I've been trying to understand blockchain technologies for a long time. Why is blockchain considered a revolutionary technology that will change the world? Are blockchain-based technologies really that important?

The core value proposition of blockchain technology is trust. It ensures that the data created by participants is securely stored on a decentralized architecture. The use of distributed architecture did not begin with blockchain. The huge growth of data on the internet forced tech companies to use distributed architectures years ago. But since these architectures consisted of synchronizing different servers of the same company, the need for security was limited.

Data accumulation gave these institutions a great advantage. Blockchain technology allowed control of the infrastructure used to be taken from a specific institution or company and distributed to the relevant user community. In this way, excuses such as the need for security and the efficiency provided by centralization were taken away.

Consensus becomes the most critical issue when data is stored on multiple servers. How will coordination be achieved between servers that enable blockchains to become operational? How do we know if the transactions that took place were real? Blockchain consensus mechanisms are trying to answer these questions. In doing so, they try to provide a balance between security and transaction costs. Blockchain consensus algorithms allow each new block added to the network to produce the only true version accepted by all actors in a decentralized computing network.

Proof Of Work

Blockchains such as Bitcoin, Ethereum, Litecoin use the "proof of work" consensus algorithm to ensure security. In the proof-of-work mechanism, participants who validate blocks, as the name suggests, must demonstrate that they expend a great deal of computing power.

In Bitcoin, "miners" who approve transactions compete with each other to add a block of transactions to the blockchain. As proof of their work, miners have to solve a challenging cryptographic puzzle. They do this by making random guesses on their computers to find an answer to the generated puzzle. Because many miners aspire to all transactions in the proof-of-work consensus mechanism, the process requires enormous energy.

In this context, it can be said that the proof-of-work algorithm is safe but inefficient. Recently, Elon Musk caused a small earthquake in the crypto world by raising the energy spent on Bitcoin transactions and their environmental impact.

Major cryptocurrencies using proof of work mechanism are Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Monero, Ethereum Classic, Dogecoin.

Proof of Stake

The most commonly used alternative to proof-of-work is proof-of-stake. In this consensus algorithm, validators invest in the system's cryptocurrency instead of investing in expensive computer equipment.

The blockchain selects participants to approve new messages based on the ratio of their shares in the network. In other words, it runs a lottery to decide who will announce the results, and participants automatically enter that lottery. Every "verifier" has a chance to the extent of the cryptocurrency she/he has in this lottery.

Because the proof-of-share algorithm requires relatively low processing power, blockchains using this system have lower transaction costs and higher transaction capacity.

Polkadot, EOS, Cardano, Neo are the main blockchains that use the proof-of-stake algorithm.

Delegated Proof of Stake

The system works similarly to the proof-of-stake system. It is a system put forward by Daniel Larimer, founder of Steemit and Bitshares. In this system, those who operate the system are not the owners of shares but the people to whom they delegate this authority. In this way, small shareholders can participate in the process with their chosen representatives. The problem of people having substantial shares dominating the system is also partially solved.

Steemit, Hive, and Bitshares are the main blockchains that use a delegated proof-of-share algorithm.

Other Consensus Mechanisms

Apart from the above, there are many different reconciliation methods, such as proof of elapsed time, proof of activity, proof of authority.

Those who design blockchains decide which consensus mechanism to use by looking at parameters such as speed, scale, user need. Those who create a new consensus mechanism that solves a particular problem get a chance to stand out in a world where there are dozens of blockchains.

Conclusion

Consensus mechanisms are at the core of blockchain technology. It seems important for the development of the crypto world that these mechanisms evolve to require fewer resources without compromising security. In this way, the argument that the crypto world harms the environment by leading to high energy consumption will become invalid.

Recently, different consensus mechanisms aimed at enabling existing blockchains to work at a higher capacity have emerged. There are solutions including two chains working side by side, off-chain and second layer.

The blockchain world is extremely dynamic. As the system becomes more robust and efficient with the innovations made, it becomes harder to deny the value created by cryptocurrencies.

Thanks for reading.

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