Consensus Algorithms - Nakov @ jProfessionals - Jan 2018

Blockchain Consensus Algorithms
Consensus on the Blockchain, Proof-of-Work,
Proof-of-Stake, DPoS, PoA, PBFT, Others
Software University
https://softuni.bg
Svetlin Nakov
Manager Training and Inspiration

Table of Contents
1. Blockchain Concepts
2. What is Consensus Algorithm?
3. Proof of Work (PoW)
4. Proof of Stake (PoS)
5. Proof of … (whatever)
6. Cryptocurrencies and Their Consensus
7. Java-Based Blockchains
2

Blockchain
Distributed Ledger Technology

4
What is Blockchain?
Distributed ledger
Immutable
Peer-to-Peer
network
Nodes hold
ledger of facts +
history of updates
Decentralized
(no owner)
Secure
Transactions are
verified by the
entire network

5
Blockchain == Chain of Data Blocks
Demo: https://etherscan.io
https://blockchain.info

6
Blockchain == Chain of Data Blocks
timestamp block_hash
all_transactions_hash
transaction #1 hash
transaction #2 hash
transaction #3 hash
…
Block #0 (genesis block)
prev_hash nonce
transaction #1 hash
transaction #2 hash
transaction #3 hash
…
Block #1
nonceprev_hash
transaction #1 hash
transaction #2 hash
transaction #3 hash
…
Block #3
prev_hash nonce

7
Mining the Next Block
Blockchain clients
create and sign
transactions
Transaction A
Transaction B
Transaction C
Transaction …
Blockchain Node #1
pending
transactions
Blockchain Network
Blockchain Node #2
pending
transactions
Blockchain Node #...
Transactions are
sent to the network
Blockchain Node #7
pending
transactions
Consensus algorithmConsensus algorithm
Validates the pending
transactions and
creates the next block
Selects the winning
node (a lucky miner)
Next (New) Block
confirmed
transactions
Propagate
for validation
Order the
transactions

Consensus Algorithms
Proof of Work, Proof of Stake, Proof of Burn, etc.

9
 Consensus algorithm (consensus protocol / consensus
mechanism)
 Algorithm to reach agreement among the blockchain nodes
 All nodes should agree about the changes in the distributed ledger
 Proof-of-work (PoW), Proof-of-stake (PoS), other algorithms
What is Consensus Algorithm?

10
 Fault-tolerance
 Some nodes will be unavailable when the ledger is changed
 Consensus should be reached by part of the nodes (e.g. majority)
 Attack-resistance
 Some nodes will intentionally behave incorrectly
 Honest nodes should win in the consensus process
 Everyone on the network can verify the next block's correctness
 Too much resources should be required for a successful attack
Consensus Algorithm – Requirements

11
 A "proof-of-work" (PoW) is a piece of data which is:
 Difficult to produce
 Easy for others to verify
 Producing a proof-of-work can be a random guessing process
 Or can be organized in mining pools (joint PoW production)
 Example:
 Find a number x, such that SHA256(text + x) has 10 leading zeroes
 10 zeroes == network difficulty
Proof-of-Work (PoW)

12
 Needs computing power
 Computationally expensive
 Energy intensive
 51% attack
 Attackers holding more than 50% of the power could potentially
reverse-back transactions (double-spend money) / deny service
 Hashing algorithm types for PoW consensus
 ASIC mineable (e.g. SHA256), CPU mineable (e.g. CryptoNight),
GPU mineable (e.g. ETHash), CPU + GPU mineable (e.g. Equihash)
Proof-of-Work: Problems

13
 Transactions speed – average wait time
 Bitcoin: new block mined in ~ 9-10 minutes
 Ethereum: new block mined in ~ 10-15 seconds
 Business needs real-time transactions (milliseconds)
 Transactions throughput – transactions per second (tps)
 Bitcoin: 2000-3000 / transactions per block  3-5 tps (up to 7 tps)
 Ethereum: 200-300 / transactions per block  10-15 tps
 Business needs thousands tps (e.g. VISA performs 2000 tps)
Proof-of-Work: Problems (2)

14
 Different cryptocurrencies use different hashing algorithms
 Bitcoin, Bitcoin Cash – SHA256 – ASIC mineable
 Ethereum, Ethereum Classic – ETHash – GPU mineable
 ZCash, Bitcoin Gold – Equihash – CPU and GPU mineable
 Monero – CryptoNight – CPU and GPU mineable
 Litecoin, Dogecoin – SCrypt – GPU mineable
 Dash – X11 – ASIC, CPU and GPU mineable
 Stratis – X13 – ASIC, CPU and GPU mineable
Proof-of-Work Cryptocurrencies
See bitinfocharts.com

15
 Similar to PoW, but based on HDD, not CPU / GPU
 Pay for mining with hard drive space
 More hard drive space  better
chance of mining the next block
 Calculating hashes is slow, so hashes
are stored in the HDD for faster access
 Plots – large data files holding of precomputed hashes
 More plots  better your chance of finding the next block
 Plot size is similar to hash rate in PoW
Proof of Capacity (PoC)
burst-coin.org

16
 PoS is designed to increase network security
and reduce resource wasting
 The creator of the next block is chosen in
 Combinations of random selection and wealth
 E.g. holding 1% of the coins gives the chance to
verify (mine) 1% of the "Proof of Stake blocks“
 The "Monopoly Problem": a monopolist (holder of the most
coins) could double spend or deny / filter other's transactions
 Executing a monopoly attack is much more expensive than in PoW
Proof of Stake (PoS)

17
 Proof-of-stake (PoS) blockchains either
 Start from a PoW algorithm to mine initial amounts of currency
 Then switch to proof-of-stake, relying on the mined stakes
 Example: BitConnect (bitconnect.co)
 Or fork existing PoW blockchain with all its transactions, then
switch to PoS-based consensus
 Example: PIVX (pivx.org) forked from Dash
 Or run a hybrid PoW + PoS consensus mechanism
From PoW to PoS Consensus

18
 Cardano – cardanohub.org
 Qtum – qtum.org
 PIVX – pivx.org
 BitConnect – bitconnect.co
 Stratis – stratisplatform.com
Popular PoS Cryptocurrencies

19
 Stakeholders vote for delegates in democratic way
 Every wallet holding coins can vote for delegates
 Votes weight is proportional to the wallet's stake in the network
 Delegates generate new blocks (like miners in PoW)
 Validate transactions and take the fees as profit
 Maintain the blockchain, e.g. vote for changing the network
parameters like block intervals, transaction fees, others
 Very fast confirmation of transactions (< 1 sec)
Delegated Proof of Stake (DPoS)

20
 Lisk – lisk.io
 EOS – eos.io
 BitShares – bitshares.org
 Ark – ark.io
 Steem – steem.io
Popular DPoS Cryptocurrencies

21
 In Leased PoS users can choose:
 To be a full node or lease their stake
 Full nodes maintain the network
 Process transactions and generate new blocks
 PoS based on: own stake + leased stake
 Serve as mining pools (collect fees and distribute the profits)
 Most users lease their stake to full nodes
 Take a portion from the full node's profits, just like in pool mining
Leased Proof of Stake (LPoS)
wavesplatform.com

22
 PoB is similar to PoS, where stakes are based on burned coins
 Burning coins gives the privilege to mine
 Burn coins by sending them to a burning
address (where they are irretrievable)
 More coins you burn = better chance
to be selected to mine the next block
 Random selection process (weighted)
 Like traditional mining  invest money to get mining power
 PoW  invest in hardware; PoB  invest in burning coins
Proof of Burn (PoB)
http://slimco.in

23
 PoI is similar to PoS, where stakes
are based on coins + activity
 The mining power calculated by
the importance in the network
 More coins hold for long time 
bigger importance (like a stake)
 More transactions / activities 
bigger importance
Proof of Importance (PoI)
http://nem.io

24
 PBFT as blockchain consensus algorithm
 Nodes collecting transactions, select a leader for the next block
 Can be random (deterministic) or random based on a stake
 The leader orders the transactions + broadcasts the ordered list
 Each node validates / executes the transactions + broadcasts the
calculated hash of the new block
 When 2/3 of the nodes have the same hash
 The new block is published (mined)
 Transactions are very fast
PBFT (Practical Byzantine Fault Tolerance)

25
 Hyperledger Fabric
 https://hyperledger.org/projects/fabric
 NEO – neo.org
 Delegated Byzantine Fault Tolerance (dBFT)
 Ripple (XRP) – ripple.com/xrp
 Ripple Consensus Algorithm
 Stellar – stellar.org
 Federated Byzantine Agreement (FBA)
PBFT Variations and Cryptocurrencies

26
 Proof-of-Authority (PoA) assigns a set of trusted nodes
(authorities) to process transactions and build new blocks
 News blocks need to be signed by the majority of authorities
 Works very well in private blockchains (cross validation)
 Great performance, fast transactions, high throughput
 Examples:
 POA Network – https://poa.network
 Ethereum Rinkeby Testnet – https://www.rinkeby.io
Proof of Authority (PoA)

27
 PoET relies on a trusted execution environment (TEE)
 Supported by modern CPUs from Intel, AMD and ARM
 No cryptographic puzzle (like in PoW algorithms)
 PoET ensures blocks get produced in a random lottery fashion
 Generates securely the next block + a proof of the waiting time
inside the TEE
 The proof of waiting time can be verified by all other nodes
 Problem: a small subset of compromised nodes can compromise
the entire system
Proof of Elapsed Time (PoET)

Non-Blockchain DLT
Distributed Ledger Technologies
(DLT) without a Blockchain

29
 Tangle == blockless distributed ledger
 Based on DAG (directed acyclic graph)
 Used by IOTA – iota.org
 Transactions with zero fees
 Validate 2 transactions to get your transaction validated for free
 Conflicts detected later, not fully decentralized!
 Store data from sensors and dataloggers securely and verified
 Scalable – more nodes add more processing power
 Lightweight – validators don't need the entire blockchain
DAG / Tangle / IOTA

30
 Superior distributed ledger technology system
 https://hashgraph.com
 Fast: with a very high throughput
and low consensus latency
 Secure: asynchronous byzantine
fault tolerant
 Fair: fairness of access, ordering,
and timestamps
HashGraph

Exercise: Explore Cryptocurrencies
https://coinmarketcap.com

32
 Bitcoin
 bitcoin.org
 Consensus algorithm
 Proof of work (PoW)
 Hash function
 SHA256
 Mining
 ASIC mineable
Bitcoin

33
 Ethereum
 ethereum.org
 Hash function
 ETHash
 Mining
 GPU and ASIC mineable
Ethereum

34
 Litecoin
 litecoin.org
 Hash function
 SCrypt (‘ess crypt’)
 Mining
Litecoin

35
 Dash
 dash.org
 Hash function
 X11
 Mining
Dash

36
 Monero – getmonero.org
 Anonymous blockchain
 Hash function
 CryptoNight
 Mining
 CPU and GPU mineable
Monero

37
 ZCash – z.cash
 Highly anonymous transactions
 Hash function
 Equihash
 Mining
 CPU and GPU mineable
ZCash

38
 Ripple – ripple.com/xrp
 Private blockchain for banks and financial institutions
 Semi-decentralized (the only trusted nodes in the network are
owned by Ripple Labs)
 Ripple consensus (federated PBFT variation)
 Mining
 Not mineable (only one company sells all XRP)
 Each transaction burns a small fee  no profit for validators
Ripple

39
 Cardano – cardanohub.org
 Decentralized public blockchain and cryptocurrency
 Smart contract platform
 Proof of Stake (PoS) – cardanodocs.com/cardano/proof-of-stake
 Mining
 Slot leaders are selected randomly according their stake
 Slot leaders mine the next blocks  collect transaction fees
Cardano

40
 IOTA – https://iota.org
 Public blockless distributed ledger (not a blockchain), no fees
 Tangle – goo.gl/ehrfEu
 The transaction issuers are also transaction approvers
 Mining
 No mining  all IOTA are pre-mined (in the genesis block)
 No transaction fees – pay by verifying at least 2 other transactions
IOTA

41
 NEM – nem.io
 Public blockchain & cryptocurrency
 Proof of Importance (PoI)
 Mining
 No mining, stakeholders can harvest blocks for transaction fees
 Harvesting is proportional to coins held and transactions
performed
NEM

42
 Stellar – stellar.org
 Aims to let you transact in your currency of choice (fiat or digital)
 Send money worldwide / exchange at low cost in any currency
 Uses lumens (XLM) as cryptocurrency coins
 Federated Byzantine Agreement (FBA), 3-5 seconds / transaction
 Mining
 No mining, all lumens are already distributed
Stellar

43
 EOS – eos.io
 Powerful infrastructure for decentralized applications (DApps)
 Asynchronous smart contracts + database + account permissions +
internet communications (like OS on the blockchain)
 Designed for millions transactions per second
 Delegated Proof of Stake (DPOS)
 Mining
 No mining, all EOS tokens are sold in a massive crowdsale (ICO)
EOS

Java-Based Blockchains
IOTA, NEM, TRON

45
Blockchain Projects and Technologies
Project Languages URL
Bitcoin Core C++, C https://github.com/bitcoin/bitcoin
Ethereum Go (primary), Rust, C++ https://github.com/ethereum
IOTA Java https://github.com/iotaledger/iri
Cardano Haskell https://github.com/input-output-hk/cardano-sl/
Bitcoin Cash C++, C https://github.com/Bitcoin-ABC/bitcoin-abc
Lisk JavaScript https://github.com/LiskHQ/lisk
NEO C# https://github.com/neo-project/neo
Stellar C++ https://github.com/stellar/stellar-core
Ripple C++, C https://github.com/ripple/rippled

46
 IOTA – https://github.com/iotaledger/iri
 Scalable, almost decentralized DLT for the IoT
 https://iota.org
 NEM – github.com/NemProject/nem.core
 Blockchain platform – public & private
 https://nem.io
 TRON – github.com/tronprotocol/java-tron
 Chinese decentralized storage platform
 https://tron.network
Java-Based Blockchains

47
 Web3j – https://github.com/web3j/web3j
 Ethereum client for Java
 BitcoinJ – https://github.com/bitcoinj/bitcoinj
 Bitcoin client for Java
Resources for Java Developers

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Blockchain Consensus Algorithms

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