Alternative consensus algorithms. Should we give up PoW and PoS?

A few weeks ago, we covered the features of the primary consensus algorithms and examples of the blockchain projects that utilize these mechanisms. However, the crypto industry is not limited to the use of popular consensus mechanisms, such as PoW (Proof of Work) and PoS (Proof of Stake). Blockchain projects constantly seek for alternative solutions to improve their tokenomics. Startups are incentivized to improve their business models, and in the process, they develop and implement new algorithms, as well as update existing ones hoping to revitalize them. Today’s article is devoted to such alternative consensus mechanisms.

Byzantine Fault Tolerance Algorithms (BFT)

Byzantine Fault Tolerance (BFT) is a distributed network feature that allows reaching consensus even if some nodes on the network provide incorrect information or do not respond. The purpose of the BFT mechanism is to secure the system and avoid failures by using collective decision-making (by both operational and defective nodes), as well as reducing the impact of faulty nodes. The BFT derives from the “The Byzantine Generals Problem” (communication between several remote parties receiving orders from a single center).

Here are the prime mechanisms based on BFT:

– Practical Byzantine Fault Tolerance (PBFT) is an original classic consensus protocol using two voting rounds. It was introduced in the late 1990s by Barbara Liskov and Miguel Castro. The protocol is designed to work efficiently on asynchronous networks and optimized to reduce overhead costs. A high-level understanding of how two voting rounds provide network security is the basis of all classic consensus protocols. The scope includes distributed computing and blockchain. For example, Zilliqa uses PBFT in combination with PoW, while Tendermint combines DPoS and PBFT.

Pros: energy efficiency, low dispersion in rewards, and the absence of requirements for multiple confirmations of transactions.

Cons: vulnerability to Sybil attacks and poor scalability.

– Delegated Byzantine Fault Tolerance (DBFT) was developed based on the PBFT mechanism by the NEO team. It combines the characteristics of the PBFT and DPoS protocols. Each user in the NEO blockchain can select delegates. Also, this algorithm is distinguished by the development of irreversibility, defining that all transactions are 100 % final after the first confirmation. On-chain transactions are trivial, run much faster as they are built according to regulatory and business requirements.

Pros: high throughput, energy efficiency, irreversibility.

Cons: high level of centralization and lack of anonymity.

– Verifiable Byzantine Fault Tolerance (VBFT) is a new consensus algorithm that combines classic PoS, verifiable random function (VRF), and Byzantine fault tolerance (BFT). This mechanism is designed specifically for the requirements of the ONTology platform. VBFT can support the scalability of consensus groups, utilizes VRF to ensure randomness and fairness of the generation of consensus set, and finally ensures the prompt achievement of the final state. Unlike with DBFT, this algorithm eliminates the risk of centralization. In the future, Ontology plans for the VBFT consensus algorithm to be able to support up to 2401 nodes, while reaching consensus in less than 10 seconds.

Pros: no risk of centralization, high level of scalability, and resistance to attacks.

Cons: the use of the algorithm is limited to ONchain and the ONTology project.

Alternative consensus mechanisms

– Proof of Activity is a consensus algorithm that guarantees the authenticity of transactions and ensures that miners reach consensus. This is a combination of PoW and PoS. The basics of mining remain the same, and miners compete to solve the puzzle and receive rewards. At the same time, the blocks found do not include transactions. In fact, they are information templates with the title and the block reward address. After finding such a practically empty block, the system refers to the PoS algorithm. The information in the header is used to randomly select the validators to sign the block. Only token holders can act as validators, and the more coins they have, the more chances there are to sign a block and receive the reward. After the block is signed by validators, it becomes a confirmed element of the chain. The network security fee is distributed between the winning miner and the validators who have signed the block. This mechanism is used by the Decred and Espers projects.

Pros: the prevention of the chance of the 51 % attack

Cons: high energy consumption, similar to PoW.

– Proof of Burn (PoB) is an alternative consensus protocol aimed at solving the problem of energy consumption in PoW. Sometimes it is even described as PoW that doesn’t consume energy. It acts in accordance with the miners’ support policy for “burning” or “destroying” coins, which enables them to record blocks according to the number of burned coins. In other words, by burning coins, users can show their loyalty to the network, gaining the ability to “mine” and verify transactions. The method of burning coins represents the power of virtual mining. The more coins a user utilizes to support the system, the more mining power he has and, therefore, the more chances he has to be selected as the next block validator. This protocol is utilized by Counterparty, Slimcoin, and Factom.

Pros: long term miner focus is incentivized

Cons: we are again faced with the problem of centralization.

– Proof of Importance (PoI) is a consensus mechanism introduced by NEM. PoI is based on PoS, yet its distinctive feature lies in the fact that it rewards users who actively conduct transactions on the network. In order to have the right to create blocks using the PoI consensus mechanism, nodes must transmit a certain amount of coins and are selected according to the number of points that determine their contribution to the network. In PoS, this depends on the total amount of coins held, but in PoI, the estimate includes a variety of variables. The calculations are drawn from the mathematics of network clustering and page rank.

Pros: network activity is incentivized instead of asset accumulation in PoS

Cons: creating blocks does not require any resources and can be used unfairly.

– Proof of History (PoH) is a truly innovative algorithm. The solution was presented by the Solana project in order to finally eliminate an issue of the validity of timestamps in distributed networks. Unlike using the established method with timestamps, one can make certain that the action is performed at a distinct point in time after one action, but before another. Through Proof of History, we can ensure that a certain action took place at a certain point in time, before or after another action. This is made possible without the use of timestamps or external synchronizing structures. Confirmation of history is a high-frequency verifiable delay function. This means that the function requires a sequence of steps in order to obtain and evaluate the uniqueness and reliability of the published value. Solana’s implementation executes the function that uses a sequential hash system that is resistant to pre-images (images of previously prepared hashes). Thus, the output of the transaction appears as the input of the subsequent transaction. Subsequently, the current counter, status, and output are periodically recorded. The clear advantages are scalability and the eradication of the timestamps validity problem. At the moment, it is rather difficult to single out the obvious shortcomings of the protocol due to the novelty of this solution.

Summary

Blockchain technology is still under development. Therefore, the natural outcome is that the matter of the “right” consensus protocol is still at the stage of discussion and controversy. Many critical considerations, such as the level of decentralization, highlight the spirit of blockchain as a technology. At least for the moment, there is no coherence in the “right” consensus algorithm, which means that we will see nothing but intense competition in the near future.