Consensus is typically defined as a mechanism that nodes use to reach agreement on what is the common state of data particular to them. Here is what that means.
Consensus is achieved through an advanced consensus mechanism. You can think of it as a set of parameters regulating relationships between parties in a blockchain.
A blockchain system is formed by a distributed network of computers or nodes. These nodes are structurally decentralized or independent from each other. Each of them maintains an identical copy of the common database (also known as a distributed ledger).
Nodes need to communicate the state of data in the ledger to each other. By the state of data, we refer to information like who has Bitcoin and how much they hold.
The very first consensus in blockchain was Proof of Work (PoW), which was created by the developers of Bitcoin. Since then, this consensus mechanism has been copied, reworked and upgraded. This paved the way for other, more advanced types of consensus mechanisms.
The way consensus is reached depends on the type of consensus mechanism at play. Let’s take a look at how this works with PoW.
Every action in a blockchain is executed by adding a block. Before a blockchain user (the validator) can add such a block, they need to prove that they are going to act honestly. To do that, they’re required to put forward a stake. A stake is some sort of value that could be a cryptocurrency, computing power or reputation.
Users provide a stake in exchange for a reward. In the case of the Bitcoin blockchain, the reward is Bitcoin, the native cryptocurrency of the blockchain. Such rewards are put together from other users’ fees and/or generated by other nodes.
As stated, this description of how consensus works is applicable to a particular type of consensus mechanism. Other types will feature different, more diverse rules and components.
Types of consensus mechanisms differ by the principles they are based on and the blockchains that use them. The diversity of such mechanisms is not limited. In this FAQ, you will discover the most widely used protocols and those used by L3COS.
The Proof-of-Work protocol, often referred to as PoW, is the first consensus mechanism ever created. It was introduced with the launch of Bitcoin and is the inspiration for all subsequently created protocols.
PoW was specifically created to enable operations with cryptocurrency funds. It requires a node to prove eligibility to add a new transaction by demonstrating that the user has carried out and presented work.
In other words, PoW is the mechanism that allows you to mine cryptocurrencies like Bitcoin and Litecoin. As such, it lacks efficiency because it’s energy-consuming and slow.
Proof of Stake (PoS), was first introduced in the Peercoin blockchain to replace the inefficient PoW algorithm. Current prominent examples of blockchains using it are Nxt, BlackCoin and ShadowCoin.
PoS is a commonly used mechanism with smaller cryptocurrencies.
Here is how it works. A node is set as responsible for maintaining the public ledger. Its share of the ledger depends on how many units of digital currency it holds.
The main difference from PoW is that you are not required to stake an external value like electricity. Instead, you put forward the cryptocurrency, which is an internal resource. To be eligible to stake, PoS-based blockchain users commonly need to hold a minimum amount of coins.
You lock up your funds in a wallet and bet on a block to be selected by the protocol. If your block is chosen, you will get a share of the transaction fees. The size of your gain depends on how many coins you have deposited. You can also lose a piece of your stake or all of it — but only if you try to propose an invalid transaction in an attempt to cheat.
PoS has its own disadvantages. Firstly, by its nature, it promotes the saving rather than spending of cryptocurrency. Secondly, its protection mechanism against malicious intent remains insufficient.
Recognizing that PoW is inefficient and PoS lacks a good protection mechanism, Daniel Larimer, a US developer and the founder of BitShares, Steemit and EOSIO, decided to fix the problem. He pioneered a new consensus mechanism: the Delegated Proof of Stake (DPoS or DLPoS).
DPoS is based on the election principle. Using participant voting, a blockchain community elects Witnesses, the individuals who run the computer network. The top 100 Witnesses get paid for their work, while the top 20 earn a salary. There are also backup Witnesses who can take over if a regular Witness fails to do quality work.
Not all votes have the same weight. A vote’s weight is determined by the number of tokens held by the voter.
This description applies to some of the most common DPoS-based blockchains, like Steemit and BitShares. Every blockchain can have its own specific rules and regulations.
L3COS uses DLPoS at the business level. This allows stakeholders to vote on the governing structure, decisions and regulations of their company, exchange fiat money for central bank digital currency and vice versa, create and execute smart contracts and more.
Proof of Authority (PoA) is a consensus mechanism designed specifically for private blockchain networks. Such networks allow companies and organizations to reap the benefits of decentralization while keeping the governing structure in place. The term PoA was originally proposed by Gavin Wood, co-founder and ex-CTO of Ethereum.
While PoW and PoS use computing power or cryptocurrency as the stake, PoA is based on the reputation of users (the block validators). The limited number of validating nodes, which are selected arbitrarily, ensure the high level of security of the PoA-based blockchain.
Blockchains running on PoA outmatch all others on scalability, security and performance. However, they are a purpose-specific solution. They are perfect for organized bodies with a hierarchical structure, and they do not allow everyone to create freely circulating cryptocurrencies.
One prominent example of a PoA-based blockchain is Microsoft Azure. The company’s platform provides benefits of blockchain to its users without requiring a native cryptocurrency to be used as the stake.
L3COS uses Proof of Government (PoGVT), a modified version of PoA.
PoGVT allows governments to regulate relationships between its citizens, organizations and businesses. It enables governments to register businesses and individuals, impose sanctions, issue central bank digital currency, manage roles and permissions, and ensure compliance.
Proof of Storage (PoST) is a consensus mechanism mainly used to verify the availability of data stored in a distributed ledger.
The term was first put forward in 2013 and has been used by cryptocurrency blockchains like Storj.
Rather than utilizing a blockchain, the system utilizes a blocktree (sometimes known as Merkle tree). Additionally, instead of seeing each and every recorded transaction, the clients will just observe transactions that are pertinent to them. Every node on the Merkle tree contains a blockchain.
L3COS uses Proof of Storage (PoST) to allow individuals to exchange fiat money for central bank digital currency and vice versa, buy and sell goods, invest and profit, and vote on their government’s decisions and regulations.
L3COS is the next-generation blockchain. These nodes reach agreement on a common state of data between each other using consensus mechanisms.
A typical blockchain has one (e.g. Bitcoin, Ethereum and EOS) or two (e.g. Dash and Decred) consensus levels. Blockchains with two consensus levels feature faster transactions and higher fork resistance.
L3COS (which stands for Level 3 Consensus Operating System) is the next-generation blockchain. It operates on three levels of consensus, one for each of government, business and the wider society.
Every blockchain has a consensus mechanism that makes it logically centralized.
Consensus mechanisms impose an order, enabling a distributed system like blockchain to operate as one unit.
In other words, the consensus is not an advantage. It is the backbone without which there can be no blockchain. Therefore, a blockchain-based operating system like L3COS is unimaginable without at least one consensus mechanism.
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