The consensus algorithms used in distributed ledger networks are constantly executed in order to achieve consensus and maintain the security of the network. These algorithms are intended to make the network more reliable and provide interoperability for connected participants. Thus, consensus algorithms are key components of distributed ledger networks.The main consensus algorithms are Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS).
PoW was the first consensus algorithm used, and it is designed to generate new blocks and maintain the security of the network. To do this, PoW nodes make use of specialized hardware (ASICs) to carry out the computation work, and the successful miner is rewarded with newly created coins and transaction fees. However, PoW systems suffer from scalability issues due to being limited in the number of transactions per second (TPS) they allow, and also require a lot of energy and resources to secure the network.
The PoS consensus algorithm was proposed as an alternative to PoW, as it addresses some of its inefficiencies while still being secure. In this system, the validation of new blocks is dependent on the staked amount, i.e., the more coins are staked, the higher the chances of the node being chosen as a validator. PoS systems require minimal resources and external investments, and secure the network through an internal investment.
Finally, DPoS is considered by many as a more efficient and democratic version of the PoS mechanism. DPoS makes use of a voting system in which stakeholders outsource the block production process to delegates, also known as witnesses. These delegates are elected through a voting system proportional to the number of coins held, and the rewards for the validation of new blocks is proportionally shared among stakeholders and delegates.
Although DPoS does not have the same performance level as PoW systems, it possesses great scalability, as Blockchains based on it can process larger amounts of transactions. Moreover, its incorporation of stakeholder voting serves as a means of deciding and motivating honest and efficient delegates, as they can be voted out if they do not follow the rules.
In conclusion, distributed ledger networks are held up by numerous consensus algorithms, out of which PoW, PoS, and DPoS are the most used. Each of these algorithms has its own strengths and weaknesses, however, DPoS is seen as the most democratic, efficient, and scalable of the three due to its incorporation of stakeholder voting and its high performance when processing transactions.
