In 2021, Bitcoin reached more than 400,000 transactions per day. With these kinds of sums flying around, you need confidence that the transactions are real.
How do blockchain networks make sure no bad actors get involved? How do these networks handle all these transactions?
Engineers call this process blockchain consensus. It involves getting computers on the network to agree on something. If you want to learn about the different ways networks agree, keep reading.
Why Is Blockchain Consensus Necessary?
Blockchains don’t have a central administrator with permission to put data on the chain. Blockchains live on hundreds of computers, so no one person can oversee them. If there weren’t a consensus mechanism, breaking blockchain technology would be trivial.
Types of Consensus Mechanisms
Different blockchains use different consensus standards. Systems can have different needs. The best cryptocurrency consensus mechanism will vary from system to system.
Proof of authority, has participants stake their identities on the blockchain. Only these users, called validators, can generate new blocks, so they will be motivated to preserve the integrity of the chain as a whole. This works similarly to having central administrators.
The most famous method, meanwhile, is proof-of-work consensus, used by Bitcoin. In this model, computers solve math problems and receive blocks as a reward. This model offers high security, but consumes enormous amounts of power, especially as the networks get larger and larger.
Another common model, proof-of-stake, rewards long-time or invested users with a greater chance to create new blocks. Delegated proof-of-stake allows participants to use their stakes to vote for someone else instead. These encourage users to commit more to the blockchain.
More recent models of consensus often bring other methods together. Proof-of-activity starts with a similar process to proof-of-work. After that, it lets nodes that pass that test use a proof-of-stake-like system.
As the technology evolves, a mix of existing and new models will come together. These will form new validation strategies in turn.
Why Are There So Many Different Mechanisms?
Researchers proposed blockchain technology in the 1990s. the first distributed ledger only arrived in 2009. Despite its meteoric rise, the technology remains in its infancy. Not all questions about blockchain have been solved.
In 2021, the Bitcoin price exceeded $46,000, making solving these technical problems even more urgent. People need confidence in their investments.
The type of validation necessary to operate the cryptocurrency market has many competing needs. Other blockchain technologies add their own quirks. Having every participating computer run all transactions would work but would take time and power.
Scalability, security, speed, and other factors all figure in, and engineers need to figure out a solution that meets the needs of all factors.
What’s the Next Step?
Well, that depends on what made you want to know about blockchain consensus in the first place.
Developing an app that works on blockchain technology? Start looking at which methods and standards suit your application. Think about your customers and their needs.
If you’re looking to invest, consider which methods make you feel secure in your investment. Competing standards will continue to develop, so keep an eye out for new developments that suit your investment style.