With great power – and decentralization – comes great responsibility. The creators of a blockchain project have many decisions to make, including which consensus mechanism to use. As with many things in crypto, there is no single “industry-wide” solution or preference, and there are multiple details to consider when making the choice.
While security and reliability are always top priorities, forward-looking blockchain projects must take into account both project-specific details and evolving trends before making a final decision. Below, nine members of Cointelegraph Innovation Circle discuss factors a blockchain project should consider when choosing a consensus mechanism and why they can play a role in long-term success.
The integrity and immutability of the chain
The chosen consensus mechanism must ensure that the integrity and immutability of the blockchain are not compromised. A more energy efficient mechanism can contribute to sustainability and reduce operational costs. Different consensus mechanisms offer varying degrees of decentralization, and selecting the most appropriate one that aligns with the project’s objectives and values is critical. – Jason Fernandes, AdLunam Inc.
Your target group
Who will buy your product? Do your customers appreciate the moats created by sunk costs (proof-of-work)? Are they very risk tolerant or, on the other hand, do they have large budgets for audits (smart contracts)? Do they want arbitrage opportunities (proof-of-stake, DeFi)? Do they consider data sharing with user protection (evidence of fairness) most important? How important is scaling up? Your choices expand. – Stephanie So, Geeq
Scalability
Remember the importance of scalability. Some consensus mechanisms are better suited than others for delivering high throughput performance during high-volume situations. If a Web3 project wants to reach a significant number of users and activities in the future, it must use fully capable blockchain solutions from day one. – Wolfgang Rückerl, ENT Technologies AG
Project parameters
When developing consensus mechanisms, developers should consider the pros and cons associated with each mechanism and whether they have the infrastructure to support it. A project with little funding cannot afford a proof-of-work mechanism, while a project with a limited user base should prefer proof-of-authority over proof-of-stake to ease onboarding and prevent a hostile takeover to prevent. – Abhishek Singh, Acknowledgments
Balancing priorities
Balancing scalability, interoperability and privacy is crucial. PoW is secure, but not scalable. PoS increases throughput, but can compromise decentralization. For cross-chain compatibility, choose mechanisms that work well with other networks. Enhance programmable privacy with secure multi-party computation, but consider computation costs. Weigh these tradeoffs so they align with the goals of your project. – Tiago Serôdio, Partisia Blockchain
New and emerging methods
Consensus mechanisms are the foundation of your project, and there are many more than PoW and PoS, such as proof-of-capacity, proof-of-activity, and proof-of-burn. Others, such as evidence of personhood, are emerging and can be quite controversial. Make sure you fully understand the landscape and choose the landscape that best suits the long-term success of your project. – Megan Nyvold, BingX
Sustainability
Something that is often overlooked by emerging protocols is sustainability. Unlike scalability, sustainability can include both the energy needs of a solution and the ability of a community to continue its function. While some may think this is downstream of other more prominent concerns, it is worth considering how the exchange of value will be of any importance on an uninhabitable planet. – Oleksandr Lutskevych, CEX.IO
Long-term goals
It’s essential to choose a mechanism that fits the long-term goals of your project, rather than just going with what’s popular. For example, proof-of-stake was an incredible innovation as an alternative to the energy-consuming proof-of-work mechanism. Still, this risks the downsides of increased centralization and decreased security, which could become long-term problems. – Sheraz Ahmed, STORM Partners
International preferences
Proof-of-work is frowned upon in the European Union; proof-of-stake is preferred due to climate concerns. Each mining server tries to validate the transaction, but in the end only one wins. Gary Gensler and the U.S. Securities and Exchange Commission prefer PoW as a consensus mechanism because it is less prone to investor whale-catching. However, as a counter argument, Blackrock is now investing in miners, so PoW may not be immune to that. – Zain Jaffer, Zain Ventures
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. The opinions expressed do not necessarily reflect those of Cointelegraph.
