UNDERSTANDING WHAT A CONSENSUS ALGORITHM IS AND WHY THEY EXIST
In most data management systems, a central administrator has the power to manage and update any centralized system, such as a database holding critical information. Any updates, such as adding or removing information, are managed by a central authority, which is solely responsible for keeping accurate data. Alternatively, decentralized, self-regulating public blockchains function on a global scale without relying on a single authority. They include contributions from hundreds of thousands of participants who work on verifying, validating, and growing the blockchain.
Considering the blockchain’s constantly changing state, these publicly shared ledgers need an efficient, fair, real-time, and secure method to verify that all transactions on the network are authentic and that all participants agree on the ledger’s status. The consensus algorithm, which is a system of rules that decides the legitimacy of contributions made by the different participants of the blockchain, i.e., nodes or transactors, performs this crucial role. These participants can be located all around the globe, yet still, work towards the same goal.
There are a variety of consensus algorithms, each of which runs on a distinct set of principles. The consensus algorithm chosen for a given blockchain is typically dependent on the objectives of that blockchain. Each algorithm comes with its own set of pros and cons.
The two most popular consensus algorithms to date are Proof of Work and Proof of Stake. Proof of Work’s model relies on computational investment while Proof of Stake’s model relies on monetary investment. There are also a variety of other consensus algorithms, including but not limited to, Delegated Proof of Stake, Proof of Authority, Proof of History, and Proof of Importance.
Proof of Work (PoW) is a widely used consensus algorithm in cryptocurrency networks such as Bitcoin and Ethereum. It requires a participating node to prove that the work they have completed and qualifies them to add new transactions to the blockchain. However, the whole bitcoin mining mechanism consumes an abundance of energy and takes a long time to process.
Proof of Stake (PoS) is a popular consensus technique that originated as a low-cost, low-energy alternative to the Proof of Work (PoW) process. It entails assigning a participant node responsibility for keeping the public ledger in proportion to the number of virtual currency tokens it holds. However, this consensus algorithm has several disadvantages. To start with, it has the disadvantage of encouraging holding coins rather than utilizing them.
For wider adoption of blockchain technology, the industry needs to find a consensus algorithm that will leverage all the positives of blockchain, without as many negatives. This is where Proof of Ethic, a novel, patent-pending consensus algorithm comes into play. Currently, the HELO™ blockchain is the only blockchain operating on this consensus. Proof of Ethic will revolutionize the space, providing the superior consensus algorithm for the future of blockchain. Learn more about how Proof of Ethic works by staying involved in our community for the latest updates.