How to Decide a Suitable Blockchain Consensus Algorithm

The consensus mechanism is a crucial component without which a blockchain cannot exist. It powers blockchain ecosystems and keeps them secure. But what other purposes do consensus algorithms serve, and which one is best? Decentralization, transaction security, and trust between unknown peers — all these features are made possible by consensus algorithms. Since the most popular blockchains to date are Bitcoin and Ethereum, you may have heard of the Proof of Work (PoW) consensus model that these two rely on. Although this algorithm is one of the most discussed, it is far from ideal, so more advanced and environmentally friendly mechanisms are currently replacing it.

However, why do you need to know about the differences between blockchain consensus algorithms? The reason is that these mechanisms are truly the core of blockchain technology and your future platform’s most important performance indicators, such as the security, speed, and finality of transactions, will depend on the type of consensus algorithm. A blockchain development company ensures that a suitable blockchain consensus algorithm is used when it comes to blockchain development.

Now, let’s dive into blockchain consensus algorithms, learn about their strengths and weaknesses, and explore how to find a good fit for your particular case.

Blockchain Consensus Mechanisms

Consensus is the process by which a group of peers – or nodes – on a network determine which blockchain transactions are valid and which are not. Consensus mechanisms are the methodologies used to achieve this agreement. It’s these sets of rules that help to protect networks from malicious behavior and hacking attacks. 

There are many different types of consensus mechanisms, depending on the blockchain and its application. While they differ in their energy usage, security, and scalability, they all share one purpose: to ensure that records are true and honest. Here’s an overview of some of the best-known types of consensus mechanisms used by distributed systems to reach consensus.

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Properties of a Good Blockchain Consensus Algorithm 

Safety

In a good consensus mechanism, all the nodes are capable of generating results that are valid according to the rules of protocol.

Inclusive

A good consensus blockchain mechanism ensures that every particular node of the network participates in the process of voting.

Participatory

A consensus mechanism where all the nodes actively participate and contribute to updating databases on Blockchain is called a Good consensus model.

Egalitarian

Another trait of a good mechanism is that it gives equal value and weightage to every vote received from the node.

With this in mind, let’s find out what happens when you do not consider these factors and introduce a poor consensus model to your development process.

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Consequences of using an Unsuitable Blockchain Consensus Protocol

Since a consensus algorithm is the integral, essential component of the blockchain, choosing the wrong one will lead to serious consequences. Here are several of the risks:

Poor Performance

An incorrectly chosen consensus mechanism negatively affects the nodes’ work and the speed of the entire network and transaction processing. To attract a large audience to your app, you need to consider algorithms that can provide you with a high transaction speed and scalability.

System Failure

Imagine you have chosen a consensus algorithm that is not suitable for public blockchains. You successfully launch an application, and attract a lot of users to your platform — and then it turns out that there are not enough nodes to maintain the network or the way they verify transactions is not very efficient and secure. Once nodes stop working or experience some serious problems, the whole network will crash.

Blockchain Forking

Blockchain forking can cause problems unless the fork was created intentionally to implement new consensus rules.

When a fork appears, there are fewer miners and nodes in the network, which leads to vulnerabilities. A group of attackers will successfully interfere with a network when they control more than 50% of the computing power. The more nodes the system loses, the more chances hackers have to get additional power in the network.

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How to Decide a Suitable Blockchain Consensus Algorithm for Blockchain App Development

Now that you know what consequences you might face if you choose the wrong consensus algorithm, it’s time to find out how to select the most suitable one. To get closer to the answer, consider the following questions:

Developing a Public or Enterprise Blockchain Solution

If you are planning to create an application for a wide audience, you can consider implementing PoW, PoS, DPoS, or PoH. These algorithms imply that anyone can participate in block validation as long as they meet the requirements of the network (e.g. have the necessary hardware or the specific number of coins staked).

Although Proof of Authority also suits public blockchains, this mechanism is better for private, enterprise-scale applications.

Is Sustainability your Primary Concern

If you want to create an environmentally friendly solution, the Proof of Work-based blockchain is not suitable. It is because it is the most energy intensive.

Instead, you might consider PoS or DPoS options. The PoS mechanism is 2,000 times greener than PoW, and DPoS-based blockchains are 125,000 times more energy efficient than PoW. PoA could also be a good choice.

TPS (Transaction Processing Speed) and Scalability are Priority

If the answer is yes, then you should think of using PoS, DPoS, or PoH. At present, PoS-based blockchains can perform up to 4,500 TPS, DPoS - more than 8,000 TPS, and PoH — up to 65,000 TPS. Evaluate how many transactions your app will need to process and make a decision.

Complete or Limited Decentralization?

The PoW and PoS algorithms provide complete decentralization and high network security, while DPoS is more centralized than those two. As for PoA, it has limited decentralization. It requires a small number of nodes to validate transactions and maintain the system.

When it comes to the PoH protocol, the degree of decentralization is a matter of concern in the blockchain community.

The Role of Block Validators

Who do you see as nodes of your future application? If these are miners, then you should return to the PoW algorithm. If you want nodes to be ordinary users who will only stake coins, then PoS or PoA are reasonable options.

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What’s Next

Choosing a consensus model is arguably the most important component of a blockchain’s development. It’s the consensus model that determines several factors for an ecosystem. These may include efficiency, security, and versatility.

Whether you need help with the development and implementation of your consensus algorithm and want to build a blockchain from scratch, or you are planning to build a new blockchain-powered solution with existing consensus mechanisms, our blockchain developers can help you get started.