Are Consensus Algorithms Important?

In Blockchain, fundamentally, the majority has forgotten the fundamentals, which it appears, is fundamentally fundamental to the current Blockchain market failure.

Next time you look at a Blockchain Platform, ask yourself about the consensus algorithm of the platform you are using. Then ask yourself about the transaction you are about to transact.

Do they match up? and is that important really?

What if it was really, really, really, important (and it is) but no one cared?

Here are a few things that are true.

There are three types of consensus algorithms, Private, Community, and Public. Each with a graduating level of immutability, and censorship resistance. And There are three types of blockchain transactions, Private, Community, and Public. Each with a graduating need for immutability, and censorship resistance.

Private Blockchain consensus algorithms allow for quick, cheap, transactions, but they are not very censorship-resistant. Either party in a private chain could potentially change, edit, or delete transactions, or even blocks. If both parties trust each other, this will not be an issue. Very cheap to build and run, quick down, and dirty transaction data. Private Blockchain consensus algorithms are very fast and cheap, but they are not Byzantine Fault Tolerant and are not censorship-resistant. As either partly in a private chain could potentially change, edit, or delete transactions, or even blocks.

Community Blockchain consensus algorithms allow for trust within a network. Here you must trust your community. EOS for instance, you need to trust the 27 people who run EOS, not to change, edit or delete your transaction. Community Blockchain consensus algorithms are not very censorship-resistant. The platform could potentially change, edit, or delete transactions, or even blocks. Community Blockchain consensus algorithms are very fast and cheap, but are only qazi Byzantine Fault Tolerant, but not quite because they can be edited, and therefore are not censorship-resistant.

This is fine if you trust the platform or if censorship is not an issue. It provides very cheap, inexpensive transactions, quick down, and dirty. It is not fine if you are trying to add public transactions to a Community platform, which I believe is ethically challenged. This is where most of the market is today.

Public Blockchain consensus algorithms provide the necessary trust for the transaction. Public Blockchain consensus algorithms are Byzantine Fault Tolerant and censorship-resistant.

If you are looking to store public transactions, and the majority of transactions are public transactions, then you should be on one of these two public consensus algorithms, Proof of Work (POW) or Proof of Stake (POS). And this minute this is an issue because we can’t do more than 20 transactions a second on POW and the speculators who drove up the price of ETH using pump and dump strategies have also driven up the price of associated GAS that provides the incentive for adding blocks to the chain. 40 cent transactions now cost 40 dollars and no one is participating in projects that scale.

Speculation has killed one of the two viable Public Blockchain consensus algorithms. RIP POW, it was a wild ride, and we almost made it but POW is not speculation resistant. In January of 2018, ETH hit a then all-time high of over one thousand U.S. dollars and the platform became almost unusable. POW allowed for very slow, sometimes very expensive transactions, but it was Byzantine Fault Tolerant and censorship-resistant. It was not speculation resistant.

Speculation is one of the worst things we do to each other as human beings. 80% of the time someone loses, 15% of the time someone wins. The 80% of the time that someone loses, it was main streets 401k, and the 15% of the time someone won, it was wall street and they already have too much money. The worst part is, this accounts for 20% of the activity in the US, and it adds zero to the GDP. Nada, Zilch, not a thing. Speculation is one of the worst things we do to each other as human beings. POW was not speculation resistant.

I wrote about this some time ago here in better detail :

This is the limbo we are in. Scalability and Usability in the low to will not work at all area of the gauge. Scalability, The Visa Mastercard network works at around 18,000 transactions a second, POW is around 17 to 20 transactions a second, — not scalable. Usability, at 40 dollars a transaction, and many workflows require tens or hundreds of transactions to execute a smart contract, and if it needs any volume at all, well it’s pretty much DOA.

In the background, since 2015 about-ish, there are heroes and angels among us have been working on Proof of Stake (POS). POS solves for two things mainly, Scalability and Usability and it introduces a speculation resistant algorithm for the first time. POS is Byzantine Fault Tolerant, censorship-resistant, and it is speculation resistant.

Scalability, 8 months ago I was working with a team on the ETH 2.0 Testnet and they got 3,000 transactions a second. The current ETH 1.0 chain is actually on the new platform the Beacon Chain right this very moment. The Beacon Chain has 64 potential shards each a potential full POS blockchain.

64 times 3,000 is over 100,000 transactions a second.

And that might be oversimplified, because we still need to add the merkle tree and ETH 1.0 chain hard forked over to POS, cryptography, and a bunch of other things. IT IS a TON of work.

Fortunately, one of the largest, and brightest, groups of developers in some time, have been working on POS since 2015 ish. 5 full years now. And they are about to take that cake out of the oven. When is comes out, we will enjoy the wafting aroma of 4 second settlement, at 4 cents. ETH 2.0 looks at least be, scalable to the point that it could replace the Visa, Mastercard network, and even the Swift network simultaneously. This would function 1,0000 times quicker, and be 100 times less expensive.

The vast majority of platforms of today, will not be able to compete, and will not survive 2022/2025.

I have a source for this by the way, in Jun 12, 2019, I had the honor of interviewing Medha Parlikar then CEO, Co-Founder at CasperLabs.

Casper for years already had been developing the first of its kind Correct-by-Construction Proof-of-Stake consensus that everyone thought would eventually provide faster, safer, and more energy and computationally efficient decentralized network consensus.

A video of that interview is archived on you-tube for the time being here and that you-tube channel has interviews from some of the other great minds from 2017–2019 as well,

Fast forward, to September 2021. Everything has changed and the platform is ready, literally within months.

Everything changes as Community and Private Consensus Algorithms compete with POS in an open market for the first time.

Proof of Stake has:

Better Security, immutability, and Censorship-resistance. More options through the Largest Developer Community in this Solar System. Better Scalability as the quickest and largest platform. Better Cost to the user managed through Speculation resistance, Better Byzantine Fault Tolerant through Staking Mechanisms. Better, Cheaper, Faster, More inclusive, More fair, Less intermediaries, Less friction, better applications, better user experience, transparency, immutability, on a immutable, unhackable Public Algorithm Platform. And one other magical ingredient — TRUTH. Because at its core, Blockchain is the Truth Machine.

All this coming to the Etherium network near you — January 2022. This will allow an IOT Revolution by the way. And here is the question I want to look at.

What will happen, when IOT data streams can more accurately provide intelligent answers to decisions CEOs make today? Is it the board’s fiduciary duty to Fire the CEO?

What will happen when companies function more like a distributed, Antonius organization (DAO), which runs entirely on the blockchain.

Would we need a C-Level Suite? Without that cost, would the organization be more competitive?

I will probably write about that next. If you think it might be worth a laugh then if you could just follow me and something will let you know when next I publish.

Until then — Michael Noel

Ethereum History in 5 Charts

The POS Beacon Chain, The Beacon Chain shipped on December 1, 2020, at noon UTC.

  • The beacon chain doesn’t change anything about the Ethereum we use today. (Until it switches over to POS, then it will be better, and you will be able to buy graphics cards again)
  • It will coordinate the network.
  • It introduces proof-of-stake to the Ethereum ecosystem.
  • You might know this as “Phase 0” on technical roadmaps.

Phase 0, complete. <end> // Search Phase 1, /Located, //Start Phase 1, Go




Co-Founder and CEO of Blockchain Consultants and Host

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Michael Noel

Michael Noel

Co-Founder and CEO of Blockchain Consultants and Host

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