Cardano’s Proof of Stake v. Other Consensus Algorithms

Cardano’s use of proof of stake and Ouroboros works. But how does it compare to rival consensus methods?

Summary: Here we explore the consensus mechanisms used in various blockchains to ensure the accuracy of their respective ledgers, highlighting alternatives to the proof-of-stake consensus mechanism used by Cardano, including: proof of work, Proof of Capacity, Proof of History, Proof of Elapsed Time, Proof of Identity, and Proof of Spacetime, among others. We explain how each of these mechanisms works and discuss their own unique advantages, while also discussing ways in which they fall short of Cardano's proof of stake.

---

Proof-of-stake-based projects like Cardano are incredible in their potential to alter the very way that society operates and functions. And of course Cardano is not the only promising blockchain, with competing ones arriving at an almost unimaginable pace. The many advantages posed by this increase in the number of blockchains remains truly a topic all on its own. As we explore some of these competing consensus methods, please take a moment and subscribe to our email list below or add us to your RSS feed to make sure you’re among the first to know when it publishes.

(Click to Shop Your Next Favorite Artwork!)

How To Best Ensure Blockchains Are Accurate?

As revolutionary as this new era of technology may seem, there remains one unavoidable reality to discuss: all decentralized blockchains need a way for their respective nodes to reach complete and total consensus on the current state of their respective blockchain ledgers.

As you may know, there are many ways to build a mousetrap, but one question always remains: How? The answer of how to best tackle this thorny issue varies widely from chain to chain, but at the end of the day they all must utilize some sort of consensus mechanism.

Some like Solana use two at the same time! Let’s first get a quick refresher on what proof of stake is all about and then we will discuss the nine other most common algorithmic consensus mechanisms that are present in the cryptosphere today.

Cardano and Proof of Stake

Projects like Cardano that use proof of stake (PoS) almost universally depend on the process of randomization to decide who will be granted the ability to create the next block in the blockchain. In Cardano’s case, the decision is made by weighing the stakes held by each participant. In exchange for helping provide collateral in the process of confirming transactions, users of a blockchain have the option of freezing their tokens for a set length of time in exchange for receiving a reward. This is referred to as staking.

Once a blockchain participant has achieved the status of validator, they will have the ability to construct blocks. The structure of the blockchain is yet another consideration that may be taken into account during the selection of validators. In the majority of instances, the user who holds the largest stake or who has been in possession of coins for the longest amount of time has a greater probability of producing a new block.

As compensation for their services, validators often receive all or a portion of the transaction fees connected with all of the transactions that take place in the block that they produced. Very few things in life happen for free and this is no different, as validators must be financially rewarded for the work that they do.

The proof-of-stake approach in Cardano’s case is no different, as it uses a consensus mechanism known as Ouroboros that incentivizes validators for their contributions in the upkeep of the blockchain through the use of a stake-based reward system.

Mining pools have developed as people and organizations have pulled together their holdings in order to increase their likelihood of being selected. This increased concentration of access to mining has quickly become a major concern. In response to this growing issue, another option that has become more common has been to compensate validators for inflation by awarding them with a fixed number of coins in exchange for their work.

Regardless of these valid concerns, the truth remains that a proof-of-stake protocol consumes a significantly lower amount of energy in comparison to the original way of doing things. And Cardano has attracted a growing number of supporters over the years for this very reason (get your Cardano gear here).

First Alternative: Proof of Work

Proof of work (PoW), which is used in Bitcoin, Dogecoin, and countless early cryptocurrency projects, is the original method of validating blockchains. Its inadequacies both real and perceived have inspired relatively newer competitors to develop drastically different approaches.

Mining is an integral part of the proof-of-work (PoW) process and nodes are the computers that take part in mining. Miners take on challenging mathematical puzzles that demand a lot of processing power. On Bitcoin’s blockchain this is done by miners using a wide range of mining methods such as GPU mining, FPGA mining, mining pools, ASIC mining, and many other methods.

A block is awarded to a miner once they solve a mathematical problem successfully (assuming that they were the first to figure it out). What makes things especially stressful in proof of work is that the only way to solve these puzzles is through resource-intensive trial and error. Therefore, in order to find answers as rapidly as possible, miners require an ever-increasing quantity of computational power.

The difficulty of the problems is influenced by the speed at which the blocks are cleared. The blocks become increasingly difficult to build quickly, as the puzzles get harder, and vice versa. Keep in mind that it's always necessary to clear and manufacture new blocks within a set length of time, which in turn adjusts the puzzles' level of complexity.

Not surprisingly, this constant stress and competition means that proof of work depletes resources at a startlingly quick rate. Various estimates put the current annual power consumption of Bitcoin at 161 terawatt hours, increasing not only the energy strain placed on electrical grids but also the cost to mining operations that must seek affordable and scalable solutions to energy acquisition.

Second Alternative: Delegated Proof of Stake

EOS, BitShares, and TRON are some of the next generation projects that use Delegated Proof of Stake (DPoS). This is not to be confused with proof of stake, as Delegated Proof of Stake is an entirely different stake-delegated proof method that is easily one of the most powerful consensus systems available. DPoS is faster than PoS systems and also consumes less energy than PoW systems.

Users can vote for a specific number of delegates and stake their coins throughout the Delegated Proof of Stake process. The value of a user's vote is based on how much money they have on the line. A vote cast by user 'X' will be given more weight than a vote cast by user 'Y' if 'X' stakes 20 coins to appoint a delegate while 'Y' stakes only 2. This removes some of the concentration of mining power that we see in Cardano’s proof-of-stake approach.

As you may have already surmised, the delegate who receives the most votes is given the chance to create additional blocks. Delegates, for their role in facilitating the selection of miners, are awarded with transaction fees or a fixed number of coins for their involvement; this is not as radical a departure as it may seem, as we generally see a similar reward mechanism in place with other kinds of blockchain validator selection processes.

Through the sound application of the Delegated Proof of Stake technique, blockchain participants can easily reach consensus in one of the shortest amounts of time possible. Interestingly enough, this method can handle more transactions per second than rival methods especially when compared to the proof-of-work methodology. Due to its stake-weighted voting process, DPOS is frequently referred to as a type of digital democracy.

Third Alternative: Proof of Capacity

The main benefit of a Proof of Capacity (PoC) system is its greater efficiency when compared to proof-of-work and proof-of-stake systems. Cardano faces growing competition from newer blockchains that use the Proof-of-Capacity protocol include SpaceMint, Burst, Chia, and Storj. In the Proof-of-Capacity method, solutions to challenging mathematical puzzles are placed in digital storage devices akin to hard disks. This entire process is referred to as "plotting."

Once a storage device has been filled with mathematical problem answers, participants will be able to use it to produce blocks. Users are offered the chance to create a new block if they find the answers the quickest. Because of this, validators with the largest storage capacity will be more likely to create new blocks.

Another powerful advantage of Proof of Capacity is that it is more energy-efficient than proof of work. In the latter, miners compete to employ pricey machinery that consumes a lot of energy to solve challenging mathematical puzzles. This growingly inefficient competition may play a role in driving the price of Bitcoin higher, but in doing so it also has a big impact on how the environment is affected or perceived to be impacted by blockchains.

Proof of Capacity, on the other hand, uses a “hard disk” space to store the answers to mathematical puzzles, resulting in a substantially reduced overall energy use. Because of this, Proof-of-Capacity-based blockchains represent a more environmentally friendly and sustainable solution. Additionally, it drastically lowers the overall cost of mining cryptocurrencies because consumers are not obliged to purchase expensive mining hardware.

One of the main shortcomings of the Proof-of-Capacity approach, though, is the ever-present and persistent possibility of hyper-centralization. Users with the most storage capacity are more likely to create new blocks, which might lead to a concentration of power in the hands of a select few large-scale storage providers. This would be against the decentralized nature of blockchain technology, as it would lead to a network becoming more centralized over time.

Proof of Capacity opponents have made the extremely relevant and valid assessment that smaller storage providers will have an equal chance to create blocks if Proof-of-Capacity-based blockchains introduce randomness and other similar processes. They correctly identify that doing so will aid in preventing blockchains relying on Proof of Capacity from entering the centralization trap.

Another tactic is to persuade validators to join mining pools, which lets them pool their storage and increase the likelihood that they will succeed in adding a new block. These community-oriented safety measures might help preserve the blockchain's decentralized nature and security while also holding true to the promise and potential of Proof of Capacity.

Fourth Alternative: Proof of History

One of our all-time favorite crypto projects and currencies, Solana, employs Proof of History (PoH) , a scalability-friendly solution, perfect for building and safeguarding portable blockchains. What truly makes PoH a unique approach is that it allows us to create blockchains with a history that can be relatively easily tracked.

The world was introduced to Proof of History on March 16, 2020, when Solana's first block was created. PoH is a revolutionary approach in that its cutting-edge technique aims to greatly enhance the efficiency and scalability of blockchain networks. Anatoly Yakovenko, the founder of Solana, first mentioned this method in a white paper he wrote way back in November 2017. You may have previously heard it referred to as the "distributed clock.” Using this approach allows blockchain systems to guarantee that historical data is trustworthy and unchanged, which is why it's named Proof of History.

How it works to accomplish this noble task is relatively straightforward. A hash function is used to create a unique "fingerprint" of a piece of data (for example, prior transactions). The nodes that are currently watching over the network can confirm this by checking the data in a block that is later added to the blockchain. By comparing the fingerprint to the blockchain's most recent data state, these nodes can confirm the fingerprint's veracity and correctness. Any alteration to the data would result in a new fingerprint, which the nodes would recognize as fraudulent and thus throw out the block because the hash function is highly predictable.

PoH is used to secure and decentralize the blockchain by preventing double spending and ensuring that all nodes are hosting and preserving precise copies of the blockchain. Doing so allows the Solana blockchain to continuously perform a quality review of the data coming out of its underlying proof-of-stake-based approach.

A verifiable delay function (VDF) is employed to show that each block's timestamp was generated inside a specific window of time. The most recent block and previous PoH are hashed together. These timestamps are collected into a time string, which is used to prove when the blocks were added to the blockchain. In order to show when a series of blocks have been added to the blockchain, we can then use a string of timestamps. These timestamps are as a result validated by all of the nodes who also store a copy of the timestamp, all of this is transmitted across the network leading to consensus.

Nodes are thus able to easily verify that the timestamps were generated in the right time and weren't pre-computed before adding them to the chain. The amount of data that needs to be confirmed and saved is significantly decreased thanks to PoH, allowing the network to handle more transactions and serve more users. The combination of Proof of History along with proof of stake is why we are able to see blazing transaction speeds on Solana.

Fifth Alternative: Proof of Elapsed Time

The Proof of Elapsed Time (PoET) algorithm chooses the producer of a new block randomly and fairly based on the length of waiting time. For this reason, the procedure randomly chooses a wait time for each user; the user whose wait time expires first creates a new block. This consensus method requires the system to verify that no validator can run multiple nodes and that the wait time is truly random. It‘s currently in use in the Hyperledger Sawtooth, a permissioned blockchain designed for enterprises.

The folks at Intel originally created the Proof-of-Elapsed-Time consensus approach to replace the proof of work and proof of stake consensus processes. PoET addresses both some of the drawbacks of PoW, such as its high energy consumption, and some of the drawbacks of PoS, such as the potential for centralization, for which many have correctly called out Cardano.

A more decentralized system is guaranteed by the fair and random selection of block producers, making it extremely difficult for anyone to gain control of the network. Proof of Elapsed Time can be especially useful in private and permissioned blockchain networks where participants' identities may be known and verified.

One of the main advantages of Proof of Elapsed Time is that it is highly energy efficient. PoET requires a small amount of processing power, in contrast to PoW. Instead of using computer resources, PoET generates a random wait time for each user within a trusted execution environment (TEE). The TEE is a secure hardware container that provides a segregated, safe environment in which wait times can be created. As a result, PoET can significantly reduce the energy needed for block manufacturing, making it a more sustainable and ecologically friendly consensus mechanism.

Additional Recommended Content

Sixth Alternative: Proof of Identity

One of Cardano’s most promising initiatives has been helping African countries accurately maintain and cross-verify identification and educational records. Traditional centralized identity verification methods are prone to human mistake and offer a poor customer experience to companies and organizations looking to leverage a growing and highly-skilled African workforce. Governments in Africa are thus embracing the transformative potential of Blockchain-based digital approaches to prevent document and identity fraud.

It is generally believed that by deploying digital solutions and blockchain-based verification management systems, document fraud will be less common and every person will have access to official proof of identity. One novel way that Cardano can make headway on this noble goal is by using some of its cross blockchain operability to utilize Proof of Identity (PoI).

In Proof of Identity, a participant's private key is contrasted with an approved identity. A Proof of Identity is essentially a piece of cryptographic proof that connects a user's private key to a specific transaction. Any authenticated user on a blockchain network can create a block of data that can be viewed by anybody else on the network.

The Proof-of-Identity consensus mechanism is particularly useful where identity verification is important, such as in voting systems and financial transactions. PoI enables the user's identity to be verified by comparing the user's private key with an authorized identity.

This verification process may involve the use of several methods, including biometric authentication, government-issued IDs, or social media profiles. Once the user's identity has been verified, they are given permission to create a new block of data that is cryptographically linked to them. This ensures that the data they generate is accurate and reliable. PoI can be used to prevent fraud and identity theft in online transactions by requiring identifying evidence before any transactions can be performed.

Another key benefits of PoI is the capacity to carry out safer and more efficient identity verification processes. Instead of using traditional identity verification methods, which typically require users to divulge sensitive personal information, PoI uses cryptographic proof to establish a user's identification. This suggests that users of the blockchain network can also remain reasonably anonymous while doing so.

PoI can also be combined with other consensus processes, such as PoW or PoS, to create a system that is more safe and decentralized. As blockchain technology becomes used more widely, PoI is likely to become a more important consensus mechanism, allowing consumers a secure and efficient way to verify their identity across a number of applications.

Seventh Alternative: Proof of Authority

The most notable platforms using Proof of Authority (PoA) are VeChain, Bitgert, Palm Network, and Xodex. Their modified proof-of-stake system, known as Proof of Authority, works by placing the reputation of network validators at risk. The degree of correspondence between a person's personal identification and the official documents used to confirm their identity serves as the basis for determining that participant's identity.

By taking part in the network, validators are jeopardizing their reputations. Only nodes that have gained the ability to become validators are allowed to create new blocks in Proof of Authority. Additionally, there are only 25 or less validators, resulting in faster transactional processing, however this relatively low quantity leads to some concerns regarding further scalability and centralization. As you may recall, these are the same concerns present in Cardano’s proof-of-stake approach, albeit with infinitely more validators to draw from.

Eighth Alternative: Proof of Activity

Decred (DCR) is the most well-known cryptocurrency that uses the Proof-of-Activity consensus method (PoA). Proof of Activity combines the best parts of proof of work and proof of stake: having started off using PoW, the mining process then shifts to a PoS system.

In Proof of Activity, miners search for the solution to a riddle in order to claim their prize as they do in a traditional proof-of-work-based approach. Blocks produced via the Proof-of-Activity system, however, are essentially templates with headers and mining reward data. The header information is then used to choose a random set of validators to sign a block, as we would see in a proof-of-stake approach (it is more likely that the higher-stake validators will be selected to sign a fresh block).

After being signed by the selected validators, a new block joins the network. In the event that the block is rejected, a new block is used in its place; this occurs if any of the selected validators fail to sign it. The network fees generated throughout the operation are divided between the winning miner and the validators.

Ninth Alternative: Proof of Space and Proof of Spacetime

Data blocks are timestamped as part of the Proof of Spacetime (PoST) consensus method as currently used in distributed ledger technology. Fresh blocks of data must be timestamped with the most current "time" in order to be accepted and to comply with PoST. In a blockchain-based system, this is frequently performed using a cryptographic proof-of-work methodology.

With proof of work, miners must solve a cryptographic puzzle to create a new block, and the timestamp is used to show that the new block has been accepted by the network. This approach is designed to guarantee the system's security because the miners must present proof that their job is complete before the block is accepted.

A storage miner can still be found preserving a unique piece of data for the network by using PoST, which is widely utilized in relation to Filecoin. In many ways, it is similar to Proof of Capacity, including the demand that network users have a financial incentive to interact honestly and have no financial gain from undermining the network.

On the other hand, PoST is distinctive in that it lets network users prove that they have been physically storing data for a specific period of time. This is shown by choosing a random sample of miners and examining their data for validations.

Tal Moran and Ilan Orlov assert that the true cost of storage is proportional to the sum of the storage capacity and the time that it is used, and that their work constitutes the rational proof of spacetime.

Proof of Stake v. Proof of Spacetime

Proof of stake and Proof of Spacetime are two consensus techniques used by blockchain networks. Both are designed to provide a secure, reliable, and decentralized method of reaching consensus regarding the state of a blockchain right now and the transactions it is archiving.

In a traditional proof-of-stake system (like we see in Cardano), participants are given rewards for their role in approving blockchain transactions. It is based on the idea that if a participant holds a lot of coins, they will presumably be more likely to act in the network's best interests; this suggests that the number of coins a person owns affects their ability to influence the network.

In comparison, Proof of Spacetime was developed specifically to encourage users to store data on the blockchain. Long-term storage of data on the blockchain is rewarded by users. This is done by requiring them to lock up a certain amount of coins in exchange for the right to keep data on the blockchain. The main advantage of PoST is that it encourages users to maintain their data on the blockchain, which is advantageous for the network as a whole.

Both PoS and PoST consensus algorithms can be used to safely and effectively obtain agreement on a blockchain's state and its transactions.

Conclusion

Different blockchain systems reach consensus using different ways, despite having the same goals. While there isn't yet a single perfect method, the ones that do exist have evolved over time to meet blockchain technology's changing requirements. Ultimately, it can be challenging to predict which types of blockchain algorithms and approaches will be widely used in the future because the underlying technology is still rapidly developing. But for now, proof of stake continues to offer one of the best ways forward—for not only Cardano wallet owners, but for emerging blockchain platforms everywhere.

If you have any questions or perhaps would like to contribute to our blog, please use the form on this website’s contact us page. Be sure to also check out our YouTube channel for sensational content covering all the latest happenings in the cryptocurrency world. If you are interested in growing revenue by joining an incredible affiliate network, make sure to visit our affiliate relations page to learn more about partnering with us!

Legal Disclaimer : The information provided on this crypto website is for educational and informational purposes only and should not be construed as financial advice. This website does not provide investment, legal, or tax advice, and the content provided is not intended to be relied upon for making financial decisions. Any investment decisions made by the reader based on the content of this website are solely their responsibility. This website does not endorse or recommend any particular investment, product, or service. The reader should always do their own research and seek professional advice before making any investment decisions. This website will not be held responsible for any losses incurred by the reader.

---

Conclusion: In conclusion, decentralized blockchains need a way to reach consensus on the current state of their respective ledgers. This is where consensus mechanisms come into play, and there are various types available, each with its own advantages and disadvantages. Proof of stake (PoS), Delegated Proof of Stake (DPoS), and Proof of Capacity are some of the most widely used consensus mechanisms in the crypto-sphere. Proof of Stake based projects like Cardano have unlimited potential to alter the way society functions. With the increasing number of blockchains in the market, the advantages posed by the variety of consensus mechanisms available are worth exploring. Stay updated on these advancements by subscribing to our email list or adding us to your RSS feed. As always, feel free to share your thoughts on Cardano, proof of stake, and other trending cryptotopics in the comments section!

(Amazon Affiliate Link)