Blockchain technology has been the driving force behind decentralized digital assets and peer-to-peer transactions. A blockchain is essentially a digital ledger that records all transactions in a secure and transparent manner. A blockchain consensus layer is necessary to maintain the integrity and security of the blockchain. This article will explore the three layers of blockchain consensus: Network, Transaction, and Data.

 

Layer 1: Network Consensus

Network consensus refers to the agreement between nodes in a blockchain network on the current state of the ledger. This is the first layer of consensus that ensures all nodes in the network share the same data and that transactions are valid. Network consensus is achieved through a consensus algorithm, which is a set of rules that dictate how nodes agree on which transactions are valid and how they are added to the blockchain.

The two most common consensus algorithms are Proof of Work (PoW) and Proof of Stake (PoS). PoW is used in Bitcoin and other early blockchain systems, while PoS is used in newer systems such as Cardano and Ethereum 2.0.

In PoW, nodes compete to solve complex mathematical problems to validate transactions and add them to the blockchain. This requires a significant amount of computational power and energy, making it an expensive process. PoS, on the other hand, uses a different approach where nodes are chosen to validate transactions based on their stake in the network. This approach is more energy-efficient, but it requires a high level of trust in the validators.

Layer 1 corresponds to the data layer, network layer, consensus layer, and activation layer in the logical architecture of the blockchain. Most cryptocurrencies have a separate and unique public chain which is Layer 1 on which all transactions are settled. pic.twitter.com/OBQpM5cjUR

— فيصل | Faisal (@FAISAL_ALHURAIZ) May 6, 2023

Proof of Stake

Proof of Stake (PoS) is a consensus algorithm used in blockchain networks to validate transactions and add new blocks to the blockchain. It is an alternative to Proof of Work (PoW), which is the original consensus algorithm used in Bitcoin and other early blockchain systems. PoS has gained popularity in recent years, particularly in newer blockchain networks such as Ethereum 2.0 and Cardano. In this article, we will explore the workings of PoS and its advantages and disadvantages compared to PoW.

 

How Proof of Stake Works

In a PoS blockchain network, validators are chosen to validate transactions and add new blocks to the blockchain based on the amount of cryptocurrency they hold. This is known as their stake in the network. Validators are incentivized to act in the best interest of the network, as they can lose their stake if they validate fraudulent transactions or fail to validate blocks. The higher their stake, the more they stand to lose.

Validators in a PoS network compete to be chosen to validate the next block by staking their cryptocurrency as collateral. Once chosen, the validator creates a new block, validates transactions, and adds the block to the blockchain. In exchange, they receive a reward in cryptocurrency. The validator’s reward is proportional to their stake in the network. This means that validators with larger stakes receive a larger reward.

One of the main benefits of PoS is that it is much less energy-intensive than PoW. In PoW, validators compete to solve complex mathematical problems to validate transactions and add new blocks to the blockchain. This requires a significant amount of computational power and energy, making it an expensive process. PoS, on the other hand, only requires validators to stake their cryptocurrency, making it a much more energy-efficient process.

 

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is a consensus algorithm used in some blockchain networks to validate transactions and add new blocks to the blockchain. DPoS is an evolution of Proof of Stake (PoS) and is designed to address some of the issues that can arise in PoS, such as centralization and the potential for Sybil attacks. In this article, we will explore how DPoS works and its advantages and disadvantages compared to other consensus algorithms.

 

How Delegated Proof of Stake Works

In a DPoS blockchain network, stakeholders choose delegates to validate transactions and add new blocks to the blockchain on their behalf. Delegates are elected by stakeholders based on the number of votes they receive. Each stakeholder can vote for a delegate, and the number of votes they receive is proportional to the amount of cryptocurrency they hold in the network. This means that stakeholders with larger stakes have more influence over the election of delegates.

Once elected, delegates are responsible for validating transactions and adding new blocks to the blockchain. They are incentivized to act in the best interest of the network, as they can lose their delegate status if they fail to do so. Delegates are rewarded in cryptocurrency for their work, and the rewards are proportional to the number of votes they received during the election.

One of the key benefits of DPoS is that it allows for more efficient and effective decision-making in the network. Delegates can make decisions on behalf of stakeholders, which can be more efficient than requiring stakeholders to make decisions individually. Additionally, because delegates are elected by stakeholders, they are more likely to act in the best interest of the network.

Also, read – The Differences Between Delegated Proof of Stake And Proof of Stake

Layer 2: Transaction Consensus

Transaction consensus is the second layer of blockchain consensus, which refers to the agreement on the validity of a specific transaction. This layer ensures that the transactions added to the blockchain are accurate and cannot be altered or reversed.

Transaction consensus is achieved through a process called transaction validation, where nodes verify the authenticity of transactions and confirm that they are legitimate. This is done by comparing the transaction data with the current state of the blockchain ledger to ensure that there are no inconsistencies. Once the transaction is validated, it is added to the blockchain.

In some cases, multiple transactions may occur simultaneously, creating conflicts. In such cases, a consensus protocol is used to resolve these conflicts and ensure that only valid transactions are added to the blockchain. The most common consensus protocol used in transaction consensus is the longest chain rule, where the longest chain is chosen as the valid one.

 

Proof of Work (PoW)

Proof of Work (PoW) is a consensus algorithm used in blockchain networks to validate transactions and add new blocks to the blockchain. It is the original consensus algorithm used in the first blockchain network, Bitcoin. In this article, we will explore how PoW works and its advantages and disadvantages compared to other consensus algorithms.

 

How Proof of Work Works

In a PoW blockchain network, miners compete to solve a complex mathematical puzzle to add a new block to the blockchain. The puzzle requires a significant amount of computational power and energy to solve, and the first miner to solve it and add the block to the blockchain is rewarded with cryptocurrency. Once the block is added to the blockchain, it is considered confirmed, and the transactions in that block are considered valid.

The mathematical puzzle that miners must solve is designed to be difficult and time-consuming, requiring significant computational power to solve. This is intentional, as it makes it difficult for a single miner to control the network and ensures that the consensus process is decentralized.

 

Layer 3: Data Consensus

The third and final layer of blockchain consensus is data consensus. This layer ensures that the data stored in the blockchain is accurate and tamper-proof. Data consensus is achieved through cryptographic algorithms, which ensure that the data stored in the blockchain is secure and cannot be altered.

The most common cryptographic algorithm used in data consensus is the hash function. A hash function takes input data and produces a unique output of fixed length. The output of the hash function is known as the hash, and it is used to verify the authenticity of the data. Any changes made to the input data will result in a different hash value, making it easy to detect any attempts to tamper with the data.

 

Conclusion

The blockchain consensus layer is a crucial component of any blockchain network. It ensures that all nodes in the network agree on the current state of the ledger, the validity of transactions, and the authenticity of the data. Without consensus, a blockchain would be vulnerable to attacks and manipulation, which would undermine its usefulness as a decentralized and transparent ledger.

The three layers of blockchain consensus – Network, Transaction, and Data – work together to ensure the integrity and security of the blockchain. Network consensus is achieved through a consensus algorithm, which dictates how nodes agree on which transactions are valid and how they are added to the blockchain. Transaction consensus ensures that the transactions added to the blockchain are accurate and cannot be altered or reversed, and data consensus ensures that the data stored in the blockchain is secure and tamper-proof.

Consensus algorithms and cryptographic protocols are used to achieve consensus, ensuring that blockchain technology remains decentralized, transparent, and secure. The most common consensus algorithms are Proof of Work (PoW) and Proof of Stake (PoS), each with its own strengths and weaknesses. Cryptographic algorithms such as the hash function are used to ensure the authenticity of the data stored in the blockchain.

As blockchain technology continues to evolve, new consensus mechanisms are being developed to address the challenges faced by existing mechanisms. For example, Ethereum 2.0 is moving from PoW to PoS to improve energy efficiency and scalability, while newer blockchains such as Algorand are using Pure Proof of Stake (PPoS) to improve decentralization and security.

In summary, the blockchain consensus layer is a critical aspect of blockchain technology, enabling secure and transparent transactions without the need for intermediaries. The Network, Transaction, and Data layers work together to ensure that the blockchain remains secure, transparent, and tamper-proof, and consensus algorithms and cryptographic protocols are used to achieve consensus. As blockchain technology continues to evolve, it will be exciting to see how new consensus mechanisms can improve the efficiency, scalability, and security of the blockchain.