You can do everything with the blockchain technology! It's the future technology which should be adopted by everyone. In the last article I talked about - What is Blockchain. If you didn't read that guide yet, I will request you read that at first. Today I will try to discuss about the Consensus Rule of Blockchain technology.
You are probably wondering how to add a block in the blockchain? suppose some transactions happened and together those transactions created a block. Now you have to add that block to the chain.
Will you directly add that block to blockchain? The answer is NO!
To add that block in the blockchain the full network should agree that your block is accurate. But it is not possible to convince all to validate your block. So there is a rule which is called Consensus rule or Consensus algorithm which is followed by everyone in the network. In the case of Bitcoin, it is called proof of work.
Consensus algorithm is used so that people in distributed, decentralized networks around the world can act fairly and come to an agreement. The block is considered as valid if some works have done in that block. When a block needs to be added in the blockchain, all people in that network should consider that block as a valid block. And after the successful validation, that block will be added to the blockchain. Let's learn more deeply.
You already understood that Consensus is a well-known concept in the world of Blockchain technology. It's important to remember when you're speaking of decentralized blockchain technology it consists of nodes around the world that don't know each other. It's hard to know the intentions of other people. Either they will play fairly, try to ruin the system or not!
Everyone on a blockchain trying to add the next block of information to the chain. We need to make sure this block is truthful, no one changing that and no one manipulating data.
Most consensus in a public blockchain, they share the same traits which include it costs money(For computing power and electricity) to join the network. If it was free to join the network, anyone can jump on and spam the network. So you need money to join the network. The other two things that most of these consensus algorithms include are Rewards and Punishment.
There's a reward if you follow the rules, act fairly, and if everyone could agree there will be a reward. And if you don't, if you go on the network and you try to attack it you'll be penalized and you'll lose that resource.
The best-known methods of consensus are proof-of-work (PoW) and proof-of-stake (PoS).
Proof-of-work is a consensus algorithm that is used by Bitcoin.
A proof-of-work system is a consensus mechanism. It deters denial-of-service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. Wikipedia
Remember what I just said about In Bitcoin the resource is the electricity cost and hardware cost. So, it's not free. As time goes on this becomes more expensive. S, why would someone want to participate on this network if it costs so much money?
Of course the answer is Reward.
Imagine, a group of treasure hunters are working to break down the combination of a lock. If one or more people can decode it, they'll be rewarded.
If they act fairly and according to the rules, they will be able to add the next block on the Blockchain and they will receive mining rewards. They will also receive transaction fees. If someone acts unfairly, everyone in the network will notice and they'll decline that person from adding a block to the blockchain ever.
Now the punishment that person will receive is - he spends all his money on the electricity and hardware; and in return he got nothing.
The other consensus algorithm that we're familiar with is proof-of-stake (PoS), which is a much better alternative to POF. Because of proof of work you're spending so much money on electricity and hardware. And it might be harmful for the environment as well.
But in proof of stake instead of electricity and hardware, the token itself is the main resource. So there are no minings of token and all the tokens exist already. An example of a project that uses Proof-of-Stake is EOS.
Instead of setting up computers and hardware, here you stake your tokens on the network and lock them up. And because you lock them up, you get the voting power. So that, you can now add blocks to the blockchain. The reward is, if you do this successfully you'll receive rewards in transaction fees. You'll also receive your staked tokens back. So this consensus helps people to maintain a healthy network.
What happens if someone intends to manipulate the network in this system? Well, the punishment is you'll get severed tokens. This means if you're proposing bad transactions in the POS blockchain and other people see this, your tokens will be taken away from you. There'll be a monetary loss.
It is important to note, all of these rewards and punishments are monetary.
In the following image, you'll get some ideas about the differences between PoW and PoS.
There's a whole list of other protocols that not many people are familiar with. There are some other consensus algorithms like Delegated proof of stake (DPoS) the practical Byzantine fault tolerance algorithm (PBFT), Proof of Activity, Proof of Capacity, Proof of authority etc. Some innovative projects are adopting multiple consensus protocols. All consensus serves the same purpose to ensure the records are true and honest.
Hope you got some ideas about Consensus rules or the Consensus algorithm from my article. As my articles are always for the newbies, I didn't use any technical terms here and tried to explain in easy language. In the next article, I going to write about how we can use Blockchain technology in our daily lives. Stay with me on Hive Blog!
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