9 Best Consensus Mechanisms Other Than PoS And PoW

Blockchain is a distributed ledger that functions in a permissionless manner. But how does a decentralized peer-to-peer system with no authoritative figure make decisions and regulate itself?

The answer is a consensus mechanism. It ensures that everyone within the network stays on the same page and preserves the trustworthiness of the blocks created.

In this article, we will answer what is a consensus mechanism, how it works and dive deeper into nine different consensus algorithms implemented by blockchains nowadays. It may hint you what are the best crypto coins to stake.

Without further ado, let’s begin our educational journey! 

What Are Consensus Mechanisms in Blockchain?

To start, first, we must ask what a blockchain is. In its simplest form, a blockchain is a sequence of blocks that comprise various transactions that are not controlled by a single authority. New blocks link directly to previous blocks, creating a chain of blocks or a blockchain. However, before that happens, the transactions need to be verified to mitigate the risk of double-spending (spending the same digital coin at once) and any other fraudulent activity that can endanger a network's actual status.

In such a case, a consensus mechanism comes to the rescue! Blockchain consensus mechanisms are used to determine the legitimacy of these transactions with the help of miners who perform various tasks to “close the block” and get rewarded for that. In other words, consensus algorithms help cryptocurrencies function decentralized yet securely.

How Do Blockchain Consensus Mechanisms Work?

While all the consensus mechanisms serve the same purpose - ensuring records stay authentic and genuine - they all reach an agreement in different ways.

Those computers that validate blocks are called nodes or miners. They compete with one another for the right to generate a block, which usually comes with some rewards - it can be either cryptocurrency or transaction fee (depending on the model).

The picture below showcases six steps to generate a block and complete a transaction on any blockchain.

Proof of Work and Proof of Stake are two fundamental consensus models that lie in most cryptocurrencies worldwide. And, they have been triggering the development of many remarkable alternative systems - each with its own strengths and weaknesses - that are meant to solve the problems PoW and PoS possess. While some emphasize security and scalability, others focus on energy consumption and a fair reward system. The only thing remaining universal for all distributed consensus models is their purpose. 

The Most Common Types of Consensus Mechanisms

Broadly speaking, beyond PoW and PoS, cryptocurrency consensus algorithms fall into one of 9 categories:

1. Delegated Proof of Stake (DPoS)

DPoS is an enhanced form of Proof of Stake. The “delegation” part of this consensus protocol means that instead of anyone becoming a validator, people can also use their coins to vote for someone else to verify a transaction on their behalf. The voting power of each node corresponds to the number of coins they stake. 

The delegators produce blocks in a round-robin fashion. For every block made, an elected node receives a reward, which is then shared with those parties who voted for them.

If comparing DPoS vs. PoS, the last is more of a competitive process, while DPoS leans towards centralization and collaboration. In DPoS, a group of token holders pool their coins into the staking pool and vote upon the delegate, aka a witness, to produce a block. As the number of delegates varies between 20 and 100, the network becomes more decentralized and, thus, less resilient to malicious attacks. That's why, compared to PoS, DPoS is a more democratic approach for stakers, yet it still leads to some decentralization issues.

Delegated Proof of Stake is an excellent choice for those who don't have access to a powerful computer with a reliable internet connection. Instead, they can lock up their coins and vote for someone else that does. This way, people can still win the rewards without setting up a node.

If you need examples, Lisk, EOS, Steem, Tron, BitShares, and Ark are some blockchains that currently utilize DPoS.

The benefits:

• Thanks to the voting system, blocks are produced much faster than in PoS and PoW.
• Token holders with minimal hardware can still participate in the network.
• Large token holders can maximize their profits. Since these nodes have more voting power, they can generate more blocks and gain more rewards.
• DPoS is a more scalable consensus mechanism because it requires less computation power to support a network.

The drawbacks:

• The network is at risk of becoming centralized. 
• Nodes with less stacked coins have almost no voting power.
• Once the cryptocurrency is staked, it’s locked in the contract and cannot be used until the staking period ends. 

2. Proof of Authority (PoA)

Proof of Authority, also called Proof of Reputation, is another modified form of the Proof of Stake mechanism. Initially introduced by Gavin Wood, Ethereum co-founder and Polkadot founder, PoA is based on the idea that validators (aka nodes) are approved or public identities.

To be eligible to become a validator, one isn't required to stake coins or run several computers. Instead, the nodes have to disclose their identity and put their reputation at stake. Previously authorized nodes are responsible for selecting and approving new validators. Becoming a validator is done through the familiar voting system.

Since everyone knows each validator's identity, the network naturally filters out malicious nodes with no long-term commitment and questionable motives.

Essentially, the PoA mechanism relies upon the mining rotation schema. During each round, an elected authority serves as a mining leader and is responsible for suggesting new blocks. After a mining leader proposes the block, it broadcasts to the other authorities, and each decides whether to accept or reject the transaction. If the authorities do not collectively accept the proposed block, they trigger voting, after which the mining leader can be considered malicious and get kicked out.

Since PoA requires all the network participants to trust validators, it is better suited for private or permissioned blockchain networks. Kovan and Rinkeby are two PoA implementations utilized as Ethereum’s testnets.

Projects that fully or partly deployed the Proof of Authority consensus protocol are VeChain, Microsoft Azure, and Hyperledger Besu.

The benefits:

• Fast transactions. No staking and mining make transactions run a lot faster than under PoW or PoS.
• Eco-friendliness. Proof of Authority doesn’t necessarily require a significant amount of computer resources.
• Secure. Because all the nodes are meticulously checked before becoming validators, the possibility of attacks is minimized.
• More efficient. Thanks to its centralized reputation-based approach, the PoA consensus mechanism can achieve high scalability and throughput.

The drawbacks:

• Centralization concerns. Since the selection of new nodes is fully up to a few validators, voting results are put at risk of being corrupted and manipulated by third parties.
• Becoming a validator isn’t easy. Ordinary people probably won’t be able to become a node since the network only seeks nodes with an established reputation.

3. Proof of History (PoH)

Proof of Stake lays the foundation for many consensus mechanisms featured on this list, and Proof of History is not an exception. PoH is an innovative model based on the idea of incorporating timestamps into the blockchain itself.

Essentially, timestamps represent pieces of data that showcase how blocks are linked chronologically. As a result, they are integral to decentralized systems since they mitigate the risk of double-spending and repeated payments.

The major problem with PoS - a model from which Proof of History has evolved - is how the timestamp function is used. Many existing blockchains, like Ethereum, rely on centralized sources to assign a "median" timestamp that is later used to validate new blocks. Each node that verifies the trustworthiness of the block depends on the timestamps that were validated by the whole network, which makes the process super slow.

PoH addresses this pain point by introducing built-in timestamps. A verifiable delay function (VDF) technology and SHA256 hash function help keep track of time and showcase the exact moment each transaction occurs on the blockchain. Under the PoH mechanism, the output of a transaction is used as the input for the next hash.

So far, only the Solana blockchain has deployed the Proof of History blockchain consensus model. 

The benefits:

• Speedy  transactions. Solana can process 50,000 transactions per second;
• Low transaction fees. Solana’s average transaction cost is $0.00025;

The drawbacks:

• Strict hardware requirements; 
• Decentralization problems. Because of the strict hardware requirements, not everyone can become a network validator. Solana currently has around 1200 nodes;
• PoH transactions generate massive amounts of data. 1 transaction on Solana generates 250kb;
  

4. Proof of Space and Time (PoST)

Proof of Space and Time - also known as Proof of Capacity and Proof of Storage - is a consensus mechanism that relies on the digital storage space on the miner’s hard drive as a requirement to participate in the network.

You can think about PoST as a way to demonstrate the availability of unused storage space on your hard drive.

Proof of Capacity is based on the same principles as PoST, not counting the role of time. So, for instance, while under Proof of Capacity, you can prove 1 terabyte of available storage, under the PoST model, you can prove 1 terabyte a month of available storage.

Just like in PoW, computers constantly find the right cryptographic solution to the block. In the case of PoST these solutions are stored in miners' hard drives. The process when hashes (cryptographic solution) are generated beforehand is called "plotting." Logically, the greater a miner's storage capacity, the greater the number of possible solutions. The more solutions a hard drive can store, the more likely you are to have that correct cryptographic solution and thus generate a block.

Filecoin and a few other projects like Chia Network and Spacemesh are known for implementing PoST solutions into their day-to-day operations.

The benefits:

• More energy efficient PoW alternative. Proof of Space and Time has proved to consume less energy in contrast to Proof of Work mining. 
• No need for super complex and expensive computing equipment. In fact, any standard hard drive can be utilized.
• Hard drives can be repurposed. You can erase all the mining data anytime you want and then reuse available storage for your own purposes.

The drawbacks:

• The system hasn’t been tested. Not many developers have tried generating blocks this way; that’s why we can’t know for sure how attacks will impact the network.
  

5. Proof of Importance (PoI)

Proof of Importance is an expanded version of PoS that takes a more sophisticated approach to analyze nodes’ contribution to the network. Rather than focusing solely on the number of cryptocurrency nodes held, PoI also prioritizes additional factors when evaluating each people’s chances of winning rewards. Such factors include:

• Net transfers - the number of transactions the node has made over a specified period;
• Activity clusters - being a part of an interlinked cluster of activity;
• Amount of vested currency - the main requirement of the Proof of Stake algorithm;

PoI was designed to address the primary issues of the PoS concept, which are concerned with concentrated wealth, discouraged transactions, and wasteful blockchain forks.

In the case of Proof of Stake, nodes do not really contribute to the activity of the ecosystem since the consensus mechanism evaluates only the level of assets staked. Because of that, top holders have absolute power over the network. Simply put - the rich become richer. So, the importance score incorporates network activity and the amount of crypto on the account, creating a more fair environment for every participating node.

NEM (XEM) is the first yet most notable project to introduce the PoI concept.

The benefits:

• Incentivized nodes to contribute to the network more than just stake coins. Rich get richer only happens if they stay active on the network. 

The drawbacks:

• Large token holders have an outsized influence on transaction validation, leaving those with fewer stakes little to no chance of producing a block.
• Once the cryptocurrency is staked, it is impossible to use it until the staking period has elapsed.

6. Proof of Burn (PoB)

In a nutshell, the Proof of Burn consensus algorithm is an advanced version of Proof of Work with a more friendly ecological approach. The idea behind the concept is as follows: all participating nodes reach an agreement regarding the valid state of the network by burning crypto coins. Essentially, you have to send coins to an irretrievable burn address to get the chance to mine.

Iain Stewart invented the PoB to respond to the PoW system's high energy consumption. Iain compares the process of burning cryptocurrency to mining rings - the number of coins burned by a miner showcases his virtual mining power.

Unlike PoS, the Proof of Burn concept doesn’t use any traditional mining process to be rewarded with new coins - instead, miners burn cryptocurrency gained through Proof of Work to generate a new block.

So, why is PoB considered an energy sustainable consensus model if it requires users to burn PoW tokens that take lots of mining work to be found? Well, that’s a good question! The thing with PoB is that even though it entails burning PoW tokens, it doesn't lead to nodes mining cryptocurrency and wasting lots of energy. The PoB burning process doesn't directly incentivize the process of PoW mining.

For example, if I burn 1 BTC, it means that 1 BTC is gone, and the price of the cryptocurrency rises due to fewer BTCs in circulation. The work to mine that 1 BTC has already been done, and PoB doesn't make miners produce more blocks in any way. That’s why Proof of Burn is truly a sustainable alternative to PoW - instead of using energy-heavy hardware, as miners do, PoB users can validate transactions just by sending their tokens to an eater address, from where they will never be able to obtain them again.

The mechanism is currently utilized by Slimcoin (SLM), GateToken (GT), Factom (FCT), and Counterparty (XCP).

The benefits:

• A more sustainable PoW alternative.
• Increases coin’s value by reducing its supply (in theory).
• Incentivises miners' long-term commitment in exchange for their short-term loss.
• No need for a specialized mining hardware.

The drawbacks:

• They haven’t been tested on a large scale. The model requires more time to prove its efficiency and security.
• It isn’t considered 100% ecologically sustainable. The system operates on the principle of burning coins that were minted through PoW process, which requires lots of energy.

7. Proof of Elapsed Time (PoET)

Originally developed by Intel in early 2016, Proof of Elapsed Time is a consensus mechanism that relies on a computing system to decide randomly on the winning node. Essentially, under PoET every participant is given a different time to wait and whoever wraps up first gets to add the next block to the blockchain.

The chances of winning mining rights totally depend on one's luck: the node with the shortest period claims its rewards. Since PoET is mostly utilized on permissioned blockchain networks, the nodes must identify themselves before becoming miners.

This mechanism ensures fairness within the network by choosing a winner in an absolutely unpredictable way.

Proof of Elapsed Time has been successfully implemented by Intel sponsored open-source distributed ledger Hyperledger Sawtooth. As of today, there is no cryptocurrency using PoET. 

The benefits:

• Is energy sustainable? Unlike PoW, where miners spend lots of energy on competing with one another, the PoET system selects only 1 node to create a block.
• Since all the participants must identify themselves before joining the network, the lottery is run in a secure environment. 
• Randomization ensures the same opportunities for all the participants.

The drawbacks:

• Is not anonymous.
• Completely reliant on Intel technology. The projects incorporating the PoET consensus mechanism may face incompatibility issues whenever the software gets updated.

8. Proof of Activity (PoA)

Not to be confused with Proof of Authority (also ‘PoA’), Proof of Activity (PoA) is a consensus mechanism that merges the PoW and PoS models.

PoA block generation takes 2 steps:

1. PoW traditional mining. Various mining operators compete against each other to solve a mathematical puzzle and earn a reward. Once the block is mined.
2. PoS block validation. Once the block is mined, the PoS mode is on - a random group of validators will now compete in signing a new block. The greater a staker's percentage of the total cryptocurrency supply, the more likely it is that he will be chosen to sign the block.

In the end, both miners and validators are rewarded with transactional fees. 

Just like in PoW and PoS, the Proof of Activity blockchain consensus model was designed to prevent 51% attacks. However, since potential hackers would in theory need to control over 51% of both networks, the chances of that happening fall to near 0.

The most well-known projects using the PoA model are Decred (DCR) and Espers (ESP). 

The benefits:

• Double security. Being a hybrid version of two core consensus mechanisms - PoW and PoS - Proof of Activity becomes even more resilient to external as well as internal attacks;

The drawbacks:

• Intense energy consumption (PoW). Excessive power is still required to mine blocks;
• Concentrated wealth (PoS). Validators with a larger number of coins are biased;

9.Practical Byzantine Fault Tolerance (pBFT)

pBFT mechanism enables distributed systems to reach a consensus despite some nodes’ malicious activity. 

Practical Byzantine Fault Tolerance was derived from the Byzantine Generals Problem - a logical dilemma about 4 generals who have to agree whether to attack or retreat.

pBFT consensus protocol is just one of the various solutions introduced by Miguel Castro and Barbara Liskov to solve the Byzantine Generals Problem. Two scientists concluded that in a decentralized network that includes 3f+1 nodes (where f is the number of faulty computers), a minimum of 2f+1 honest nodes are needed to reach a consensus.

So, how is it executed in practice?

The nodes working under pBFT can be broken down into 2 groups: 

• Primary (leader) node + their substitutes
• Secondary (backup) nodes

First things first, the request is sent to the primary node. Then the leader shares it with other nodes, listens to them, and comes up with a final decision that was made by the majority of nodes to avoid failures.

Zilliqa and Hyperledger Fabric have implemented a practical Byzantine agreement protocol.

The benefits:

• Super fast. Compared to PoW's energy consumption, the pBFT model stays eco-friendly.
• It doesn't require multiple confirmations as PoW does.
• All the nodes are rewarded daily. In contrast to PoW and PoS, where some miners receive a reward while others don't, pBFT compensates all involved parties nearly the same.

The drawbacks:

• Centralization issues. Ultra-fast block validation is only accomplished by limiting the number of nodes, which leads to the semi-centralization of the network.
• Scalability concerns. The greater the number of nodes on the network, the more time it takes to validate a transaction.
• The system is exposed to sybil attacks, in which a single node creates many entities to compromise the network.

What is the best consensus algorithm?

The answer lies in what you personally cherish more. Every blockchain algorithm has its own strengths and weaknesses.

While some blockchains exist and stick to a single consensus mechanism, some innovative ones adopt multiple consensus protocols by mixing them together into one unique system that works for them.

It is also possible for blockchains to migrate from one distributed consensus model to another - Ethereum is the real example of this. The network is in the process of moving from Proof of Work to Proof of Stake since it is less energy intensive and a more scalable solution.

All in all, navigating through elaborate consensus mechanisms is a critical ability needed for those who want to understand the world of cryptocurrency a little more. Whether you are considering  becoming a miner yourself or just want to invest in a token, it will not be superfluous to read about how blockchain works and how it reaches a consensus - having this knowledge will help you make better investment decisions.