Consensus

A Hitchhiker’s Guide to Consensus Algorithms
A quick classification of cryptocurrency consensus types

Don’t Panic. Behind every great cryptocurrency, there’s a great consensus algorithm. No consensus
algorithm is perfect, but they each have their strengths. In the world of crypto, consensus algorithms
exist to prevent double spending. Here’s a quick rundown on some of the most popular consensus
algorithms to date, from Blockchains to DAGs and everything in-between.
Popular implementations: Bitcoin, Ethereum, Litecoin, Dogecoin, (Most of them)
Pros: We know it works
Cons: Slow throughput; killing the planet
Proof of Work was the first blockchain consensus algorithm. Devised by Satoshi Nakamoto for use
in the Bitcoin blockchain, we have PoW to thank for the massive mining operations and power
consumption we see around the world. We know it works (which is a lot more that we can say for
many other consensus algorithms), but at this stage in the game it’s starting to be considered a
legacy technology. Even Ethereum is migrating away from PoW for more energy and economically
efficient PoS. With so many new alternatives, it’s hard to see why a new blockchain would use
PoW.
In PoW, miners solve hard, useless problems to create blocks. PoW runs on a system of “the longest
chain wins.” So assuming most miners are working on the same chain, that one will grow fastest
will be the longest and most trustworthy. Hence Bitcoin is safe as long as more than 50% of the
work being put in by miners is honest.
Proof-of-Stake (PoS) — New kid on the block(chain)

Popular implementations: Decred, Ethereum (soon), Peercoin
Pros: Attacks more expensive; More decentralized; Energy efficient
Cons: Nothing at Stake
In PoS, the blocks aren’t created by miners doing work, but by minters staking their tokens to “bet”
on which blocks are valid. In the case of a fork, minters spend their tokens voting on which fork to
support. Assuming most people vote on the correct fork, validators who voted on the wrong fork
would “lose their stake” in the correct one.
The common argument against proof-of-stake is the Nothing at Stake problem. The concern is that
since it costs validators almost no computational power to support a fork unlike PoW, validators
could vote for both sides of every fork that happens. Forks in PoS could then be much more
common than in PoW, which some people worry could harm the credibility of the currency.
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Delegated Proof-of-Stake (DPoS) — Elect your Validators
Popular Implementations: Steemit, EOS, BitShares
Pros: Cheap transactions; scalable; energy efficient
Cons: Partially centralized
DPoS is the brain-child of Daniel Larimer, and is actually very different from PoS. In DPoS, token
hodlers don’t vote on the validity of the blocks themselves, but vote to elect delegates to do the
validation on their behalf. There are generally between 21–100 elected delegates in a DPoS system.
The delegates are shuffled periodically and given an order to deliver their blocks in. Having few
delegates allows them to organize themselves efficiently and create designated time slots for each
delegate to publish their block. If delegates continually miss their blocks or publish invalid
transactions, the stakers vote them out and replace them with a better delegate.
In DPoS, miners can collaborate to make blocks instead of competing like in PoW and PoS. By
partially centralizing the creation of blocks, DPoS is able to run orders of magnitude faster than
most other consensus algorithms. EOS is set to be the first blockchain with block times < 1 second!
A little quicker than bitcoin’s 10 minute block times.
Proof-of-Authority (PoA) — Trust the know it all

Popular Implementations: POA.Network, Ethereum Kovan testnet
Pros: High throughput; scalable
Cons: Centralized system
Proof-of-Authority is a consensus algorithm where transactions are validated by approved accounts,
kind of like the “admins” of the system. These accounts are the authority that other nodes receive
their truth from. PoA has high throughput, and is optimized for private networks. You’re unlikely to
see PoA running on a public chain due to its centralized nature.
Proof-of-Weight (PoWeight) — Bigger is better

Popular Implementations: Algorand, Filecoin, Chia
Pros: Customizable; scalable
Cons: Incentivization can be a challenge
Proof-of-Weight is a broad classification of consensus algorithms based around the Algorand
consensus model. The general idea is that where in PoS, your percentage of tokens owned in the
network represents your probability of “discovering” the next block, in a PoWeight system, some
other relatively weighted value is used. Concrete example: Filecoin’s Proof-of-Spacetime is
weighted on how much IPFS data you’re storing. Other systems could include weights for things
like Proof-of-Reputation.
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Byzantine Fault Tolerance (BFT) — Siege the blockchain!
Popular Implementations: Hyperledger, Stellar, Dispatch, and Ripple
Pros: High throughput; low cost; scalable
Cons: Semi-trusted
There’s this classic problem is distributed computing that’s usually explained with Byzantine
generals. The problem is that several Byzantine generals and their respective portions of the
Byzantine army and have surrounded a city. They must decide in unison whether or not to attack. If
some generals attack without the others, their siege will end in tragedy. The generals are usually
separated by distance and have to pass messages to communicate. Several cryptocurrency protocols
use some version of BFT to come to consensus, each with their own pros and cons:
Practical Byzantine Fault Tolerance (PBFT): One of the first solutions to this problem was
coined Practical Byzantine Fault Tolerance. Currently in use by Hyperledger Fabric, with few (<
20, after that things get a little ) pre-selected generals PBFT runs incredibly efficiently. Pros: High
transaction throughput Cons: Centralized/permissioned
Federated Byzantine Agreement (FBA): FBA is another class of solutions to the Byzantine
generals problem used by currencies like Stellar and Ripple. The general idea (heh), is that every
Byzantine general, responsible for their own chain, sorts messages as they come in to establish
truth. In Ripple the generals (validators) are pre-selected by the Ripple foundation. In Stellar,
anyone can be a validator so you choose which validators to trust.
For its incredible throughput, low transaction cost, and network scalability, I believe the FBA class
of consensus algorithms are the best we’ve discovered for distributed consensus.
Directed Acyclic Graphs (DAGs) — aka the Blockchain Killers!

Popular Implementations: Iota, Hashgraph, Raiblocks/Nano
Pros: Network Scalability; low cost
Cons: Depends on implementation
DAGs are hotter than Vitalik’s Tinder profile right now. DAGs are a form of consensus that doesn’t
use the blockchain data structure and handles transactions mostly asynchronously. The big pro is
theoretically infinite transactions per second, but DAGs have strengths and weaknesses like any
other consensus.
Tangle: Tangle is the DAG consensus algorithm used by Iota. In order to send an Iota transaction,
you need to validate two previous transactions you’re received. The two-for-one, pay-it-forward
consensus strengthens the validity of transactions the more transactions are added to the Tangle.
Because the consensus is established by the transactions, theoretically, if someone can generate 1/3
of the transactions they could convince the rest of the network their invalid transactions are valid.
Until there’s enough transaction volume that creating 1/3rd of the volume becomes unfeasible, Iota
is sort-of “double-checking” all of the network’s transactions on a centralized node called “The
Coordinator”. Iota says The Coordinator works like training wheels for the system, and will be
removed once the Tangle is big enough.
Hashgraph: Hashgraph is a gossip-protocol consensus developed by Leemon Baird. Nodes share
their known transactions with other nodes at random so eventually all the transactions are gossiped
around to all of the nodes. Hashgraph is really fast (250,000+ transactions per second) but isn’t
resistant to Sybil attacks. So Hashgraph is a great option for private networks, but you’re not going
to see it implemented in a public network like Ethereum or Dispatch any time soon.
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Block-lattice: Nano (formerly Raiblocks) runs with a twist on the blockchain called a Block-lattice.
The Block-lattice is a structure where every user (address) gets their own chain that only they can
write to, and everyone holds a copy of all of the chains. Every transaction is broken down into both
a send block on the sender’s chain and a receive block on the receiving party’s chain. The Block-
lattice seems almost too simple to work, but it’s already out there running in the wild. The unique
structure does leave the Block-lattice open to some unique attack vectors like the Penny-spend
attack, where attackers inflate the number of chains node must keep track of by sending negligible
amounts to a wide array of empty wallets.
SPECTRE: Serialization of Proof-of-work Events: Confirming Transactions via
Recursive Elections, better known as SPECTRE, is a proposed Bitcoin scaling solution that utilizes
a combination of PoW and DAGs to reach scalable consensus. In SPECTRE, the blocks are mined
pointing to multiple parents, not just one, so the network could potentially handle multiple blocks
per second. Mining a block pointing to some parent blocks supports those blocks validity.
Compared to PoW’s “longest chain wins”, SPECTRE uses something like “blocks with the most
childen win.” SPECTRE hasn’t been battle-tested in the wild yet, and new attack vectors are likely
to emerge, but it feels like a very clever potential way to fix Bitcoin.

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A Hitchhiker’s Guide to Consensus Algorithms

A quick classification of cryptocurrency consensus types

Proof-of-Stake (PoS) — New kid on the block(chain)

Proof-of-Authority (PoA) — Trust the know it all

Proof-of-Weight (PoWeight) — Bigger is better

Directed Acyclic Graphs (DAGs) — aka the Blockchain Killers!

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