In the previous blockchain for beginners part, we have gone through what blockchain is, how does blockchain works and many more If you haven’t read the first part click here. In this part, we will go through what blockchain metrics, what is consensus mechanism and type of consensus mechanism .
The Blockchain network is a valuable resource that helps in project evaluation by observing data. However, doing this manually takes a massive amount of time and resources. Blockchain metrics are sets of data related to the day-to-day operation of blockchain technologies. These include ‘on-chain’ metrics such as hash rate, mining difficulty, transaction volumes, and network fees.
Hash rate is a combined computational power used in mining platform calculations on a proof-of-work consensus mechanism. It is considered as proof of the cryptocurrency’s health by investors. If the hash rate is higher, then miners would get more incentives to mine and the network will be more secure.
It is the number of active blockchain addresses in a given period. You can add the total sending and receiving addresses of each transaction in a given period or you can also examine the number of unique addresses.
Transaction Values and Fees
A consistently high transaction value implies that the currency is in steady circulation. On the other hand, fees reflect the demand on the blockchain. If you want to make a faster transaction, you would have to pay high transaction fees.
What is Consensus Mechanism
A fault-tolerant mechanism used in computer and blockchain systems to achieve the necessary agreement among distributed processes or multi-agent systems, such as cryptocurrencies, on a single data value or a single state of the network. It is useful for keeping records, among other things.
Authority to maintain and update any centralized system. The task of making any updates, such as adding/deleting/updating the names of people who qualified for certain licenses, is performed by a central authority, which remains purely responsible for maintaining genuine records.
Function as decentralized, self-regulating systems operates on a global scale with no single authority. They involve contributions from hundreds of thousands of participants who work on the verification and authentication of blockchain transactions as well as block mining activities.
In such a dynamically changing state of the blockchain, these publicly shared ledgers require an efficient, fair, real-time, functional, reliable, and secure mechanism to ensure that all transactions occurring on the network are genuine and that all participants agree on a consensus on the ledger’s status. This critical task is carried out by the consensus mechanism, which is a set of rules that determines the legitimacy of contributions made by the various blockchain participants.
Types of Consensus Mechanisms
There are different kinds of consensus mechanism algorithms, each of which works on different principles.
1. Proof of work (PoW)
The proof of work (PoW) algorithm is a popular consensus algorithm used by the most popular cryptocurrency networks, such as bitcoin and litecoin. It is necessary for a participant node to prove that the work they have completed and submitted qualifies them for the right to add new transactions to the blockchain. However, the entire bitcoin mining mechanism requires a high energy consumption and a longer processing time.
2. Proof of stake (PoS)
The proof of stake (PoS) is another common consensus algorithm, which evolved as a low-cost, low-energy-consuming alternative to the PoW algorithm. It entails assigning responsibility for maintaining the public ledger to a participant node in proportion to the number of virtual currency tokens it possesses. The network trusts the validator, who puts his own resources as a pledge for the ability to create blocks: the larger the share, the higher the probability that the network will allow the creation of a block. However, this has the disadvantage of allowing crypto coin hoarding rather than spending.
3. Delegated proof of stake (DPoS)
Delegated proof of stake (DPoS) is a verification and consensus mechanism in the blockchain. It competes with other proof of work and proof of stake models as a way to verify transactions and promote blockchain organization.
4. Proof of Capacity (PoC)
Proof of Capacity (PoC) allows contributing nodes on the blockchain network to share memory space. The amount of “work” a miner will perform depends on the amount of free disk space to devote to the plotting process. The more memory or hard disk space a node has, the more rights it is granted for maintaining the public ledger.
5. Proof-of-Authority (PoA)
Proof-of-Authority (PoA) is a new consensus algorithms family that provides high performance and fault tolerance. In PoA, rights to generate new blocks are awarded to nodes that have proven their authority to do so. To gain this authority and the right to generate new blocks, a node must pass a preliminary authentication.
6. Proof of Reputation (PoR)
Proof of Reputation (PoR) consensus model depends on the reputation of the participants to keep the network secure. A participant (a block signer) must have a reputation important enough that they would face significant financial and brand consequences if they were to attempt to cheat the system. POR uses companies as validators not individuals.