Skip to content. Change Language. Related Articles. Table of Contents. Improve Article. Save Article. Like Article. Prerequisites: Introduction to Blockchain technology Set 1 , Set 2 We know that Blockchain is a distributed decentralized network that provides immutability, privacy, security, and transparency. There is no central authority present to validate and verify the transactions, yet every transaction in the Blockchain is considered to be completely secured and verified.
This is possible only because of the presence of the consensus protocol which is a core part of any Blockchain network. A consensus algorithm is a procedure through which all the peers of the Blockchain network reach a common agreement about the present state of the distributed ledger. In this way, consensus algorithms achieve reliability in the Blockchain network and establish trust between unknown peers in a distributed computing environment. Essentially, the consensus protocol makes sure that every new block that is added to the Blockchain is the one and only version of the truth that is agreed upon by all the nodes in the Blockchain.
The Blockchain consensus protocol consists of some specific objectives such as coming to an agreement, collaboration, co-operation, equal rights to every node, and mandatory participation of each node in the consensus process. Thus, a consensus algorithm aims at finding a common agreement that is a win for the entire network.
Now, we will discuss various consensus algorithms and how they work. Proof of Work PoW : This consensus algorithm is used to select a miner for the next block generation. Bitcoin uses this PoW consensus algorithm. The central idea behind this algorithm is to solve a complex mathematical puzzle and easily give out a solution.
This mathematical puzzle requires a lot of computational power and thus, the node who solves the puzzle as soon as possible gets to mine the next block. Ethereum has shifted from PoW to PoS consensus. In this type of consensus algorithm, instead of investing in expensive hardware to solve a complex puzzle, validators invest in the coins of the system by locking up some of their coins as stake.
After that, all the validators will start validating the blocks. Validators will validate blocks by placing a bet on it if they discover a block which they think can be added to the chain. Based on the actual blocks added in the Blockchain, all the validators get a reward proportionate to their bets and their stake increase accordingly. In the end, a validator is chosen to generate a new block based on their economic stake in the network.
Thus, PoS encourages validators through an incentive mechanism to reach to an agreement. By committing the coins to an unreachable address, validators earn a privilege to mine on the system based on a random selection process. The core crypto-economic incentive boils down to the requirement that validators stake their own crypto——i.
Instead of considering the secondary cost of electricity to run a PoW node, validators on PoS chains are forced to directly deposit a significant monetary amount onto the network. Validators accrue rewards for making blocks and attestations when it is their turn to do so. They are penalized for not following through with their responsibilities when it is their turn to do so — i.
Penalties for being offline are relatively mild and equate to about the same as the expected rewards over time. So, if a validator is participating correctly more than half the time then her rewards will be net positive. Should a validator attempt to attack or compromise the blockchain by trying to propose a new set of data history, however, a different penalty mechanism kicks in: a substantial portion of their staked amount will be slashed possibly up to the whole amount of stake and they will be ejected from the network.
The result is a tremendous financial risk of a failed attack by a validator. To draw an analogy to PoW, it would be as if a miner who failed an attack on a PoW chain was forced to burn down her entire mining rig instead of just eating the cost of the electricity she spent on a failed attack.
Furthermore, this architecture places the security of the network directly in the hands of those maintaining the network and holding its native crypto-asset in the protocol itself.. Proof of Stake addresses the three issues of PoW chains discussed earlier — accessibility , centralization , and especially scalability :.
Accessibility: Proof of Stake blockchains do not require validators to worry about the initial hardware costs or pay attention to electricity rates in the same way miners on PoW chains must. It is, therefore, a significantly lower barrier to entry for an individual to run a validator node on a PoS chain than run a mining node on a PoW chain. There is, however, a notable barrier to accessible entry for PoS.
Validators must stake a minimum amount of crypto to run a full validator node. For Ethereum 2. For many, that is a significant amount of money and a deterrent to active participation. In the same way PoW chains have mining pools, however, there will be staking pools that aggregate the funds of participants unable or unwilling to stake 32 ETH.
The pool will stake on their behalf, and they will receive rewards as a percentage of their stake. Centralization: With reduced barriers to entry and the elimination of concerns about minimizing electricity costs, PoS networks are significantly more decentralized at the node level than PoW networks. That opens up the doors of participation and revenue generation to a much larger group of people.
Additionally, economies of scale are far lower in PoS economics than PoW. Scalability: Proof of Stake alone does not improve scalability. However, PoS architectures allow the implementation of a scalability solution known as sharding without reducing security. Sharding is a database scaling mechanism in which a blockchain is partitioned into multiple shard chains, each of which is capable of processing blocks. This relieves the blockchain from having to process each block simultaneously, and instead allows multiple blocks and, in other words, more sets of data to be processed all at once.
With Ethereum 2. In PoW networks, sharding would help scalability, but would have a consequential impact on the security of the network. Dividing a PoW network into shard chains means each chain would require less hash power to compromise. Through a provably random algorithm, therefore, PoS chains can ensure that the validators chosen to validate blocks on different chains are random, effectively statistically eliminating the chance that one validator controls enough stake to compromise the data in a block.
Whereas PoW requires the tradeoff of security to achieve scalability, PoS networks can achieve both through sharding. Ethereum 2. Phase 0 of Ethereum 2. In Ethereum 2. Each time a block is set to be proposed, at least 4 and up to 64 random committees of validator nodes will be selected from the entire pool of validators to attest the block.
In order to become a validator on Ethereum 2. Validators will need to stake 32 ETH for each validator node they wish to run. In Phase 0 of Ethereum 2. The network will require at least , ETH to be staked, divided among at least 16, validator nodes. Once the threshold is live and the genesis block is created, rewards will begin to be distributed to validators. Blockchain Explained. Accept Decline. Proof of Stake offers unique revenue-generating capabilities to ETH holders.
Understanding Consensus Mechanisms In distributed systems, a consensus mechanism is the method by which the network agrees on a single source of truth. Proof of Work Consensus Mechanism The Proof of Work PoW consensus mechanism is currently the most widely-used consensus mechanism and arguably the best understood. Figure: By the end of , Download the Ethereum 2.
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|Ethereum consensus model||Proof-of-stake is a type of consensus mechanism used by blockchain networks to achieve distributed consensus. In the context of blockchains and cryptocurrencies, proof-of-work PoW and proof-of-stake PoS are two of the most prevalent consensus mechanisms. Thus, PoS encourages validators through an incentive mechanism to reach to an agreement. We've intentionally left this page in English for now. The pool will stake on their behalf, and they will receive ethereum consensus model as a percentage of their stake.|
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