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What Is The New “Proof Of Staked Activity” Consensus? How Does It Work?
What is the new proof of staked activity consensus? What are consensus? Consensus mechanisms and types of consensus mechanism, all explained in this article. (12 min read)
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As blockchain technology continues to revolutionize financial systems, the backbone of these blockchains are consensus mechanisms. As the blockchains keep evolving, so do their consensus mechanisms. A new type of consensus known as “Poof Of Stake And Activity” (POSA) has been making a buzz lately. It is launched backing the native token (FTN) of the Fastex ecosystem. In this article, we will delve into what are consensus mechanisms, how they work and understand how the latest POSA mechanism works.
What Is Consensus And Consensus Mechanism
In the context of cryptocurrencies, consensus refers to the act of making sure that everyone on the network confirms the blockchain’s current state. This indicates that everyone has the same blockchain version and has verified all the transactions that have taken place on it.
Consensus is reached by using a consensus mechanism, a set of guidelines and procedures that each network member (Nodes) must adhere to. The guidelines and procedures are usually a set of agreements and algorithms used to assure that cryptocurrency runs properly.
The network ensures that everyone cooperates to maintain the blockchain’s integrity and prevent fraud, by adhering to these guidelines.
In simple terms, the consensus in cryptocurrency is like a group of people working together to make sure that everyone agrees on what has happened, and what will happen, in the blockchain network. The process of doing so is known as the consensus mechanism.
History Of Consensus Mechanisms
Consensus Mechanisms became popular in the early days of Bitcoin. When the white script of bitcoin was made available, it contained a section of “proof of work” (POW). POW is still used by many cryptocurrencies today. In POW, Miners have to solve complex mathematical problems to validate transactions and add them to the blockchain.
Following the success of Bitcoin, other consensus mechanisms, such as Proof of Stake, were proposed (PoS).
PoS is a mechanism that allows a person to validate transactions and add them to the blockchain based on the number of coins they own, or “stake,” rather than computational power.
Other proposed consensus mechanisms include Delegated Proof of Stake (DPoS), a variation of PoS that allows a smaller group of validators known as “delegates” to add blocks to the blockchain, and Byzantine Fault Tolerance (BFT), a mechanism that uses consensus among nodes to reach agreement on the state of the network.
Also, Proof of Activity (PoA), which is a consensus mechanism that combines elements of both Proof of Work (PoW) and Proof of Stake (PoS). Over the years, new consensus mechanisms have been proposed and implemented, each with its unique characteristics and trade-offs. Proof Of Stake And Activity (POSA) Being the latest introduced consensus. It has a working which combines the mechanism of POS and POA consensus.
Why Consensus Mechanisms?
To ensure the integrity and security of the blockchain, the decentralized ledger that records all transactions and consensus mechanisms is implemented in cryptocurrency.
They are used to validating transactions and add them to the blockchain in the absence of a centralized authority. They are like the Heartbeat of the whole blockchain machinery, without them, the blockchain ceases to work and without blockchains, cryptocurrency would not exist.
Consensus is used to validate network transactions and to prevent double-spending, which occurs when someone spends the same digital currency multiple times.
They also aid in preventing malicious users from altering the blockchain or launching network denial-of-service attacks.
Furthermore, by implementing consensus protocols, a cryptocurrency network can ensure that new blocks are added to the blockchain on a regular and consistent basis, which is critical for the network’s smooth operation.
Understanding Consensus Mechanisms
Let’s dive into understanding different types of Consensus Mechanisms.
Proof Of Work (POW)
In PoW, “mining” is the process of using processing power to solve challenging mathematical puzzles.
These puzzles are intended to be challenging to solve but simple to verify. Once a problem has been resolved, a miner can produce a new block and add it to the blockchain.
The term “mining a block” also applies to this operation. The challenge difficulty is dynamically changed to maintain a constant average time to mine a block. The “block time” is referred to as this.
The block time for Bitcoin, for instance, is 10 minutes. While in the case of Ethereum, it’s 10 seconds. The solution is verified by additional miners once a block has been mined and broadcasted to the network.
If the answer is accurate, the block is uploaded to the blockchain and the miner receives payment in the form of a set number of coins for their efforts. “Block reward” is the name of this procedure.
High levels of security are built into the PoW consensus mechanism.
It does have some drawbacks, though, including significant energy consumption due to the high computing demands, which makes them unsustainable for the environment and the potential for mining power to become centralized. Which is against the very essence of blockchain technology and cryptocurrency.
Some of the more popular examples of cryptocurrencies that work on POW consensus are, Bitcoin(BTC), Litecoin(LTC) and Dogecoin (DOGE).
Proof Of Stake (POS)
POS (Proof of Stake) consensus uses validators who stake their cryptocurrency as security to validate transactions and create new blocks as opposed to PoW (Proof of Work), which depends on miners solving challenging mathematical problems to validate transactions and create new blocks. Staking is the process of storing a certain amount of the blockchain’s native cryptocurrency in a wallet and “staking” it as collateral.
This collateral is used to “vote” on transaction validity and the creation of new blocks.
The more cryptocurrency a validator stakes, the greater the “weight” of their vote and are rewarded with transaction fees and/or new cryptocurrency.
POS has relatively less energy consumption and is faster regarding the POW consensus. Some of the challenges faced by POS consensus is, POS may result in wealth concentration because those with the most cryptocurrency are more likely to validate blocks and earn rewards. More susceptible to a “long-range attack” where an attacker can create an alternative chain and convince the network to switch to it.
The POS algorithm can be subject to certain attacks like “stake grinding” where the attacker can manipulate the randomness of the algorithm to increase the chances of being selected as a validator
The most popular examples of crypto operating on POW consensus are, Polkadot, Cardano, Solana and Ethereum.
Delegated Proof of Stake (DPOS)
Delegated Proof of Stake (DPOS) is a Proof of Stake (PoS) consensus mechanism used to secure a blockchain network.
Token holders in DPoS vote for a few “delegates” or “witnesses” who are in charge of validating transactions and creating new blocks. It operates in a cycle of “rounds” in which token holders vote for delegates.
The number of votes cast for a delegate is proportional to the number of tokens held by the voter.
The top-selected delegates are the next round’s validators, responsible for validating transactions and creating new blocks.
Validators are typically compensated in the form of transaction fees and/or newly minted coins.
If a validator is found to be acting maliciously, token holders can “un-elect” them and replace them with a different delegate.
This mechanism is intended to provide an economic deterrent for malicious validators to act maliciously, as they can be replaced if they fail to perform their duties properly.
DPoS allows for a smaller number of validators to secure the network, making it more efficient than traditional PoS, also enables faster transaction times and more robust decision-making.
However, the DPoS algorithm can be subject to certain attacks like the “Sybil attack” where an attacker can create multiple identities to sway the vote in their favor. Also, DPoS relies on voter participation, if voter turnout is low, it can lead to a small group of voters controlling the network.
Byzantine Fault Tolerance (BFT)
Byzantine Fault Tolerance (BFT) is a way to make sure that all the computers in a network agree on the same information, even if some of them are not working correctly.
This is done by having the computers talk to each other and check that they all have the same information. If a computer is not working correctly, the others can ignore it and still agree.
There are several variations of BFT, but one of the most common is called “Practical Byzantine Fault Tolerance” (PBFT).
In PBFT, each node (group of validators) proposes a block in a predetermined order.
The other nodes will then validate the proposed block and reach an agreement on its validity. Once a super majority (usually 2/3 or more) of the nodes have agreed on the block, it is added to the blockchain.
If a malicious node is detected, the other nodes will exclude it from the consensus process.
BFT algorithms, such as PBFT, are thought to be highly secure and efficient because they can reach consensus quickly even in the presence of Byzantine failures.
However, some drawbacks of BFT are, Its algorithms require a high level of communication among nodes, which can lead to increased network traffic and latency. Also, it can be computationally expensive, requiring more resources than other consensus mechanisms.
Some of the most popular examples of crypto using BFT consensus are, Bitcoin and Ethereum.
Proof Of Authority (POA)
Proof of Authority (PoA) is a way to make sure that a blockchain network stays secure by having a group of special computers, called “validators,” check and approve all the transactions.
These validators are chosen based on their trustworthiness and reputation. They are responsible for creating new blocks and keeping the network running smoothly. PoA is used in private or consortium blockchains where the people using it know and trust each other.
It is considered more secure and efficient than some other methods, but it can be more centralized.
PoA can be used in private or consortium blockchains with known and trustworthy stakeholders.
It’s commonly used in enterprise-level applications like supply chain management, voting systems, and digital identities.
Some drawbacks of POA are, they can be vulnerable to a “single point of failure” if a validator misbehaves or goes offline, and the network can be impacted. It can be less transparent.
Also, can lack incentives for validators to continue participating in the network, as they are not rewarded through mining or staking.
Proof of Elapsed Time (POET)
Proof of Elapsed Time (PoET) is a way for computers in a blockchain network to take turns creating new blocks. These computers, called validators, wait for a random amount of time, generated by a trusted entity before they can create a new block.
The validator that has waited the shortest amount of time gets to create the block and get a reward. validators compete to create the next block by waiting for a random amount of time, called the “sleep time,” which is generated by a trusted entity called the “validator manager“.
When a validator’s sleep time is up, they can make a new block and add it to the blockchain. The idea is that validators who sleep less will have a better chance of creating a new block and earning the associated rewards.
PoET is most commonly used in consortium blockchains (a group of private blockchains), where the validators are known and trusted.
It’s used in business-critical applications like supply chain management, voting systems, and digital identities.
POET can be vulnerable to a “single point of failure” if the validator manager goes down or misbehaves, causing the network to suffer. It may have scalability issues, as the number of validators may be limited by the sleep time generation process.
The New Proof of staked activity is used in combination with the POS and POA (proof of activity) where the user’s assets staked are considered with additional consideration of their activity on the blockchain.
The user’s actions on smart contracts are monitored. In addition to the number of assets, they put at stake. This is a fairly new type of consensus and its features are said to be more secure and transparent than other consensuses.
There is an ongoing debate about which consensus mechanism is the best, as each one has its advantages and disadvantages. POW is widely used and well-established, but it is also energy-intensive. POS is considered to be more energy-efficient, but it can lead to wealth concentration.
DPOS aims to address this issue by allowing token holders to vote for validators, but it can lead to the centralization of the voting power. BFT is considered to be highly secure, but it can be less scalable. POA is well suited for consortium blockchains where the stakeholders are known and trustworthy, but it can lead to centralization. Can The POSA consensus stand the test of time? Currently, Some more estimates and analyses are needed to predict.