Distributed Ledger Technology systems make use of a consensus mechanism as one of its key elements noted Bahaa Abdul Hussein. Consensus mechanism is a technique used in DLT to ensure agreement about the ledger’s state. We look at what it is, how it works, and its importance.

In DLT, transactions are recorded on a distributed ledger. The recording is done on a database that is decentralized, meaning it is not stored on one system but on many nodes. It is required to ensure an agreement about the ledger. The distributed agreement is done using a program known as consensus mechanism. There are different types of consensus mechanisms used in DLT. The mechanism is important as it ensures group verification and ensures information encryption.

Types of consensus mechanisms

Before getting into the types of mechanisms, here is a bit of info about how they evolved. Centralized databases were in vogue and later on gave away to shared databases. These in turn evolved into distributed ledgers. To prevent unauthorized access there was a need for a method for database management. This led to the development of consensus mechanisms.

1) Proof of work

This is the most common consensus mechanism and is used by Bitcoin and Litecoin cryptocurrencies. Here, the participant node must prove that the work they have done should be added to the ledger. The mechanism calls for a lot of power consumption and take more time for processing.

2) Proof of stake

Compared to proof of work, proof of stake is preferred since it consumes lesser power. It is also low cost. Here, the maintenance of the ledger is done by a participant node in proportion to the tokens they have. The problem here is that it makes people hoard tokens instead of spending them.

3) Proof of capacity

In this mechanism, memory space of the nodes is shared. The rights to maintain the ledger is allotted proportionate to the memory space or disk space the node has.

4) Proof of Activity

It is a hybrid that incorporates features of proof of work and proof of stake.

5) Proof of Burn

In this mechanism, the nodes carrying out the transactions must send cryptocurrency small amounts to burn wallet addresses that don’t exist.

Conclusion

Consensus mechanism is very important in distributed ledger systems. There are various types of mechanism. The mechanism to be chosen depends on the needs of the users. Consensus mechanisms ensure trust in the system by enhancing its security. Thank you for your interest in Bahaa Abdul Hussein blogs. For more information, please visit www.bahaaabdulhussein.com.