses
home, and each bus has a different number of seats that fall
between 50 and 100. Each day, students walk onto a bus at
random.

Consider that “boarding” process the first step of PoC

consensus, which is known as “plotting”. In short, plotting
involves determining all possible solutions to the hashing
algorithm before the mining process begins. The second step is
the actual mining, aka the energy demanding process of driving
the bus.

The more seats, the better. That’s the gist of PoC. The
shortest solution to the mining algorithm — that is stored in
advance, remember — grants the rights to mine the next block.
In our metaphor, that “solution” is liken to the student who lives
closest to school (and probably doesn’t need to ride the bus to
begin with).

Perks:

 Efficient — Less energy used than Bitcoin transactions.

 Cheap — No need for specialized mining software.
 Distributed — Excess storage space is more accessible.

PoC in action: Burstcoin. IRL, the free space on your hard

drive is used to mine coins with the solutions plotted in
advance. A more detailed explanationon Burst’s PoC consensus
can be found here.
Source: Bitex.in

4. Proof of Activity
At their core, consensus mechanisms have one thing in
common: They’re all trying to prove something. In Proof of
Work, that something is miners showing that their mining
hardware “worked” to solve a mathematical puzzle. With Proof
of Stake, it’s network nodes showing that they “staked” financial
capital on validating transactions.
What’s being “proved” in Proof of Activity: Short
answer — activity. Long answer — direct involvement in the
mining process and signing of the next block in the blockchain.

Proof of Activity doesn’t try to reinvent the wheel as much as

other consensus mechanisms spun off from PoW and PoS.
That’s because PoA is a hybrid of the two. The mining process
begins as your run-of-the-mill Proof of Work consensus shifts to
a Proof of Stake approach once a miner finds the next block.

What’s different:

 New blocks only contain a block header and the miner’s

reward address. In PoW, more data, such as a transaction
root and a nonce, are in blocks.
 A random group of validating nodes are then required to sign
a new block. The odds of being selected increase with a
node’s purse size.
 Mining fees are split among the miner who found the block
and the nodes that helped sign the block into existence.

PoA in action: Decred (DCR). The project has been around

since 2016.

For the scholars: The original research paper for Proof of

Activity can be found here.

5. Proof of Burn
At first glance, applying the “proof of ___” metric to PoB
seems… complicated. How does one “burn” digital currencies
that, at their base level, are strings of code?
Source: Scooblr

The answer: Eater addresses.

Also known as an unspendable address, eater addresses are on
the receiving end of all proof of burn transactions. They’re
storage cells for coins sacrificed through proof of burn
consensus.

Because addresses are generated randomly, it’s believed that

nobody (not even miners) can determine the private key. So, the
name abides — coins are effectively eaten.

Skin in the game

Of course, there’s an incentive for burning a hole in your pocket.
A user who gives up short term wealth proves that they are
following the consensus mechanism and is rewarded with a
lifetime privilege to mine the next block on the blockchain.
More burnt coins = greater odds of being
selected. However, stakes decline over time, meaning that
you’ll need to burn tokens every now and then to continue
receiving block rewards at about the same rate.

Pros: Like we mentioned, proof of burn consensus sets you

back in the short term. The possibility for larger gains in the
future could incentivize users to remain involved in the project,
thereby preserving the network.

Cons: Proof of burn is comparable to Plinko — burning coins

doesn’t guarantee that you’re selected to mine future blocks.
And similar to proof of stake, the process favors whales who can
commit more capital, tilting the odds in their favor.
PoB in action: Slimcoin uses proof of burn as a consensus
algorithm, and Counterparty uses proof of burn to “seed”
tokens. Seeding is a way to bootstrap one cryptocurrency by
burning another. With Counterparty, users transfer Bitcoin to
an eater address and receive XCP tokens in return.

6. Delegated Proof of Stake (DPoS)

Today’s consensus mechanism takes us for a democratic spin.
As you might’ve guessed, DPoS is a twist on Proof of Stake
consensus that relies upon a group of delegates to validate
blocks on behalf of all nodes in the network.

Roll Call
There are typically 21 to 100 delegates elected in networks using
DPoSconsensus. That headcount is a considerable drop from the
535 Members of Congress we’re used to seeing in the states,
though as is the case here — and for Charmin’ Ultra — less is
more.

The reason: Organization. Was your class ever instructed to

line up in height order? Finding your position among a small
group of peers is difficult enough. Roping in the entire grade
makes it unnecessarily dicey.

The same idea applies with delegates. It’s easier for them to
assemble themselves and allocate slots in which each delegate
will publish their block when fewer parties are involved. And
should a delegate fall out of line by either late or faulty
reporting, nodes within the network can vote in a replacement.

Pros: Scalable, energy efficient, cheap transactions.

Cons: Partially centralized (Scalability Trilemma).

DPoS in action: BitShares, EOS, and Steemit all use Delegated
Proof of Stake. However, the more interesting detail is that all
projects are the brainchild of Dan Larimer.

After all, he’s also the mastermind behind Delegated Proof of

Stake consensus.

7. Byzantine Fault Tolerance

A Thousand Years Ago…
A collection of Byzantine generals circled a city with their
respective divisions for an upcoming attack. However, in order
for the siege to go swimmingly, they needed to come to a
consensus regarding when to strike. If the generals didn’t
coordinate successfully, the assault would fail.

Source: SlidePlayer

Appropriately named the Byzantine Generals Problem (BGP),

this classic dilemma alludes to a more popular type of
consensus for cryptographic systems known as Byzantine Fault
Tolerance (BTA) that calls upon a group of “generals”, or
validators, to confirm that the information delivered to them is
trustworthy.

Here’s the problem: Life was harder back then — the generals

couldn’t schedule a conference call the night beforehand to
finalize the strategy. A messenger would need to travel through
the city and relay the message to each of the appropriate
divisions.

But what if they are captured and the plans are read? Or
tampered with? As it turns out, determining a way to ensure
that the received message is trustworthy is quite problematic.

BTA in action: We came across two spinoffs of BTA

consensus, though others could exist (this is crypto, after all —
 lots of room for imagination).

 Practical Byzantine Fault Tolerance: Used by Hyperledger

Fabric, PBFT uses less than 20 pre-selected validators to
determine consensus for the network.
 Federated Byzantine Agreement: Stellar and Ripple employ
variations of FBA, which calls for each general (node) to
establish truth for each of their respective chains.

Pros: Low transaction cost, high throughput, network

scalability.

Cons: Centralized, permissioned.

A simplified explanation of the Byzantine Generals Problem can

be found here, a more complex breakdown here, and the
original essay from 1982 here.
8. Proof of Importance
As we’ve seen, different consensus algorithms can be
incorporated into a decentralized network in order to
incentivize users to follow a particular set of rules. And there
isn’t a ‘one size fits all’ type of solution here — each mechanism
has its own list of pros and cons, which have varying degrees of
success depending upon the action that network users are
encouraged to follow them.

Proof of Importance recognizes that other factors can be taken

into account when determining what nodes provide the most
value to a network. For example, Proof of Stake consensus risks
giving too much power to those with large war chests in that a
smaller percentage of total wealth could be committed to the
network, which may not encourage one to act in the network’s
best interest.

Key factors:

 Net transfers, or total spent in the last 30 days.

 Vested amount of currency to create blocks.
 Nodes that are clustered, aka more intermingled, are more
heavily weighted.

Improvements on Proof of Stake:

 Less chance of hoarding. Traditional staking requires

folks to commit positions and that’s it — no value is being
transferred throughout the network. Net transfers provide a
better grade to those who operate circulation stations.
 Nothing is at stake in PoS. The marginal cost of creating
a block is zero, which means that users can continue
validating blocks with PoS in the event of a fork. That risks
siphoning users away from the more popular network as
time progresses.
PoI in action: New Economy Movement (XEM) introduced
Proof of Importance. And to deploy a masternode, or stake,
you’ll need to hold a minimum of 10,000 XEM. Today’s market
prices puts that cost at around $4,000.

9. Direct Acyclic Graphs (DAGs)

Yesterday’s newsletter drilled home the idea that all consensus
mechanisms are created equal. The same applies for different
types of distributed ledger technology. For non-blockchain
database structures, DAGs are a popular form of consensus that
have their respective strengths and weaknesses when it comes
to managing data.

Mario Kart fans, please stand up. Remember Yoshi Valley?

Upon entering the main part of the track, drivers can choose
one of several pathways, which ultimately converge with other
routes deeper into the track.
Source: Mario Kart Wiki

Substituting the Nintendo character and go-kart analogy with a

more complex, principle-based set of engagements between
nodes and transactions introduces the idea of direct acyclic
graphs. The ELI5 explanation of DAGs is dots with lines
pointing to other dots, with all lines pointing in the same
direction.

Source: Stackoverflow

It Takes Two To Tangle

IOTA uses a consensus algorithm known as Tangle, which is a
type of DAG. To send a transaction, a node must validate two
transactions that already took place. And as more transactions
are sent through the network, that system of checks and
balances strengthens.

Advantage over blockchain: No transaction fees.

Transactions are approved as users contribute to the security of
the network by confirming past transactions. Additionally, the
IOTA network is “asynchronous”, meaning that not all
transactions occur at the same time as they do in a blockchain
database structure.
Application: Monetary transactions represent a small subset
of the interactions that take place between our connected
devices. Tangle is said to be scalable and can be implemented at
a low cost, which could present a more advantageous database
structure than a blockchain for exchanges across the Internet of
Things.

IOTA whitepaper and explanation of the tangle here.

If we missed any consensus mechanisms, let us know below!

We’ll cover each in a future edition of The Daily Bit and post the
updates here.