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Blockchain Consensus Mechanisms – Proof of Work vs Proof of Stake and More

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Blockchain Consensus

A blockchain is a decentralized peer-to-peer network that stores append-only (add to the end of) data and verifies the integrity of that information across the network. Collectively validating the accuracy of said data (reaching consensus) is one of the defining features of a blockchain.

The idea of a blockchain goes back to at least the 1990s. The basic theory was to copy data across a network of computers using a type of consensus algorithm to agree on any data to be added. Then, use cryptographic hash-chaining to make the database virtually immutable.

For more information on blockchains and hashing, check out our Blockchain article. Below, however, we’ll focus specifically on the various ways that different types of blockchains reach consensus on data added to their sequences (chains) of data (blocks) through these topics:

The main differences in the various blockchain consensus mechanisms center around how the right to add data to the blockchain is distributed among network participants, and how this data is validated by the network as an accurate account of transactions.

The set of computer processes that solve these problems is called the consensus algorithm, which, as alluded to, is the mechanism responsible for securely updating the state of data across a given blockchain network.

Each node (computer) in the network independently verifies and processes every transaction and therefore must have access to the database’s current state, the modification requested by a given transaction and a digital signature proving a transaction’s origin and accuracy. The question then, is how all of the nodes reach consensus (agreement) on the data. The biggest problem that blockchains aim to solve is called the “Byzantine Generals’ Problem”.

This problem, which has been around for longer than blockchain itself, is basically this: How do you keep a network of entities who are focused on the same goal in alignment based purely on messages passed between them, without the information being corrupted by a malicious actor within the network? For example, if one is trying to send cryptocurrency through a network, how can you be certain that the transaction details haven’t been tampered with and changed by a malicious node in the network?

This is where a consensus mechanism comes in to make sure the network remains in sync and data remains untampered with. The following are a few of the solutions different groups have come up with to achieve this outcome.

Proof of work is presently the most popular consensus mechanism for blockchains. The ‘proof of work’ that the name describes is the process by which the blockchain network proves that a miner network node (network nodes that group transactions into blocks and validate them) has done the work needed to create a valid block (group of transactions). Although it’s hard for nodes to generate a valid block (it takes a lot of computer processing power), it is quite easy for the network to verify that a block is valid.

This is all done through what is called a hash function, which creates a unique digital fingerprint for a given piece of data. Since hashes are very sensitive to change, and even a tiny modification will result in a completely different hash output, hashes can be used to validate and secure blocks.

For a block to be confirmed as valid, miners must create two hashes: a hash of all of the transactions in the block, and a hash proving they have expended the energy needed to generate the block by solving a special cryptographic puzzle with a pre-set level of difficulty. Specifically, the puzzle is to find a number that, when combined with the data in the transactions and passed through the hash algorithm, comes up with a number within a specified range set by the cryptocurrency’s program.

The difficulty of solving the puzzle is automatically adjusted in PoW systems to create a consistent time period for blocks of transactions to be added to the blockchain and to release network fees and newly created cryptocurrency rewards to miners.

A hash is a one-way function. It cannot be reversed. In this way, it can be confirmed that each block has required work to generate it. Each block also contains the hash of the previous block, so once all blocks are combined in the blockchain, it makes it virtually impossible to modify them since doing so would require redoing all the work done to generate every single block in the blockchain.

In summary, a miner creates a block of valid transactions, then runs the PoW algorithm on it to find a valid hash, racing against all other miners to solve the puzzle first. When a valid block is generated through such action, the block is added to the blockchain and the miner receives network fees as well as newly created cryptocurrency.

There are different hashing algorithms used for PoW consensus mechanisms, the most common of which are SHA-256 (e.g Bitcoin) and Scrypt (e.g. Litecoin). Others include SHA-3, CryptoNight, Blake-256, Quark, scrypt-jane and hybrid systems that use more than one hashing function.

Although PoW is theoretically near impossible to hack since it uses resources in the physical world to secure the network, this is also where one of its largest criticisms comes from: the resource being used is electricity, and lots of it.

In fact, science magazine Motherboard Vice, reports that 1.6 U.S. households could be powered for a day by the electricity used by a single Bitcoin transaction. By 2020, Bitcoin could consume as much electricity as the entire country of Denmark. And that’s just one cryptocurrency (albeit the most popular).

From an efficiency and environmental perspective, this is not ideal and would be very difficult to scale to mainstream usage. Making matters worse, the computing power and electricity costs needed to stay competitive in mining has increased dramatically over time. This has produced significant centralization in mining networks, as only the largest and most powerful organizations can really compete.

A few large companies and mining pools now dominate the most popular blockchains, which is completely counter to the founding decentralization principle of blockchains.

Besides the questionable ethics of this issue, centralization also leads to a potential security problem called a 51% attack. This is when a miner, likely a pool or large conglomerate, controls 51% of a blockchain network’s computing power. If this were ever to happen, they could disrupt the entire network by invalidating real transactions or validating their own fraudulent transactions to “double spend” funds (using the same funds more than once).

Fortunately, these problems with PoW are not without potential solutions.

PoS is based on the assumption that when nodes in the network are stakeholders (that is, when they own currency of the given blockchain) they will have an incentive to remain honest and benign in operating network nodes.

PoS works by miners locking up some of their own cryptocurrency so they can’t be used into special ‘staked’ accounts. Nodes who have staked tokens can then verify blocks of transactions just as in PoW systems, but the cryptographic calculations needed to verify blocks are much simpler (and therefore require much less computer power). Instead of using complicated puzzles that give advantages to more powerful computers as in PoW, PoS systems are structured such that nodes that have more cryptocurrency staked have a higher chance of solving the cryptographic puzzle.

In this way, although PoS is more efficient than PoW, it does not completely solve the problem of centralization of mining power, since logically, the risk is that the currency used by such systems will still concentrate into fewer and fewer hands.

One of the other key problems of PoS is the ‘nothing at stake’ problem, wherein miners may have nothing to lose by voting for multiple blockchain histories in the event of a fork (a blockchain split into two). In the event of a fork, the most lucrative strategy for a miner is to mine on each chain, therefore gaining rewards regardless of which fork is recognized by the network.

This could in theory lead to consensus never being reached by the network, or to double spending wherein an attacker may be able to send a transaction, then start a fork of the blockchain from one block behind the transaction and send the money to themselves instead of where it was sent before. This is more possible in a PoS system than PoW since the cost of working on several chains is much lower.

One problem that PoS does help to mitigate, however, is the 51% problem. Even if a miner owned 51% of a cryptocurrency, it would not be in their interest to attack a system in which they owned a majority of the stake. This does not, of course, take into account malicious, well funded actors who may simply want to bring down a blockchain network at any cost.

Some examples of blockchains using this consensus mechanism are NEO, Stellar and Cardano.

With classic PoS, miners with small balances are unlikely to mine a block, in the same way that PoW miners with little computer power are unlikely to mine a block. Not only could this be seen as less fair, it may also lead to a less secure network, since if small miners were incentivized better, the network would have more nodes and thus be more secure.

LPoS incentivizes less powerful nodes by allowing them to lease their cryptocurrency balances to “staking nodes” that have more staked tokens and are consequently more likely to mine a valid block. All coins leased to such nodes increase the “weight” of the staking node, which increases its chances of adding a block to the blockchain. Rewards received by staking nodes are then proportionally shared between all leasers. Leasers can still move or spend their tokens at any time, thus automatically “breaking the lease” so to speak.

In this way, the issue of centralization of mining and/or monetary power can be better limited by allowing all nodes to have the potential to earn mining rewards.

The main example of a project using this type of consensus algorithm is Waves.

In DPoS, cryptocurrency token holders use their balances to elect a list of nodes that will be able to stake blocks to add to the blockchain. With the yet-to-launch EOS blockchain, for example, there will be 21 “block producer nodes” that are elected by the network.

Although this solves some problems, such as the potential for forks to happen (all nodes will not switch to a fork that isn’t finalized by 15 out of 21 producer nodes), and scalability issues that occur with PoW and PoS, a DPoS blockchain is by definition more centralized, and does not provide accessible entry points for anyone to mine blocks and earn rewards.

Projects that use this type of consensus mechanism include Bitshares and EOS.

Blockchains don’t have to settle for just one type of consensus mechanism. The most popular type of hybrid chain is the PoW/PoS hybrid, which typically uses an initial PoW consensus in a limited manner, and then uses PoS to validate blocks added to the blockchain. Using PoS solves the 51% attack problem while using less energy; PoW solves the nothing at stake problem while ensuring another layer of blockchain immutability.

Peercoin is one blockchain using this hybrid method.

PoI is similar to PoS, but the consensus mechanism also takes into account other factors in giving nodes an advantage in mining blocks.

With NEM, the first blockchain to implement PoI, for example, nodes are rewarded for their productivity in the network, which includes their balance, as well as their number and value of transactions, among other ‘reputation’ factors.

In this consensus mechanism, each node publishes a public key. Transactions passing through the node are signed by the node and verified, and once enough identical responses are reached within the network, a consensus is met through that the transaction is valid. This simple mechanism does not require any hashing power and is particularly useful for storage systems.

PBFT has two potential problems. First, all involved parties must agree on the exact list of trusted participants. Secondly, the membership of such an agreement system is typically set by a central authority. Although these factors may not make it suitable for a public, decentralized cryptocurrency, it may be useful for other things such as private digital asset holding platforms.

PBFT is the consensus mechanism used by Hyperledger.

Before blockchains came along, there was no practical way to ensure that data in a distributed network (for example, a digital currency ledger) would remain secure from tampering by malicious or compromised nodes. With the birth of Bitcoin and PoW, a whole new generation of programmers and engineers set to work on solving this problem.

Many consensus mechanisms have sprung up as a result, most purporting to solve the same (Byzantine Generals) Problem. As blockchain is still a relatively new field, it is unclear which consensus mechanisms will prove themselves most useful and which ones will fall out of favor. As it stands now, differing consensus mechanisms are one of the fundamental factors that differentiates different cryptocurrencies.

The post Blockchain Consensus Mechanisms – Proof of Work vs Proof of Stake and More appeared first on UNHASHED.

Source: https://unhashed.com/cryptocurrency-coin-guides/blockchain-consensus-mechanisms/

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Dharma Domination Drive Thwarted as Uniswap Vote Concludes

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DeFi protocol Uniswap has concluded its first governance vote with a failure to come to quorum by a minuscule margin. The good news is that it keeps the platform relatively decentralized … for now.

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The first governance vote for automated market maker Uniswap concluded on October 20 with 98% of the votes in favour of the proposal, but that wasn’t enough to secure it.

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As previously reported by CoinGape, the highly-contentious proposal raised a number of centralization concerns as it would effectively grant the most voting power to the largest couple of UNI holders, which were Dharma and Gauntlet at the time.

Crypto trading platform Dharma proposed a reduction of the thresholds for voting and quorum from 1% of the total supply to 0.3%, and 4% of the total to just 3% respectively. It has been reported that Dharma was not happy with the airdrop and distribution of UNI tokens and felt that their users should have got more.

Winning this vote would have enabled Dharma to have more control over the distribution process through subsequent proposals, which it would have won with collaboration from Gauntlet.

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A Whisker Short of Winning

In order to seal the proposal, 40 million votes were required but it fell just short with just below 39,600. The majority of those came from just three accounts held by Dharma, Gauntlet, and Yuni.Finance, which is managed by other DeFi whales and big bag holders.

Naturally, the Dharma CEO and co-founder was disappointed with the outcome, almost calling it ‘undemocratic’;

While other industry observers hailed it a victory for ‘everyday users’ and against centralization;

DeFi Watch’s Blec added;

“The vote didn’t pass because users learned about the issue and decided not to vote for it. This is how tokenized governance is *supposed* to work. Votes shouldn’t just pass by default.”

Many simply abstained from voting either not wanting to spend the gas or seeing little point in going against the whales which had the majority.

UNI Price Reaction

UNI prices have retreated around 4% over the past few hours as news of the failed proposal circulates. As with the voting, the largest bagholders have the greatest influence over markets and price action should they decide to sell.

Currently, UNI prices are down over 60% from their peak on September 19. Prices may descend further when yield farming pools expire on November 17 and rewarded tokens flood the markets.

To keep track of DeFi updates in real time, check out our DeFi news feed Here.

Author: Martin Young




Martin has been writing on cyber security and infotech for two decades. He has previous forex trading experience and has been covering the blockchain and crypto industry since 2017.

Source: https://coingape.com/dharma-domination-drive-thwarted-as-uniswap-vote-concludes/

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VeChain Price Prediction 2020 – Will The VET Price Gear Up?

Vechain Price Prediction

Today, Asia is one of the main hubs of blockchain development and some of the brightest cryptocurrency projects and VeChain is one of them. But what can we expect from Vechain in the future?  Will the Vechain price surge or plunge in 5 years? In this article, we will explain what VeChain is and share …

The post VeChain Price Prediction 2020 – Will The VET Price Gear Up? appeared first on Cryptocurrency information | Cryptocurrency News | Bitcoin News and Crypto Guide.

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Today, Asia is one of the main hubs of blockchain development and some of the brightest cryptocurrency projects and VeChain is one of them.

But what can we expect from Vechain in the future?  Will the Vechain price surge or plunge in 5 years?

In this article, we will explain what VeChain is and share some price predictions for VET coin in the future. Let us look in detail into this VeChain price prediction now

What is VeChain?

VeChain is a blockchain protocol formulated to improve supply chain administration and business methods. Its objective is to facilitate these processes and data flow for complex supply chains through the design of distributed ledger technology (DLT). 

The Vechain platform has two tokens: VeChain Token (VET) and VeChainThor Energy (VTHO). VET is used to transport value across VeChain’s network. And the VTHO is used as fuel or gas to leverage transactions.

VeChain was established in 2015 by Sunny Lu, the former CIO of Louis Vuitton China. He incorporated his creativity in luxury goods with blockchain technology to build an IoT (Internet of Things) application for supply chain management. He remains the CEO of VeChain through a non-profit called the VeChain Foundation.

VeChain (VET) Price Today

Diving into the price of VeChain today,  one can easily notice how cryptocurrency has made success over the years. 

With the future showing great possibilities, VeChain currently changes hands at $0.0043. This figure, however, represents about 26% loss from its year-high price of $0.0058 recorded on the 29th of January.

In the last 24 hours, the price of VET sinks by a mere 0.5%. As the bulls and bears seem to be in a very tight tug-of-war. The coin maintains its market capitalization at $242.97 million as $158.05 million was traded in volume over the last 24 hours. 

Did You Know ? VeChain uses a different model all together called proof of authority. No puzzle cracking is required – just an approved group of people called ‘validators’.

VeChain (VET) Price Technical Analysis

VeChain (VET) was listed on cryptocurrency exchanges in late July 2018 and traded in the range of $0.02-$0.026. However, VeChain soon broke out of that range and experienced increased volatility.

From the beginning to the middle of August, the price fell to $0.006 per VET. A rebound immediately followed the decline, hitting $0.0198 by September. Unfortunately, the rebound was temporary and was followed by a prolonged recession. By December, the price had dropped as low as $0.0033. VeChain closed the year at $0.004.

In the Q1 2019, the price of VET was stuck in the $0.0036-$0.005 range. In March, the cryptocurrency was able to break out of the range and grow to $0.0079. After pulling back to $0.0056 in April, the asset continued to grow, peaking at $0.0098 in June.

VET could not hold these heights and slid down before it established support at $0.0028 in late October. As the asset found new ground, it recovered quickly and met resistance at $0.008 in November. Its first attempt to rise above this mark didn’t end well and led to a pullback to $0.0046.

The second attempt led to the same result. After running up against resistance at $0.008, VET fell to its previous support of $0.0046. The asset closed the year with a $0.0056 price per coin.

Vechain 2020 Price Prediction

From the beginning of the year, VeChain continued to grow and retested the resistance at $0.0082 in February. Unfortunately, at that point, the entire market had rapidly declined. On 13 March, VET set a new low at $0.0016 mark.

After that, the cryptocurrency started to grow slowly but surely. On 11 June, VET broke its resistance at $0.0082, and buyers pushed the price as high as $0.022 in July. A slight pullback followed to $0.0146. Currently, VeChain is consolidating just below its resistance of $0.002 and is trading at $0.002 per coin.

VeChain 2021 Price Prediction

As indicated by VeChain’s highly diverse partnerships, the blockchain platform sets out to bring the advantages of decentralized applications and smart contracts to a large number of different industries. This shows its use cases increasing exponentially.

By 2021, VeChain might reach $0.38939, which may move VET upwards in the ranking order, and can also move upwards as per the coinmarketcap.

VeChain Price In 5 years

VeChain is in progress mode to build a blockchain-based platform that does not only limit itself to the digital world but also can integrate with the actual business ecosystems as well. This would ensure that enterprises would be able to control various functions with the assistance of this blockchain. 

If it is able to provide complete integration of the blockchain-based platform with the actual business world, it would be easier for the companies to use the blockchain. By 2025, VeChain might reach $0.1.

VeChain (VET) Market Prediction

Despite previous hard times, the future price sentiment of VeChain, according to popular opinions, remains bullish.

We make reference to renowned crypto price prediction websites to derive an overview of possible future price movements…

#1. Wallet Investor Price Prediction: In their price prediction, WI indicated that the price of VeChain will crash to around $0.000001 in one year. As much as we respect this opinion, we believe that such value expectation is exceptionally bearish and it probably won’t fall that much.

#2. Trading Beast Price Prediction: The trading beast predicts that the VeChain price is forecasted to reach $0.0064369 by the beginning of July 2020. This is so far the most accurate prediction on our list as July is just around the corner.

#3. Mega Crypto Price Prediction: This prediction site predicts that VeChain may be sitting around $0.258 before the end of 2021 and $0.612 by 2023 year-end.

#4. Smartereum Price Prediction: This site is exceptionally bullish on VET. We can say they are the direct opposite of Wallet Investors which remain bearish in their own opinion. supposes that the cost of VeChain could go up as high as $75 before the end of 2023.

#5. Crypto ground Price Prediction: Perhaps the most rational price forecast for VET within a year, crypto ground included their rendition of VeChain (VET) value forecast 2020, where they expressed that VET may reach $4.10 by 2020.

Our 2020 VeChain (VET) Price Prediction

Generally speaking, there is an equilibrium of opinions and technical analysis balancing the possible future price of VET between two extremities; the very bearish sentiment and calculations according to Wallet Investor (WI) and the bullish counterpart from Crypto ground. Our prediction, therefore, leans towards none of the extremes but balances at a midpoint of $2, where we think are reasonable to find the cryptocurrency by the end of 2020.

VeChain News

Ubique Tag  Integrates with VeChain ToolChain

On Oct 14, 2020, Ubique Tag, a leading supplier of smart tags in China, has now integrated VeChain ToolChain for its products.

The VeChainThor mobile wallet available

On Oct 14, 2020, The VeChainThor mobile wallet app (version 1.5.5) is now available in the iOS marketplace.

VeChain is now integrated with Rosetta

On Sep 25, 2020, VeChain is now integrated with Rosetta, an open standard designed to simplify blockchain development and interaction.

FAQ’s

  1.  Is VeChainThor Blockchain Public Or Private?

    The VeChainThor is a public semi-decentralized blockchain on the VeChain ecosystem operates.

  2.  Are VeChain (VET) Tokens ERC-20 Compatible?

    VET is the new abbreviation of VeChain Mainnet tokens and VEN is the abbreviation of old ERC20 VeChain tokens. VET cannot be stored in ERC20 wallets. 

  3. What Is The Current Price Of VET Tokens?

    VET tokens are currently trading at $0.0043 per unit.

  4. What Is The Protocol Followed By The VeChainThor Blockchain?

    The system follows a PoA consensus where the highest holders of VET get the highest voting and decision-making power

  5. What Is The VET Price Prediction By End Of 2020?

    The average price prediction stands at $2.00 by December 31s,t 2020.

Summary

VeChain Price Prediction 2020 - Will The VET Price Gear Up?

Article Name

VeChain Price Prediction 2020 – Will The VET Price Gear Up?

Description

VeChain is a blockchain protocol formulated to improve supply chain administration and business methods. Its objective is to facilitate these…

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Dare

Publisher Name

https://coinpedia.org/

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Source: https://coinpedia.org/price-prediction/vechain-price-prediction/

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Bitcoin Price Eyes $12,000 Following US Fed Chair Powell Talks

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  • Bitcoin’s price finally made a worthwhile move after surging to $11,840 on Bitstamp following days of stagnation.
btcusdh_chart
BTC/USD. Source: TradingView
  • The price has since retraced a bit to trade at its current level of around $11,780. Nevertheless, this is a move in the right direction as concerns started crippling up that we might be in for a fill of the CME gap down at $11,100.
  • Bitcoin is trading approximately only $700 away from the $12,500 area – the 2020 highest level that was reached on August 17. The next major resistance for BTC now lies at $12,000 – $12,100.
  • The move came soon after the Chairman of the US Federal Reserve, Jerome Powell, spoke on a panel hosted by the International Monetary Fund (IMF).
  • During the event, he said that the US is “committed to carefully and thoughtfully evaluating the potential costs and benefits of a CBDC (Centra Bank Digital Currency) for the US economy and payments system.”
  • He also said that it’s better to be right than be first on CBDCs.
  • Interestingly enough, BTC’s move appears to be uncorrelated to the US stock market. At the time of this writing, the S&P 500 is down about 0.4%, while the Dow Jones Industrial Average (DJI) is down about 0.3%.
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Cryptocurrency charts by TradingView.


Source: https://cryptopotato.com/bitcoin-price-eyes-12000-following-us-fed-chair-powell-talks/

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