Unit III

Blockchain Platforms and Consensus in Blockchain

Types of Blockchain Platforms: Public, Private and Consortium, Bitcoin,

Ethereum, Hyperledger, IoTA, Corda, R3.
Consensus in Blockchain: Consensus Approach, Consensus Elements,
Consensus Algorithms, Proof of Work, Byzantine General problem, Proof of
Stake, Proof of Elapsed Time, Proof of Activity, Proof of Burn.

CO2: Compare the working of different blockchain platforms

 Blockchain

• Blockchain is a secure series or chain of time stamped records stored in a

database that a group of users manages who are a part of a decentralized
network.
• Blockchain is a decentralized or distributed ledger where each node in
the network has access to the data or records stored in a blockchain.
• The encryption of all the important data records in the blockchain is done
using cryptographic techniques. This ensures the security of the data in
the blockchain.
Blockchain
 Blockchain
Advantage using blockchain :
• It provides greater trust among users.
• It provides greater security among data.
• Reduce the cost of production.
• Improve Speed.
• Invocation and tokenization.
• It provides immutable records.
• Smart contracts
Disadvantages using blockchain :
• Data modification is not possible.
• It requires large storage for a large database.
• The owner cannot access the private key again if they forget or lose it.
 Blockchain
Real life application of blockchain :
Here is a list of real world problem where we can use blockchain :
• In a secure and full-proof voting management system.
• To supply chain management.
• In healthcare management.
• Real estate project.
• NFT(Non-fungible token) marketplace.
• Avoid copyright and original content creation.
• In the personal identity system
• To make an immutable data backup.
• Internet of Things
 Types of Blockchain Platforms

• Permissionless Blockchain
It is also known as trustless or public blockchains, are available to everyone to participate in the
blockchains process that use to validate transactions and data. These are used in the network where
high transparency is required.
• Characteristics:
1. Permissionless blockchain has no central authority.
2. The platform is completely open-source.
3. Full transparency of the transaction.
4. Heavy use of tokens.
 Types of Blockchain Platforms
Permissionless Blockchain (crypto) Benefits:
• Advantages: 1. Decentralised,
1. Everyone can participate only requirement is good hardware 2. Individual Anonymity (ID#)
and internet. 3. Transparent
2. Bring trust among users or entities. 4. Trust based n/w (consesus
3. It has a high level of transparency as it’s a larger network. algorithms, smart contracts)
4. Broader decentralization of access to more participants. 5. Immutable (Un-altered data)

• Disadvantages: DisAdv:
1. Poor energy efficiency due to large network. 1. Slow transaction speeds
2. Lower performance scalability. 2. Difficult to scale
3. Less privacy as many of the things is visible. 3. Need good computational power
(electricity)
 Types of Blockchain Platforms
• Permissioned Blockchain
These are the closed network only a set of groups are allowed to validate transactions or data in
a given blockchain network. These are used in the network where high privacy and security are
required.
• Characteristics:
1. A major feature is a transparency based on the objective of the organization.
2. Another feature is the lack of anatomy as only a limited number of users are allowed.
3. It does not have a central authority.
4. Developed by private authority.
 Types of Blockchain Platforms
Permissioned Blockchain
• Advantages:
1. This blockchain tends to be faster as it has some nodes for validations.
2. They can offer customizability.
3. Strong Privacy as permission is needed for accessing transaction information.
4. As few nodes are involved performance and scalability are increased.

• Disadvantages:
1. Not truly decentralized as it requires permission
2. Risk of corruption as only a few participants are involved.
3. Anytime owner and operator can change the rules as per their need.
 Types of Blockchain Platforms
There are 4 types of blockchain:
• Public Blockchain.
• Private Blockchain.
• Hybrid Blockchain.
• Consortium(Federated)
Blockchain.
Types of Blockchain Platforms
 Types of Blockchain Platforms
1. Public Blockchain
These blockchains are completely open to following the idea of decentralization. They don’t
have any restrictions, anyone having a computer and internet can participate in the network.
• As the name is public this blockchain is open to the public, which means it is not owned by
anyone.
• Anyone having internet and a computer with good hardware can participate in this public
blockchain.
• All the computer in the network hold the copy of other nodes or block present in the
network
• In this public blockchain, we can also perform verification of transactions or records
 Types of Blockchain Platforms
1. Public Blockchain
Advantages:
• Trustable: There are algorithms to detect no fraud. Participants need not worry about
the other nodes in the network
• Secure: This blockchain is large in size as it is open to the public. In a large size, there is
greater distribution of records
• Anonymous Nature: It is a secure platform to make your transaction properly at the
same time, you are not required to reveal your name and identity in order to participate.
• Decentralized: There is no single platform that maintains the network, instead every
user has a copy of the ledger.
 Types of Blockchain Platforms
1. Public Blockchain
Disadvantages:
• Processing: The rate of the transaction process is very slow, due to its large size. Verification of
each node is a very time-consuming process.
• Energy Consumption: Proof of work is high energy-consuming. It requires good computer
hardware to participate in the network
• Acceptance: No central authority is there so governments are facing the issue to implement the
technology faster.
Use Cases: Public Blockchain is secured with proof of work or proof of stake they can be used to
displace traditional financial systems. The more advanced side of this blockchain is the smart contract
that enabled this blockchain to support decentralization. Examples of public blockchain are Bitcoin,
Ethereum.
 Types of Blockchain Platforms
2. Private Blockchain
These blockchains are not as decentralized as the public blockchain only selected nodes
can participate in the process, making it more secure than the others.
• These are not as open as a public blockchain.
• They are open to some authorized users only.
• These blockchains are operated in a closed network.
• In this few people are allowed to participate in a network within a
company/organization.
 Types of Blockchain Platforms

2. Private Blockchain
Advantages:
• Speed: The rate of the transaction is high, due to its small size. Verification of each node is
less time-consuming.
• Scalability: We can modify the scalability. The size of the network can be decided
manually.
• Privacy: It has increased the level of privacy for confidentiality reasons as the businesses
required.
• Balanced: It is more balanced as only some user has the access to the transaction which
improves the performance of the network.
 Types of Blockchain Platforms
2. Private Blockchain
Disadvantages:
• Security- The number of nodes in this type is limited so chances of manipulation are there. These
blockchains are more vulnerable.
• Centralized- Trust building is one of the main disadvantages due to its central nature.
Organizations can use this for malpractices.
• Count- Since there are few nodes if nodes go offline the entire system of blockchain can be
endangered.
Use Cases: With proper security and maintenance, this blockchain is a great asset to secure
information without exposing it to the public eye. Therefore companies use them for internal
auditing, voting, and asset management. An example of private blockchains is Hyperledger,
Corda.
 Types of Blockchain Platforms
3. Hybrid Blockchain
It is the mixed content of the private and public blockchain, where some part is controlled
by some organization and other makes are made visible as a public blockchain.
• It is a combination of both public and private blockchain.
• Permission-based and permissionless systems are used.
• User access information via smart contracts
• Even a primary entity owns a hybrid blockchain it cannot alter the transaction

Example: Ripple is a blockchain-based digital payment network and protocol with its
own cryptocurrency, XRP. Rather than use blockchain mining, Ripple uses a consensus
mechanism, via a group of bank-owned servers, to confirm transactions.
 Types of Blockchain Platforms
3. Hybrid Blockchain
Advantages:
• Ecosystem: Most advantageous thing about this blockchain is its hybrid nature. It
cannot be hacked as 51% of users don’t have access to the network
• Cost: Transactions are cheap as only a few nodes verify the transaction. All the nodes
don’t carry the verification hence less computational cost.
• Architecture: It is highly customizable and still maintains integrity, security, and
transparency.
• Operations: It can choose the participants in the blockchain and decide which
transaction can be made public.
 Types of Blockchain Platforms
3. Hybrid Blockchain
• Disadvantages:
• Efficiency: Not everyone is in the position to implement a hybrid Blockchain. The
organization also faces some difficulty in terms of efficiency in maintenance.
• Transparency: There is a possibility that someone can hide information from the user. If
someone wants to get access through a hybrid blockchain it depends on the organization
whether they will give or not.
• Ecosystem: Due to its closed ecosystem this blockchain lacks the incentives for network
participation.
Use Case: It provides a greater solution to the health care industry, government, real
estate, and financial companies. It provides a remedy where data is to be accessed publicly
but needs to be shielded privately. Examples of Hybrid Blockchain are Ripple network
and XRP token.
 Types of Blockchain Platforms
4. Consortium Blockchain
It is a creative approach that solves the needs of the organization. This blockchain validates
the transaction and also initiates or receives transactions.
• Also known as Federated Blockchain.
• This is an innovative method to solve the organization’s needs.
• Some part is public and some part is private.
• In this type, more than one organization manages the blockchain.
 Types of Blockchain Platforms
4. Consortium Blockchain
• Advantages:
• Speed: A limited number of users make verification fast. The high speed makes this
more usable for organizations.
• Authority: Multiple organizations can take part and make it decentralized at every level.
Decentralized authority, makes it more secure.
• Privacy: The information of the checked blocks is unknown to the public view. but any
member belonging to the blockchain can access it.
• Flexible: There is much divergence in the flexibility of the blockchain. Since it is not a
very large decision can be taken faster.
 Types of Blockchain Platforms
4. Consortium Blockchain
• Disadvantages:
• Approval: All the members approve the protocol making it less flexible. Since one or
more organizations are involved there can be differences in the vision of interest.
• Transparency: It can be hacked if the organization becomes corrupt. Organizations may
hide information from the users.
• Vulnerability: If few nodes are getting compromised there is a greater chance of
vulnerability in this blockchain.
Use Cases: It has high potential in businesses, banks, and other payment processors. Food
tracking of the organizations frequently collaborates with their sectors making it a federated
solution ideal for their use. Examples of consortium Blockchain are Tendermint and
Multichain.
Difference of Blockchain Platforms
 Who Invented Bitcoin?

• In 2008 the domain name .org was bought and an academic white paper titled
Bitcoin: A Peer-to-Peer Electronic Cash System was uploaded.
• It set out the theory and design of a system for a digital currency free of control
from any organisation or government.
• The author, going by the name Satoshi Nakamoto, wrote: "The root problem with
conventional currencies is all the trust that's required to make it work. The central
bank must be trusted not to debase the currency, but the history of fiat currencies
is full of breaches of that trust."
• The following year the software described in the paper was finished and released
publicly. Bitcoin network launch on 9 January 2009.
 Introduction to Bitcoin
• Bitcoin is a decentralized digital currency aka cryptocurrency that you can buy,
sell and exchange directly, without an intermediary like a bank.

• Bitcoin’s creator, Satoshi Nakamoto, originally described the need for “an
electronic payment system based on cryptographic proof instead of trust.”

• Bitcoin is owned by no one but entire world’s community.

• It is the first decentralized peer-to-peer payment network that is powered by its

users with no central authority or middlemen.
Bitcoin
 Bitcoin

• A peer-to-peer internet currency that allows

decentralized transfers of value between individuals
and businesses.
Motivation
— Distrust of financial institutions
— Transaction costs
Primary concerns
— Transaction security
— Double spends
• Intent of Bitcoin: replacing banks!
 Bitcoin

• There are 2 Things

Bitcoin the Token
- The digital currency itself
- a snippet of code that represents ownership of a digital concept
Bitcoin the Protocol
- a distributed network that maintains a ledger of balances of bitcoin-the-token.
- Otherwise known as the Blockchain
 Bitcoin
Bitcoin : Key Concept
How does Bitcoin Transactions Work?
 How does Bitcoin Transactions Work?

1. In order for Bitcoin to work, it requires a network of miners to continuously mine for
BTC. When miners are “mining” for Bitcoin, they are usually solving difficult
computational problems. This process requires computers with high computational
power and often times will take a lot of energy and electricity.
2. Once they solve the problem, the first miner to solve the problem will have to go
through a “Proof of Work” (PoW), where other miners in the system have to validate
the transaction and ensure the correctness of the problem. Only once the problem
receives approval can they record the transaction on the Blockchain.
3. Once a successful transaction is written on the Blockchain, the miners will then receive
rewards in the form of Bitcoin. These Bitcoins will go directly into the miner’s wallet.
 How does Bitcoin Transactions Work?

4. Those who are looking to invest in Bitcoin will then be on the lookout for miners or
network participants that are trading Bitcoins.
5. Miners and investors of Bitcoin will then exchange Bitcoin for cash.
6. The transaction between the miners and the investors will then be recorded onto the
Blockchain.
7. These transaction are available for the public to view on the Public Ledger where all
transactions are kept transparent and public.
 What Is Bitcoin Mining?
Bitcoin mining refers to ensuring that transactions are valid and added to the Bitcoin blockchain
correctly using a global network of computers running the Bitcoin code. The process of mining is also
the means by which new Bitcoins are created.
• The process of bitcoin mining involves the verification of new transactions against the Bitcoin
network, which results in the production of new bitcoins.
• Bitcoin mining is the process by which Bitcoin transactions are validated digitally on the
Bitcoin network and added to the blockchain ledger.
• It is done by solving complex cryptographic hash puzzles to verify blocks of transactions that are
updated on the decentralized blockchain ledger.
Solving these puzzles requires powerful computing power and sophisticated equipment. In return,
miners are rewarded with Bitcoin, which is then released into circulation hence the name Bitcoin
mining.
What Is Bitcoin Mining?
 What Is Bitcoin Mining?
Bitcoin: Advantages
1. Payment freedom.
2. Very low fees.
3. Few risk for merchants.
4. Security and control.
5. Transparent and neutral.
Bitcoin: Disadvantages
1. Lack of awareness.
2. No Physical Form.
3. Bitcoins are not widely accepted.
4. Wallets can be lost.
5. No valuation guarantee.
 ETHEREUM

Ethereum is the second major innovation in

Blockchain since the invention of Bitcoin.

While Bitcoin can be described as a digital

money.
Ethereum is decentralized platform for
programming a digital money.
 Ethereum
What is ethereum ?
• Ethereum is an open-source blockchain platform that offers smart contract functionality.
• It is a distributed computing platform that supports developing decentralized Digital
Applications (DApps) using blockchain technology.
• Ethereum provides a decentralized virtual machine called Ethereum Virtual Machine
(EVM) that can run scripts using an international network of public nodes.
• Ethereum is the biggest decentralized software app. It helps you to build smart contracts
and decentralized applications without any downtime or any third-party interference.
• Ethereum allows the developer to create and publish next-generation distributed
applications.
 Ethereum
Why do you need Ethereum?
Centralized systems are one of the most widespread models for software applications. This system
directly controls the operation of the individual units and the flow of information from a single center. In
this kind of system, individuals are depended on the central power to send & receive information.
However, there are issues with the centralized system are:
• Single point of control & failure
• It can be corrupt easily
• Performance bottleneck
• Silo effect
The Solution is Decentralized Applications
Decentralized applications never reply on a centralized backend, but they interact directly with a
blockchain.
 Ethereum

History of Ethereum
2013: Vitalik Buterin, a developer who was involved in Bitcoins, and he was first to describe on paper
2014: A Swiss firm Ethereum Switzerland Gmbh developed the first Ethereum software project
2015: Frontier, the first version of Ethereum was launched.
On March 14, 2016: A planned protocol Homestead becomes second biggest version upgrade of the ethereum
network.
On May 2016: Ethereum gets the most extensive media coverage when the DAO raised a record $150 million in crowd
sale.
On July 2016: The network branched into two broad categories: Ethereum (ETH) and Ethereum Classic (ETC).
June 2017: Ethereum rallies above $400 recording a 5001% rise since Jan 1st, 2017
May 2017- Ethereum will eventually overtake the success of Bitcoins
June 2018- The DAO was hacked by an anonymous group claiming $50 worth of ETH.
 Ethereum
What is Smart Contract?
A Smart Contract is a computer program that
executes automatically.
• It is a transaction protocol that allows
blockchain users to exchange money and
property.
• It also helps users to perform actions like
voting without any central authority.
• It is a virtual third-party software agent
that can automatically execute and enforce
terms and actions according to the legal
agreement. (if...then)
 Ethereum
Traditional Contracts vs. Smart Contracts
Below is the difference between traditional contracts and smart contracts:
 Ethereum
Key Terms in Ethereum
1. Currency Issuance: It is mostly managed and monitored by a country’s central bank. It is also
referred to as a monetary authority.
2. Decentralized Autonomous: Decentralized Autonomous Organization is a digital organization
which aims to operate without the need for hierarchical management.
3. Organizations (DAO): DAO is a combination of computer code, a blockchain, smart contracts, and
people.
4. Smart Contracts: It is digitally signed agreement between two or more parties which relies on a
consensus system
5. Smart Property: The Ethereum Wallet is a gateway to decentralized applications on the Ethereum
blockchain. It helps you to hold and secure ether and other crypto-assets which are built on
Ethereum.
 Ethereum
Key Terms in Ethereum
6. Solidity: Solidity is the smart contract language used in Ethereum. It is general
purpose programming language developed to run in the EVM environment. Solidity
helps you to perform arbitrary calculations. However, it aims to send & receive digital
token and store states.
7. Transactions: A transaction is a message which is sent from one account to another
account that might be the same or empty. It can include binary data which is called
Ether.
8. Ethereum Virtual Machine: The Ethereum Virtual Machine which is also known as
EVM is the runtime environment for smart contracts. EVM is a computer layer straight
above the underlying hardware. It is not just sandboxed but isolated. Moreover, the
code running inside the EVM doesn’t have any access to network, filesystem or any
other processes.
 Ethereum
What is Ether?
Ether is a value token of the Ethereum blockchain. It is listed as “ETH” on cryptocurrency
exchanges. It helps you to pay transaction fees and computational services on the
Ethereum network. In the Ethereum network whenever the contract is executed, Ether is
paid.
 Ethereum
Gas
To perform a transaction on the Ethereum network, a user requires to make a payment
(to the miner) Ether via an intermediary token called ‘Gas.’ It is a unit which allows you
to measures the computational work required for running a smart contract or other
transactions.
In Ethereum, the transactions fee is calculated in Ether, which is given as
Ether = Tx Fees= Gas Limit * Gas Price
Where,
Gas Limit= Refers to the amount of gas that is used for the computation
Gas Price= The amount of Ether a user is required to pay
 Ethereum
Typical Ethereum Network Transaction
 Ethereum
Decentralized Applications(DApp)

● DApps are computer applications that operate over a

blockchain enabling direct interaction between end users and
providers
● It can be comprised of single DAO or even a series of DAO
that work together to create an application
● Ethereum also allows the user to build decentralized
organizations.
 Ethereum
Decentralized Autonomous Organization (DAO)

● DAO are organizations that exist entirely

on a blockchain and are governed by its
protocols
● It is designed to hold onto assets and use a
kind of voting system to manage their
distribution
 Ethereum

Ethereum vs. Bitcoin

Bitcoin Ethereum
Founded 2009 2015
Market Dominance 42% 18%
Consensus Mechanism Proof of Work Proof of Stake
Block Time 10 Minute 12 – 14 second
Max Supply 21 million Unlimited
 Ethereum

Ethereum: Use Case

Decentralized Finance (DeFi)
• DeFi is a network of financial applications built on top of blockchain networks.
• It is open and programmable, operates without a central authority, and enables
developers to offer new models for payments, investing, lending, and trading.
• By using smart contracts and distributed systems, customers can easily build
secure decentralized financial applications.
 Ethereum

Ethereum: Use Case

Non Fungible Token (NFT)
• NFTs are unique and indivisible digital tokens that are useful for proving the
provenance of rare assets
• For example, NFTs can be used by an artist to tokenize their work and ensure that
their work is unique and belongs to them.
• The ownership information is recorded and maintained on the blockchain network.
• NFTs are also gaining popularity in the gaming industry because they allow
interoperability between gaming platforms.
 Ethereum

Ethereum: Benefits
• Ethereum offers an extremely flexible platform on which to build decentralized
applications using the native Solidity scripting language and Ethereum Virtual
Machine.
• Decentralized application developers who deploy smart contracts on Ethereum
benefit from the rich ecosystem of developer tooling.
• Also extends into the quality of user-experience for the average user of Ethereum
applications, with wallets like MetaMask, Argent, Rainbow.
• Ethereum as the primary home for decentralized applications like DeFi and NFTs
 Ethereum

Advantages of Ethereum
Following are the advantages of Ethereum:
1. Allows you to upload and request programs to be executed.
2. 100% uptime and DDOS resistant.
3. Ethereum helps you to create a tradable token that you can use as a new currency or
virtual share.
4. Persistent and permanent data storage.
5. Build virtual organizations.
6. Helps you to develop decentralized applications.
7. Ethereum helps you to build fault-tolerant and highly secure decentralized apps.
 Ethereum

Disadvantages of Ethereum
1. The Ethereum Virtual Machine is slow, so you can’t use it for large computations.
2. Storage on the blockchain is expensive.
3. Swarm Scalability is an issue, so there is a trade-off with decentralization Private block
chains are likely to proliferate.
4. Fixing bugs or updating Apps is a tough task because every peer in the network need
to update their node software.
5. Some applications require verification of user identity, and as there is no central
authority to verify the user identity.
 Ethereum

Application
 Hyper ledger

● Before come to what What is Hyperledger?

Hyperledger is, you
● Hyperledger creation by the Linux Foundation in 2016
must know what
● Hyperledger is an open source project created to
Hyperledger isn’t.
support the development of blockchain-based
Hyperledger is not: distributed ledgers
● A cryptocurrency ● Hyperledger consists of a collaborative effort to create
● A blockchain the needed frameworks, standards, tools and libraries
● A company
to build blockchains applications.
 Hyper ledger
What is Hyperledger?
 Hyper ledger

● Hyperledger acts as a hub for different distributed ledger frameworks and libraries.
● Developers use Hyperledger Greenhouse (the frameworks and tools that make up
Hyperledger) to develop business blockchain projects.
 Hyper ledger
Goals of Hyperledger?
 Hyper ledger
Hyperledger: Need

● In Blockchain networks, every peer needs to validate each and every transactions
● Run consensus at the same time, take a huge blow in terms of scalability.
● Transactions with a measure of confidentiality and privacy attached to them cannot be
executed on public blockchains
 Hyper ledger
Hyperledger: Need

● Suppose Bob, living in India, wanted to buy chocolates from Alice in Switzerland.
● As they were old friends, Alice decides to sell her chocolates to Bob at a pretty
generous discount.
● The catch here is that Alice sells her products to a number of different markets and
still needs them to buy from her at standard rates.
 Hyper ledger
Hyperledger : Working

● Alice and Bob were executing their special transaction on a Hyperledger based network,
she would look up Bob through an app which in returns queries a membership service.
● After the membership has been validated, the two peers are connected and results are
generated.
 Hyper ledger
Hyperledger : Working

● Hyperledger-based technology works using these layers:

 Hyper ledger
Hyperledger : Project

● Hyperledger Fabric, used extensively in supply-chain networks

● Hyperledger Sawtooth, is being used in the fishing industry to track the journey of
fishes
● Hyperledger Burrow, which is being used to run Ethereum smart contracts in a
Hyperledger network
● Hyperledger Iroha, finds usage in mobile application optimization with the help of
blockchain
● Hyperledger Indy, is being used as a decentralized identity database service for
businesses
 IOTA
● IOTA is an open-source distributed ledger and cryptocurrency designed for the
Internet of things (IoT).

● It uses a directed acyclic graph to store transactions on its ledger, motivated by a

potentially higher scalability over blockchain based distributed ledgers.

● IOTA does not use miners to validate transactions, instead, nodes that issue a new
transaction on the network must approve two previous transactions.

● Transactions can therefore be issued without fees, facilitating microtransactions.

● The network currently achieves consensus through a coordinator node, operated by

the IOTA Foundation.

● As the coordinator is a single point of failure, the network is currently centralized.

 IOTA
● IOTA is a distributed ledger developed to handle transactions between connected
devices in the IoT ecosystem, and its cryptocurrency is known as MIOTA.

● It aims to solve key scalability and performance issues with Bitcoin by replacing its
blockchain with Tangle

● The IOTA Tangle is an innovative type of distributed ledger technology (DLT)

● Tangle is a Decentralized Acyclic Graph (DAG), a system of nodes that is not

sequential. Connected only in a particular direction, so node cannot refer back to
itself.

● Smart appliances, home security systems, wearable technology, routers, and smart
speaker devices that have Wi-Fi connections, Bluetooth connections.
IOTA
 IOTA
IOTA: Applications
 Corda
● Very much similar to blockchain, Corda is a distributed ledger platform designed to
record, manage and automate contract based legal agreements between two or more
parties. Well known for its application in business deals. Targeted towards the world's
largest financial institutions, but potential for application exceeds beyond that. It
offers a unique approach to privacy, security, and takes care of the scalability issues
that Dapps face.

How Corda works?

• As in Blockchain which embodies the Distributed Ledger Technology (DLT), the data
are stored in all the nodes in the blockchain making it highly secure. This means that
an individual or any entity outside the block can never change the data for their own
agenda. This makes it highly secure but at the same time raises the issue of the
number of files and the space it takes up.
 Corda

Smart contracts play a vital role in blockchain, i.e. the contract

For instance, If in a blockchain network there would be transparent and accessible by everyone in the block.
are ten nodes and share twenty documents of But the main difference with Corda, is that the smart contract
data, then these twenty documents would be can be permission based. Only the two or more parties
stored repeatedly as a new set of files in each involved in the transaction would have access to the smart
node. Each time the data is updated it gets contract. Also with the consensus of the parties involved, a
saved as a completely new set of file with
regulatory or a legal body can be given access and brought into
hash to the previous block. That’s a lot of data
and space occupied.
the network as an observer to verify the contract.
 R3
● R3 (R3CEV LLC) is an enterprise software company founded in 2015 and
headquartered in New York
● R3 is a leading provider of enterprise technology and services that enable direct,
digital collaboration in regulated industries where trust is critical.
● R3 is a leader in distributed software and enterprise technology for capital markets,
financial services and other regulated industries.
● As one of the first companies to deliver both the only private, secure, and scalable DLT
platform designed for regulated markets, and confidential computing platform
 R3
● R3 is an enterprise software company founded in 2015 and headquartered in New
York. Its blockchain platform Corda allows businesses to manage secure transactions
directly between parties without any leakage of transactions to other participants in
the network. R3 currently offers two products:

● Corda

● Conclave
 Consensus Mechanisms in Blockchain:
● Consensus for blockchain is a procedure in which the peers of a Blockchain network
reach agreement about the present state of the data in the network. Through this,
consensus algorithms establish reliability and trust in the Blockchain network.

Key Takeaways

● Consensus mechanisms (also known as consensus protocols or consensus

algorithms) are used to verify transactions and maintain the security of the
underlying blockchain

● There are many different types of consensus mechanisms, each with various
benefits and drawbacks

● Proof of work (PoW) and proof of stake (PoS) are two of the most widely used
consensus mechanisms
 Consensus Mechanisms in Blockchain:
Why Blockchains Need Consensus Mechanisms
• Consensus mechanisms form the backbone of all cryptocurrency blockchains, and are
what make them secure.
• A blockchain is a decentralised, distributed, and oftentimes public digital ledger that is
used to record transactions. Each of these transactions is recorded as a ‘block’ of data,
which needs to be independently verified by peer-to-peer computer networks
before they can be added to the chain. This system helps to secure the blockchain
against fraudulent activity and addresses the problem of ‘double-spending’.
• In order to guarantee that all participants (‘nodes’) in a blockchain network agree on a
single version of history, blockchain networks like Bitcoin and Ethereum implement
what’s known as consensus mechanisms (also known as consensus protocols or
consensus algorithms). These mechanisms aim to make the system fault-tolerant.
 Consensus Mechanisms in Blockchain:
What Are 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 behaviour 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.
Types of Consensus Mechanisms
 Types of Consensus Mechanisms
Proof of Work (PoW):
• In PoW, miners essentially compete against one another to solve extremely complex
computational puzzles using high-powered computers. The first to come up with the
64-digit hexadecimal number (‘hash’) earns the right to form the new block and
confirm the transactions. The successful miner is also rewarded ​with a predetermined
amount of crypto, known as a ‘block reward’.
• As it requires large amounts of computational resources and energy in order to generate
new blocks, the operating costs behind PoW are notoriously high. This acts as a barrier
of entry for new miners, leading to concerns about centralisation and scalability
limitations.
• And it’s not just the costs that are high. The most common criticism of PoW is the
impact the electrical consumption has on the environment. This has led many to seek
more sustainable, energy-efficient consensus protocols, such as proof of stake (PoS).
 Types of Consensus Mechanisms
Proof of Work (PoW):
 Types of Consensus Mechanisms
Proof of Stake (PoS)
• As the name suggests, this popular method of consensus revolves around a process
known as staking. In a proof of stake (PoS) system, miners are required to pledge a
‘stake’ of digital currency for a chance to be randomly chosen as a validator. The process
is not unlike a lottery whereby the more coins you stake, the better your odds.
• Unlike in PoW where miners are incentivised by block rewards (newly generated coins),
those who contribute to the PoS system simply earn a transaction fee.
• PoS is seen as a more sustainable and environmentally-friendly alternative to PoW, and
one that’s more secure against 51% attack.
 Types of Consensus Mechanisms
Proof of Stake (PoS)
Types of Consensus Mechanisms
 Types of Consensus Mechanisms
Delegated Proof of Stake (DPoS)
• A modification of the PoS consensus mechanism, delegated proof of stake (DPoS) relies upon
a reputation-based voting system to achieve consensus. Users of the network ‘vote’ to select
‘witnesses’ (also known as ‘block producers’) to secure the network on their behalf. Only the
top tier of witnesses (those with the most votes) earn the right to validate blockchain
transactions.
• To vote, users add their tokens to a staking pool. Votes are then weighted according to the
size of each voter’s stake – so the more skin in the game, the more voting power. Elected
witnesses who successfully verify transactions in a block receive a reward, which is usually
shared with those who voted for them.
• Witnesses in the top tier are always at risk of being replaced by those deemed more
trustworthy and who therefore get more votes. They can even be voted out if they fail to fulfil
their responsibilities or try to validate fraudulent transactions. This helps to incentivise
witnesses to remain honest at all times, ensuring the integrity of the blockchain.
 Types of Consensus Mechanisms
Delegated Proof of Stake (DPoS)
below diagram to understand the process of voting is DPoS.
 Types of Consensus Mechanisms
Delegated Proof of Stake (DPoS)
Let’s see how to process goes among selected delegates. In the below case, we have 3 delegates Ross, Rachel, and Joey.
 Types of Consensus Mechanisms
Proof of Activity (PoA)
Proof of Activity combines proof of work (PoW) and proof of Stake (PoS) mechanism.
 Types of Consensus Mechanisms
Proof of Activity (PoA)
• First, PoA uses the mining concept by proof of work, where miners have to do complex
mathematical computations to prove their efforts and sincerity to the network. However, instead of
mining a block of transactions, PoA allows miners to mine (or add) a blank template block with
header information and mining reward address. Once this almost empty block gets mined, the
mechanism switches to Proof of Stake (PoS).
• Then a group of validators is picked at random. They are responsible for validating or signing the
new block. Validators analyze the header information of the block and then mark it as valid or
invalid. This process continues until a block receives the required number of validators (or signers).
• The higher coins the network participant holds, the stronger are their chances of being picked up as
a validator (or signer).
• Once the group of validators signs the new block by the miners, it’s marked as a valid, complete
block and gets added to the blockchain network. Finally, the transactions will get recorded on the
newly added block.
 Types of Consensus Mechanisms
Proof of Activity (PoA)
 Types of Consensus Mechanisms
Proof of Authority (PoA)
• Proof of Authority (PoA) is a reputation-based consensus mechanism that provides high
performance and fault tolerance. PoA is an improvisation on the Proof of Stake (PoS)
mechanism. In similarity with PoS, PoA also uses the concept of digital signing to verify
participant identities. However, PoA asks for network participants’ reputations at stake instead
of staking coins.
• With the PoA algorithm, each miner (or network participant who wishes to add their new block
of transactions) has to prove their reputation and authority on the network. Hence, PoA
leverages the value of identities in a private network.
• In order to gain the reputation of becoming a miner, a participant (or node) should cross the
preliminary conditions.
 Types of Consensus Mechanisms
Proof of Burn (PoB)
In the Proof of Burn (PoB) algorithm, miners reach a consensus by burning the coins. It’s a process in
which crypto coins get permanently eliminated from regular circulation. In such cases, the burning of
coins mechanism is used to validate transactions. Hence, the more coins a miner burns, the higher
the chances of adding the block to the network.
In comparison to the proof of Work (PoW) system, PoB reduces energy consumption. Moreover,
compared with proof of stake (PoS) systems, PoB doesn’t need miners to stake coins to add a new
block to the network.
There are various versions of Proof of Burn in blockchain, with the most acknowledged version being
Iain Stewart’s algorithm. He’s also the inventor of the Proof of Burn consensus mechanism.
Here, the concept of “burning the coins” means investing the native coins in virtual mining rigs
(mining powers). It allows miners with the most virtual mining rigs or a miner who invested the most
coins – to add his new block of transactions to the network. Hence, the number of burnt coins shows
miners’ commitment to the network.
 Types of Consensus Mechanisms
Proof of Burn (PoB)
 Types of Consensus Mechanisms
Proof of Capacity (PoC)
• Proof of Capacity (PoC), also known as proof of space, is a consensus mechanism in the
blockchain. Unlike Proof of Work (PoW) which uses separate mining hardware for computing
power, or Proof of stake (PoS), which stakes miners’ coins. PoC allows network participants
(nodes) to use their available hard drives space for mining a new block and validating
transactions.
• In comparison to other renowned consensus mechanisms, PoC has proven to be more energy-
efficient and less time-consuming. Generally, it takes 4 minutes to create a new block. In
contrast, PoW takes 10 minutes to mine a bitcoin. Hence, it takes less than half the time of
PoW to validate and add a new block of transactions to the network.
• Blockchains like Storj, Burst, Chia, and SpaceMint use the consensus mechanism proof of
capacity (PoC).
 Types of Consensus Mechanisms
Proof of Capacity (PoC)
 Types of Consensus Mechanisms
Proof of Elapsed Time (PoET)
PoET is a consensus algorithm used in a permissioned blockchain network to decide mining
rights and next block miner. FYI, a permissioned blockchain network requires participants to
prove their identity, whether they are allowed to join. Hence, it needs permission (or invitation)
to join the decentralized network as a new participant ( or node).
PoET Mechanism assigns an amount of time to each node in the network randomly. The node
must sleep or do another task for that random wait time. Whichever node gets the shortest
waiting time wakes up and add their block to the network. Later, the new update information
floods among other network participants.
 Types of Consensus Mechanisms
Proof of Elapsed Time (PoET)
 Types of Consensus Mechanisms
Proof of Importance (PoI)
• Proof of Importance in blockchain resolves the limitations of PoS by assigning consensus
addresses and importance scores. Think of importance scores as a trust or reputation score in
the network. A higher score means the network trusts you more to verify or forge the new
block of transactions. Hence, higher chances of getting selected as block harvester (miners in
PoI mechanism).
• With PoI, your chances of verifying the transaction ain’t solely dependent on your stakes.
However, it depends on how many transactions and the quality of the transactions you have
processed in the past.
Types of Consensus Mechanisms