Consensus Models

Overview

As a continuation to the Blockchain fundamentals, this blog covers what is a Consensus Model and how it is the key to decentralization of Network’s processing of transactions, how a consensus is reached, adding a Block to the Network, etc.

What is a Consensus Model?

A consensus mechanism refers to any number of methodologies used to achieve agreement, trust, and security across a decentralized Blockchain network.

Unlike traditional Applications or Organizations where decisions are made by the Application Owner or designated individual(s), Blockchain relies reaching consensus for every aspect of the Network, weather its adding a Block to the Network or making changes to the code.

Different Blockchain Networks uses different consensus models and the procedure on how to reach a consensus is something which is part of its Blockchain code.

Transaction Management

Each transaction must be vetted by certain the nodes participating in the Blockchain Network and a consensus must be reached that the Block containing the transaction is a valid one before it can be added to the chain. This validation must be validated by other participants in the Network and reach a consensus before Block is added.

Blockchain Management

In a traditional organization, decisions are made by a certain set of individuals in the hierarchy. Unlike that, in a Decentralized Autonomous Organization, also known as DAO, there is no central leadership. In a DAO, decisions for a Blockchain Network like the rules, features, governance, etc. are all made via proposals and community participants vote on these proposals. This whole process of reaching a consensus is also coded and made an integral part of Blockchain Network for a DAO organization.This is not a focus point for this document but plays a broader role in the consensus as a whole in the Blockchain dynamics.

Common Consensus Models

There are different kinds of consensus mechanism algorithms, each of which works on different principles.Proof of Work and Proof of Stack are two most commonly used consensus models. There are other models being used by many other Blockchain Networks.As you can imagine, agreeing on something with a large number of people is bound to lead to complications. This is where consensus algorithms come into play. The most common ones are Proof of Work (PoW) and Proof of Stake (PoS). No matter which one has been chosen by the Blockchain Network, they both have a crucial factor in common – reliance on full nodes for enforcing of rules and validation of transactions.

Proof of Work (PoW)

PoW is one of the widely used consensus models. The most popular Blockchain Network Bitcoin uses this model before Block is added to its network.In this consensus model –

Complex Problem is thrown at ALL the Network Nodes which requires heavy computational effort to solve.
All nodes work to solve the problem. Whichever node solves the problem first gets to add the Block to the chain and will be rewarded.
51% of the nodes must agree on the outcome of the complex computational problem.
In order to add a malicious Block, you need to have computational power of over 51% of the Network.

Proof of Stake (PoS)

PoS is also one of the widely used consensus models. The second most popular Blockchain Network Ethereum uses this model before Block is added to its network.In this consensus model –

All Network nodes must stake some native currency of the Network in order to participate in the Network.
Unlike PoW, a particular node is chosen by the Network Algorithm. The chosen node carries out the processing of transactions and adds the Block to the Chain.
There is no reward in PoS, rather a small transaction fee is paid to the processing node.
51% of the nodes must validate the results of the processing the chosen node has done. In case there is no consensus met, the node is punished by taking out some staked coin from it.
In order to add a malicious Block, you need to have computational power of over 51% of the Network.

As all nodes compete against each other and try to solve the exact same complex problem in the Proof of Work consensus model, a lot of computational power and energy is wasted. That’s where Proof of Work shines, there is only one node which is selected by algorithm and is assigned to process and rest of the nodes are responsible to validate.

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