Since 2008, blockchain has grown in popularity and is now a more secure way to make and track payments. At its heart, a blockchain is a decentralized digital ledger that records transactions across a network of computers. Decentralized means no one entity controls the whole system, making it more transparent and resilient than traditional networks.

This is only possible through what are called blockchain consensus algorithms or consensus mechanisms. Consensus mechanisms are the protocols that allow all participants in a blockchain network to agree on a transaction. Since blockchain has no central authority, all participants need to agree on a blockchain network through these different mechanisms.

From Proof of Work (PoW) to Proof of Stake (PoS) and beyond, consensus mechanisms differ in design, efficiency, and application. Knowing how they work is key to understanding blockchain technology and how it can redefine digital trust through a more secure network. In this blog, we’ll dive deeper into some of the most popular consensus mechanisms and explain how to choose the right one for your blockchain network.

What is a consensus mechanism?

Purpose and importance of consensus mechanisms

In a decentralized blockchain network, there is no central authority, which is why consensus mechanisms are critical. Consensus mechanisms are important in these networks because they provide a framework for multiple decentralized participants to agree on a single, unified version of the truth.

These consensus algorithms can make a blockchain network more secure. They also need to prevent serious breaches or security issues, such as double-spending, fraud, and data manipulation.

Types of Consensus Mechanisms

Over time, different consensus mechanisms have been designed for use across blockchains and their decentralized networks. Each has their own strengths and weaknesses and ideal use cases. Here are some of the most common types of distributed consensus mechanisms:

• Proof of Work (PoW)
• Proof of Stake (PoS)
• Delegated Proof of Stake (DPoS)
• Proof of Authority (PoA)
• Practical Byzantine Fault Tolerance (PBFT)
• Proof of Burn (PoB)
• Proof of Elapsed Time (PoET)
• Other hybridized consensus mechanisms

Below, we’ve explained each of these mechanisms and their pros and cons when applied to a blockchain and its decentralized network.

Proof of Work (PoW)

How it works

Proof of work is the original consensus mechanism and was designed to support Bitcoin. To prove their work, participants need to engage in a process called mining. Mining involves solving complex mathematical problems so that blockchain transactions can be validated.

Since proof of work involves a lot of network participation, blockchain network owners often incentivize the mining process through a reward system. This encourages participation across the blockchain and makes PoW more secure.

Pros and cons

• Pros:
  • Proof of work is a secure consensus mechanism due to its computational difficulty.
  • It has been extensively tested and proven to work thanks to Bitcoin’s use of PoW.
• Cons:
  • Mining to record transactions is energy-hungry, so PoW is raising serious environmental concerns.
  • Proof of work results in slower transaction times and higher fees compared to some other consensus mechanisms.

Use cases

Some of the most well-known blockchains are still using PoW to support transactions and consensus on their network. Bitcoin is the most obvious example, but Ethereum used PoW for many years before recently switching to a proof of stake (PoS) alternative. It’s a good choice to support cryptocurrencies or systems where you need to constantly validate transactions. That means PoW can support decentralized finance (DeFi) and blockchains used to store digital assets.

Proof of Stake (PoS)

How it works

Proof of Stake (PoS) was introduced as a more energy-efficient alternative to PoW, and Ethereum switched to this consensus algorithm to improve its energy efficiency. In PoS, participants (validators) are chosen to create a new block and validate transactions based on the amount of cryptocurrency they hold and “stake” as collateral.

The process introduces staking and slashing mechanisms to incentivize participants to behave honestly, as misbehavior will put their staked assets at risk.

Pros and cons

• Pros:
  • If you care about energy efficiency, PoS is a more sustainable alternative to PoW.
  • PoS often allows blockchain networks to have faster transaction times and lower fees.
• Cons:
  • The staking system can lead to a less decentralized blockchain over time. If a few entities hold a majority of the stake by having a large amount of currency they can centralize the network and limit the control of other network participants.
  • Even though Ethereum uses it, PoS is still less battle-tested than PoW.

Use cases

Like PoW, PoS is a consensus layer that can support cryptocurrencies and financial blockchain applications. It can support decentralized finance and NFT marketplaces. Since it’s a more sustainable alternative, it’s likely to grow as a way to validate transactions across blockchain networks in the future.

Delegated Proof of Stake (DPoS)

How it works

As its name suggests, delegated proof of stake (DPoS) is an evolution of PoS. DPoS involves participants voting for a limited number of delegates who validate transactions and maintain the blockchain.

DPoS is very scalable and efficient for blockchain developers, so it’s good for networks with high transaction volume. This voting system also improves the decision-making process for the network as delegates can act on behalf of many users. But like PoS it can lead to centralization if power is concentrated among a few delegates.

Pros and cons

• Pros:
  • DPoS can lead to faster transaction speed.
  • Decentralized governance allows for more community involvement. This can lead to a stronger sense of community and better governance over permissioned blockchain networks.
• Cons:
  • DPoS doesn’t solve PoS’s centralization problem. A small group of delegates can still hold a lot of power over the network.
  • The security of a blockchain using DPoS is lower than both PoW and PoS as it has fewer validators.

Use cases

DPoS is used by some of the current notable blockchain networks, including EOS and TRON. It can be used across high-performance blockchains as it’s scalable. With its more democratic voting and delegation mechanism, DPoS can be a good option for governance systems and certain dApps.

Proof of Authority (PoA)

How it works

Proof of Authority is a different approach to the above consensus mechanisms, as it uses a set of pre-approved validators to maintain the blockchain. In PoA, trusted validators are chosen based on their identity and reputation, which is good for private blockchains. These validators are often chosen by a central authority instead of a democratic delegation system like in DPoS.

It’s fast compared to other consensus protocols but again sacrifices decentralization as trust is placed in a limited number of participants.

Pros and cons

• Pros:
  • PoA can be very fast and efficient for blockchain security and transaction verification, good for private or consortium blockchains.
  • PoA provides stability and high throughput across the network.
• Cons:
  • PoA is much more centralized than the other consensus mechanisms we’ve seen so far. Which is against the concept of blockchain decentralization.
  • This can be less transparent than others as PoA relies on pre-approved authorities. Networks should try to be clear in the approval process as much as possible.

Use cases

PoA is good for private blockchains and is used by VeChain. It can also be used in logistics networks, some government applications, and trading platforms, where its permissioned access increases security at the cost of more centralization.

PBFT

One of the consensus algorithms today, PBFT, is for networks that need fast consensus and can tolerate some faulty or malicious nodes. It works through a voting system where all the nodes (a network of devices in a blockchain’s infrastructure) talk to each other to agree on the validity of the transactions.

PBFT prioritizes security and prevents data manipulation across all network participants. It can be very energy efficient and performance efficient in a small-scale environment but can be cumbersome as the network grows.

Pros and cons

• Pros:
  • PBFT is tolerant of faulty or malicious nodes, making it a better choice for permissioned blockchains.
  • PBFT has high throughput, good for enterprise use cases.
• Cons:
  • Can run into scalability issues when applied to large networks due to communication overhead.
  • PBFT is good for private or permissioned networks and not for public networks.

Use cases

PBFT is used in enterprise blockchain solutions, including Hyperledger Fabric. It can be used across several permissioned blockchain use cases, including financial services, supply chain tracking, healthcare data management, and others.

Other consensus mechanisms

Proof of Burn (PoB)

Proof of Burn (PoB) is a consensus mechanism in blockchain where participants “burn” cryptocurrency by sending it to an irretrievable address. This proves their commitment to the network and earns them the right to validate transactions and create new blocks.

PoB can be a secure way to reach consensus across a blockchain network, as validation rights are only given to honest nodes willing to sacrifice their currency. It’s more energy efficient than PoW. But it’s a very wasteful method. Any “burned” currency is lost—this also gives malicious actors the opportunity to “burn” their way into power over a network if they have plenty of currency to spare.

Proof of Elapsed Time (PoET)

Proof of Elapsed Time (PoET) is a consensus mechanism for permissioned networks. It randomly selects participants to create new blocks by using a trusted execution environment (TEE) based on a wait time.

Since timers and block creators are randomized, this creates a fairer control system over a decentralized network. It can also be scaled and, as a block generation method, can be more sustainable than some others. PoET is used in private blockchains and business use cases like IoT networks.

Hybrid consensus mechanisms

Sometimes, blockchains combine two or more consensus mechanisms to manage their distributed systems in a hybrid way. These hybrid solutions take into account computational resources and can be more efficient, but since they are hybrid, they are less used than traditional singular consensus methods.

Comparison of Blockchain Consensus Mechanisms

Security

Blockchain consensus mechanisms vary in security against blockchain targeting attacks like 51% attacks (where half of the network controls the network), Sybil attacks (where reputation is subverted), and Byzantine faults. Although all are secure choices, here are the security considerations for each consensus algorithm:

• PoW is a secure option, but it can be very energy-consuming and 51% attack vulnerable if an attacker controls a lot of computational power.
• Both PoS and Delegated Proof of Stake (DPoS) are resistant to Sybil attacks and 51% attacks but more susceptible to centralization risks.
• PoA is very attack-resistant due to trusted validators but suffers from centralization.
• PBFT is good at Byzantine fault tolerance and 51% attack resistance but scalability becomes an issue in larger networks.
• PoB and PoET are resistant to Sybil attacks, PoET is slightly more secure because of trusted hardware.

Scalability and performance

Each of these mechanisms uses a different amount of computational power and offers different scalability. Here is the list of which mechanisms are best for scalable environments because of their performance:

1. PoA is the most scalable consensus mechanism as it uses a small group of trusted validators, fast transaction validation, and minimal overhead.
2. DPoS is also scalable as it limits the number of active validators, fast transaction processing, and low latency but may suffer from centralization.
3. PoS is scalable but less efficient than PoA or DPoS as it has more validators, which can cause some network delays.
4. PoET is scalable, especially in permissioned networks, as it uses a fast random selection of validators but is dependent on trusted hardware, which may limit large-scale adoption.
5. PoB is somewhat scalable, but token burning can limit the network growth, especially in high transaction volume networks.
6. PBFT has scalability issues due to communication overhead, which increases as the number of validators grows; it’s more suitable for smaller networks.
7. PoW is the least scalable as it requires a lot of computational power and energy consumption, and it is slower and less efficient as network size and transaction volume grow.

Energy consumption

Each consensus mechanism affects the environment differently. Here is the list of which of these mechanisms are the most energy efficient now:

1. PoA is the most energy-efficient consensus mechanism as it requires minimal computational resources and a small group of trusted validators.
2. PoS is also energy efficient as it eliminates mining and requires only token staking to validate transactions.
3. PoET and PoB can be energy efficient; in PoET’s case, it depends on the TEE chosen.
4. DPoS is more energy efficient than PoW but less efficient than PoS or PoA, as it still uses validators to process transactions but with fewer participants.
5. PBFT uses moderate amount of energy as the consensus process requires communication among all validators.
6. PoW is the least energy efficient as it requires a lot of computational power and energy for mining.

Decentralization and governance

Blockchain-distributed systems were designed to be decentralized. Here is the level of decentralization each mechanism provides:

1. PoW has the highest decentralization, as anyone with computational power can participate in the network-wide distribution of nodes.
2. PoS has high decentralization but can be influenced by wealth concentration.
3. DPoS is less decentralized as only a few elected validators (delegates) validate transactions.
4. PBFT is moderately decentralized but used in smaller permissioned networks where the number of validators is limited, so overall decentralization is reduced.
5. PoET is relatively centralized as it depends on trusted execution environments (TEEs) and a few trusted participants.
6. PoB doesn’t promote widespread participation as control of the network can be concentrated in the hands of those with more tokens to burn, centralization.
7. PoA is fully centralized as it relies on a small group of trusted validators, more suitable for permissioned blockchains with limited participants.

Choosing the right consensus mechanism

Considerations

When choosing your blockchain’s consensus mechanism, consider all the above lists and considerations. Consider your security needs and if you need to protect yourself from specific attacks. Think about how scalable your network will be in the next few years and find a mechanism that can support that growth.

Also, think about energy efficiency. It’s very important to choose a mechanism that uses as little energy as possible. If decentralization matters to you, apply that to your choice. Finally, apply all of this to your use case. Is your blockchain public or private, and which mechanisms are used in your industry.

Industry consensus mechanism examples

Some mechanisms are more common in certain industries. In finance, PoW and PoS are most used. In government institutions or healthcare, PoS can be an option, but PoA is also used for more centralized networks. In supply chain management and logistics, PoA is still a good choice along with PBFT.

FAQ

What is the most secure consensus mechanism?

Many consider PoW the most secure as it requires a lot of computational resources, making it hard for attackers to control the network. However, its energy consumption has led to the creation of other more sustainable mechanisms. These alternatives, like PoS, are not as secure as PoW overall but still secure enough for network operators to keep data safe and free from attacks or manipulation.

Which consensus mechanism is best for enterprise?

PoA is recommended for enterprises depending on your distributed network and underlying blockchain use case. This is because of its fast, permissioned nature and reliance on trusted validators. It can factor in regulatory requirements while keeping security and efficiency in private networks.

How much energy does each consensus mechanism consume?

Energy consumption varies across these mechanisms. PoW consumes the most energy due to the computational work. PoS, PoET, and DPoS are much more energy efficient as they don’t require intense computational processes. PoA is usually the least energy-consuming mechanism for blockchain networks, but energy consumption will also depend on the size of the network, how many users access it, overall network activity, and use case.

Are there environmental impacts of blockchain consensus mechanisms?

Energy-consuming mechanisms like PoW can have a huge environmental impact. They consume a lot of energy to power, which can result in more greenhouse gases in the atmosphere. Blockchains must move towards more sustainable mechanisms to reduce energy consumption and to have a more livable planet for everyone in the future.

Can a blockchain use multiple consensus mechanisms?

Yes, a blockchain can use a combination of mechanisms through a hybrid mechanism. This can be a good option for some networks to prioritize security and efficiency and to get the benefits of multiple mechanisms simultaneously.