The consensus algorithms of cryptocurrencies

Today we have heard of consensus algorithms when we talk about cryptocurrencies.

But exactly do we know what they are and how they work?

Obviously in order to function, a cryptocurrency needs a consensus structure for a lock to be validated.

If this structure is missing then the cryptocurrency would have no future and even less practical functioning.

But let’s go into more detail and see what we’re talking about and how consensus algorithms could be important.

How a cryptocurrency works

Before we start talking about consensus and therefore about algorithms, let’s briefly talk about how a cryptocurrency is structured.

Where to know that a cryptocurrency differs in its characteristics that make it different from the others.

This is because, in its structure there are details that change from crypto to crypto.

In order to function, a cryptocurrency needs a blockchain, i.e. a register where to record transactions in a time interval.

Writing to the blockchain occurs through an operation called block validation.

Validation occurs differently between crypto and can determine several factors.

One of the important factors is network security and the distribution of the participants.

In fact, if we take Bitcoin and Eos as an example, we can say that they are both cryptocurrencies but different.

Because inside gold, in the source code, they have the blockchain set differently even if they both use the same blockchain.

The detail is that they use a different consent system and therefore a different validation.

This validation is on the one hand carried out through mining then POW and on the other through voting i.e. DPOS.

So the word POW and DPOS are nothing more than consensus algorithms that allow you to validate the block and report it on the blockchain.

The consensus algorithms

Before we saw the structure of a cryptocurrency now instead we see how the various algorithms differ.

There are many algorithms to this day because they are born with the development of new projects.

In fact, in recent years many algorithms have been born but the most used are the POW, DPOS and POS because they are the ones with a more consolidated structure.

consensus algorithm table

Each of them has its own characteristic and function that can determine the fate of a cryptocurrency in the long run.

If we analyze the three types we can say that:

THE POW

Said Proof of Work or proof of work, it is the oldest consensus algorithm because it is the one born with Bitcoin.

This algorithm was the first but it is the one that best manages to solve the problem of the Byzantine Generals.
I have talked about this topic here where I explain the main problem of a distributed registry.

This consensus algorithm is also the slower and more expensive one because as transactions increase, the time and the request for power to validate the blocks increases.

In fact, Ethereum is also trying to abandon it to move to POS to increase scalability.

THE POS

Said Proof of stake that is proof of stake, it allows the consent of the block through the guarantee of the tokens.

These tokens are placed inside a wallet and keeping the wallet in a dedicated server, which allows the validation of the blocks.

Compared to the POW, this system is cheaper and faster but at the expense of decentralization.

Compared to a cryptocurrency with POW, one that uses the POS can make more than 2000 transactions compared to 2-3.

An example case is the Dash cryptocurrency.

THE DPOS

Also called delegate proof of stake is a consensus algorithm that allows the validation of blocks through the delegation.

This delegation takes place with representatives who receive their tokens as collateral and validate the blocks.

This process is on the one hand positive since the cryptocurrency has more transaction capacity but on the one hand the decentralization is restricted.

The main problem with this structure is that the power of the network is in the hands of a few, as happens for example in Eos or Tron.

Other Consent Algorithms

There are other algorithms that are used today in cryptocurrencies.

One case is that from Cardano which uses its own system called Ouroboros.

This algorithm uses randomness to work and has the POS principle.

In this article I talked about cardan and how its blockchain works.

Then there are other types like the one that uses the time to decide the block validation.

In short, they are all systems that will take more than one post to talk about it but the important concept and that the purpose is the same.

Conclusion

To conclude this article I would like to underline the importance that an algorithm has for the functioning of a cryptocurrency.

Without it, the system would not be able to function if not to completely make the crypto disappear.

The problem to date remains the scalability that all cryptocurrencies are continually called to improve.

To date, transactions have increased compared to about two years and having a slow system will lead to the abandonment of crypto.

That’s why today we try to experiment with new ways of consensus in distributed systems.

For this article, everything is waiting for you.

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