Which Consensus Algorithm Is The Most Advanced One?
Which blockchain is the most advanced one? People argue about it all the time. The bear market got rid of all those small coins that claimed to be better than Bitcoin for no reason. Now it’s totally clear that Bitcoin is going to hold its crown as the main cryptocurrency, and the amount of transactions per second isn’t the most important factor for adoption.
As for now, the industry shifts to a more reasonable narrative – there won’t be only one blockchain; all of them can be used for business purposes. However, some consensus models show higher performance in most cases (particularly the Delegated Proof-of-Stake model), and we’ll try to compare them and find their pros and cons.
What is a consensus model?
All blockchain types rely on the agreement between their block producers or nodes. That’s what consensus is – an agreement. It doesn’t require trust between all nodes: nobody is able to do harm to the network unless they have the majority of its resources. If we talk about large networks, it’s nearly impossible and definitely not worth it. So, what types of consensus models can be named?
- Delegated Proof-of-Stake;
Now we’re going to review them one-by-one.
Proof-of-Work (PoW) is the most basic consensus model, used in the majority of the old blockchains, such as Bitcoin, Ethereum, Monero, Litecoin, DASH, and Bitcoin Cash. The list can go on and on. PoW is the simplest method of achieving consensus, but it’s also the most resource-demanding one – all nodes in the network solve the same mathematical tasks, trying to be the first one to find the correct solution. The node which finds the solution receives the reward and transmits the answer (a cryptographically hashed sum of a previous block coupled with a random number) to the whole network. Then the block gets added to the blockchain. If two versions of the chain are found by different nodes, the longest one is considered the correct one.
“Proof-of-work has the nice property that it can be relayed through untrusted middlemen. We don’t have to worry about a chain of custody of communication. It doesn’t matter who tells you a longest chain, the proof-of-work speaks for itself” – Satoshi Nakamoto
All calculations are performed using hardware resources – ASIC miners in the case of Bitcoin and Bitcoin Cash, and GPUs in the case of Ethereum and lesser cryptocurrencies. It’s impossible to take over the network unless you have the majority of hardware resources, which makes it economically unprofitable to attack. The weakest points of this type of consensus model are the scalability and the cost of mining. These blockchains consume a lot of electricity, especially Bitcoin, and it’s impossible to scale it effectively because it’s secured only when the network is huge. Small networks, such as Bitcoin Gold, are constantly being attacked and reorganized because they don’t have enough miners.
Anyway, Proof-of-Work has its advantages: as it requires to spend A LOT of resources on mining, all participants are incentivized to always stick to the longest chain, because only then they get their rewards. All other types of consensus don’t have this incentive, so they are more vulnerable to attacks. PoW is still the most stable algorithm,
Proof-of-Stake (PoS) is a much more advanced consensus model, which is based on a randomly selected amount of validator nodes that stake the native tokens of the network. The nodes that have the highest stake, also have the highest chance of generating new blocks. Block generators are rewarded according to the size of their stake. That motivates stakers to hold their received rewards, staking them as well.
The Proof-of-Stake consensus model has many advantages compared to the PoW model. It’s definitely greener, because it doesn’t consume electricity, and the PoS assets (tokens) are much more liquid: they can be easily sold at exchanges. PoW miners and GPUs get outdated over time, because of the difficulty of PoW mining increases, and turns into a pile of useless metal. But most importantly, PoS blockchains can be easily scaled, reaching thousands of transactions per second. Sadly, all PoS blockchains are still in development, having been at this stage for a very long time. There are two projects that are going to be launched this year – Ethereum 2.0 and Cardano.
Ethereum is going to switch from its PoW model to a hybrid PoS one, combining both consensus models, and later will switch fully to PoS. This may take two or three years. Cardano is also to be released soon, although the exact date is unknown. So, the Proof-of-Stake consensus is a beautiful idea at the moment, and we can’t evaluate it in action. Joseph Poon, the creator of the Lightning Network, thought that Proof-of-Stake will be able to scale infinitely, as every chain can be divided into many small areas, called shards, with their own validator nodes, and every shard can verify its own amount of transactions. Overall, PoS consensus is better than PoW consensus on many levels:
“Proof of work necessarily operates on a logic of massive power incentivized into existence by massive rewards. Recovery from attacks in PoW is very hard: the first time it happens, you can hard fork to change the PoW and thereby render the attacker’s ASICs useless, but the second time you no longer have that option, and so the attacker can attack again and again. Hence, the size of the mining network has to be so large that attacks are inconceivable. Attackers of size less than X are discouraged from appearing by having the network constantly spend X every single day. I reject this logic because (i) it kills trees, and (ii) it fails to realize the cypherpunk spirit — the cost of attack and cost of defense are at a 1:1 ratio, so there is no defender’s advantage.” – Vitalik Buterin.
Even though Buterin built Ethereum on PoW initially, he didn’t like it, and for many years the Ethereum community tried to build the new version on the new consensus protocol. However, building a PoS network is a hard task. It requires solving the problem of “nothing-at-stake”, when stakers can create blocks for infinite parallel chains because it doesn’t require them to spend hardware resources, unlike PoW algorithms. Thus they have nothing to lose and still can get rewards on any chain version. Some PoS networks punish this behaviour by taking away coins of these malicious participants, it’s called “slashing”. But still, there’s no adequate response to this.
PoS blockchains are faster than PoW ones, but to reach true scalability, they have to divide all stakers to groups, called shards. Sharding allows to confirm transactions and build blocks faster because each shard can process a small part of the whole queue. But it poses a new challenge for network architects: an individual shard is more vulnerable than the whole network. So, this problem is unsolved yet. At the same time, there is a great alternative to PoS with the same scalability called Delegated Proof-of-Stake.
What is the main difference between DPoS and PoS? The answer is the number of validator nodes. PoS takes a rather idealistic approach, trying to involve all nodes directly in the process of validation. DPoS proposes another solution: it allows the choice of validator nodes for a certain period. Users can vote for validators by delegating their tokens to them, and validators share a part of their rewards with their voters. That way of sharing revenue ensures that only the best of delegates will be able to validate blocks. If they share too much, they can become unprofitable and get out of the game. If they share too little, then network users will be able to vote them out by choosing another delegate. In a DPoS system, there are usually between 21 and 100 selected delegates. It’s a fair consensus mechanism, and it’s great for all things that involve users voting on various topics.
“Delegated Proof of Stake is robust under every conceivable natural network disruption and even secure in the face of the corruption of a large minority of producers. Unlike some competing algorithms, DPOS can continue to function when a majority of producers fail. During this process, the community can vote to replace the failed producers until it can resume 100% participation. I know of no other consensus algorithm that is robust under such high and varied failure conditions.” – Dan Larimer, EOS and Steem creator
What are the examples of DPoS blockchains? EOS, Lisk, NEO, Noah, Tron, BitShares, COSMOS. All of them are fully functional now and so far, the most advanced on the market. The average throughput of these blockchains is several thousand transactions per second.
That’s more than enough for any application, and now there are countless decentralized apps, dedicated to various purposes: gaming, gambling, voting, communication, and of course, crypto exchanges. EOS is the king in the gambling sphere; it has more gambling DApps than any other blockchain. Tron also has a lot of gaming and gambling DApps.
These networks can handle a lot of users, because delegates that run block validation have very powerful hardware, and the network doesn’t have to choose block generating nodes for every new block. In EOS, the time between two blocks is 0.5 sec, and in COSMOS and Noah, it is 6–7 seconds. For comparison, the block generation time for Bitcoin is 10 minutes, for Ethereum – 10-20 seconds. DPoS can handle voting as well. The example is the Noah blockchain, which has been upgraded to DPoS recently. And according to the developer company that participated in its migration, Platinum Q DAO Engineering, it has improved its capabilities many times.
“As the blockchain with some social interactions between users, dPoS consensus is the best suited for voting purpose. The native voting feature makes everything easier, from choosing new delegates to approving system upgrades. Our users love it” – Anton Dziatkovskii, founder of Platinum Q DAO Engineering.
The DPoS consensus model can be regarded as centralized, because there’s only a limited amount of nodes, running the network. However, delegates should rather be regarded as the elected entities, serving as the extension of will and voting power of other users. If a delegate node went rogue, it would soon be voted out. Generally, the chosen delegates can only do any harm in the form of censorship, for a very limited time until the new voting, and only if they have the majority (⅔ of all delegates). There is a very low probability of this happening. As a trade-off, DPoS consensus provides the best scalability and relative security to all its users.
In this article, we’ve reviewed three different main types of blockchain consensus models. Of course, there are many more of them, including exotic ones such as Proof-of-Space, DAGs or TaPoS, but they are rarely used. Overall, these three models, PoW, PoS and DPoS will continue to be the most popular models. Why is the DPoS model is the future? It represents the current democracy in its purest form. Users don’t have to worry about setting their own nodes to confirm blocks, they can delegate their voting power to the nodes that have already earned the trust of the community and receive profit. It’s fast, doesn’t consume electricity and doesn’t kill trees, so it’s the most convenient solution. PoW blockchains have their own problems, being unable to scale, and no PoS blockchains have been released yet, so how they will perform is unknown. Consequently, DPoS blockchains won’t have any rivals in the foreseeable future.