8. Consensus -The choice of algorithm
The choice of consensus algorithm is a crucial component of a blockchain integrity, scalability, appeal, and above all security. The Proof-of-Work algorithm is the most used mechanism in the blockchain community, for many obvious reasons. Its main entice is its aptitude to promote honesty within a transparent and decentralized ecosystem. It works by sending out a complex mathematical equation that requires a large computational power to solve and lets the nod owners compete for the reward. The first miner to find the answer, known as a hash, must first be validated by most of the network before being authorized to add the new block to the blockchain and thus claim the reward. As more blocks are added to the chain, the network growth becomes directly proportional to the difficulty level of the mathematical puzzle. The algorithms require more and more hash power to solve, and members of the network are encouraged to provide more power to the network but also have their nodes up and constantly running, to be competitive in the race for the prize. Fundamentally this authenticating system eliminates the need of a third party, individuals or organizations who can tamper with the database, by using computing capabilities as an alternative. However, this algorithm does come with major flaws when faced with the opportunity of scalability. As the network grows the need for more computing power is required, which is not only expensive but also resource consuming. All the nodes connected require maintenance, effective heat management or cooling systems to remain operational. The process of rewarding only the fastest hashing node means all other computing power used in the race for the reward is wasted. The cost associated with running and maintaining powerful computer systems jeopardizes the core concept of decentralization as only the wealthier have strategic advantage and the resource intensive need for this consensus to function are significant disadvantages of this mechanism. Scalability and energy consumption/waste are significant variables to consider when designing large blockchain networks.
Although proof of stake has its own challenges, sustainability is not one of them. This process does not involve resource-intensive mining, but instead relies on users “staking” their coins which requires placing coins as collateral. Instead of being incentivized for computing power, members of the network are compensated with a transactional fee and penalized when promoting an invalid transaction. These “validators” are chosen at random from the pool of members staking their coins although your chances do increase depending on the size of your collateral. This allows for a lower environmental impact, a faster transactional speed, and a more ethical decentralization.
Proof of Work (POW)
Advantages
• Prevents double-spending attempts.
• Considered of the most secure consensus mechanisms.
• POW networks usually have more mining power: therefore, are more secure.
Disadvantages
• Mining requires extremely powerful hardware.
• High operational costs so not affordable for everyone.
• Energy consumption, high energy waste, not environmentally friendly.
• The majority of mining pools are controlled by single entities.
• PoW model is prone to 51% attacks.
Proof of Stake (POS)
Advantages
• Safe from 51% of attacks.
• Does not need expensive hardware for processing.
• Transactions are faster and cheaper.
• Does not any energy
• Stakes act as a financial motivator.
Disadvantages
• Still not widely implemented.
• Control of the network is easy as it depends on capital.
• Centralized threats like double-spending are possible.
• Governance hierarchy since users with more tokens have more weight in deciding the rules of the network
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