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Types of Consensus Algorithms

The main feature of distributed ledger technology is that it lacks a central authority. This means that at the core of the technology, the participants need to agree on the ledger’s state. This is the fundamental piece of any distributed system, and how it is implemented defines the rest of the architecture. This is called […]

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The main feature of distributed ledger technology is that it lacks a central authority. This means that at the core of the technology, the participants need to agree on the ledger’s state. This is the fundamental piece of any distributed system, and how it is implemented defines the rest of the architecture. This is called the consensus algorithm.

Due to its overwhelming nature, the consensus algorithm is the heart of a distributed system. It is the central part, and its design and implementation have to be carefully considered for those looking to create a protocol. A good consensus algorithm needs to give the following results:

1. Agreement: All nodes in the network must reach the result regarding the state of the network.

2. Fault-Tolerant: The algorithm should have the capacity to work properly, even with the presence of faulty or dishonest nodes.

3. Termination: The consensus process has to have a clear stop after which all nodes arrive at a decision.

4. Integrity: All nodes should achieve finality within one consensus cycle.

These are the basic characteristics of a working consensus mechanism. Specific algorithms may have more or different versions of the concepts presented, but in some ways, all of these are shared by any decentralized protocol. Additionally, consensus algorithms have an essential layer of properties they need to have in order to work.

These are:

1. Consistency: This property means that all honest nodes produce the same value that is considered the correct one.

2. Tolerance: The ability to endure some faulty or dishonest nodes and the network’s capacity to recover.

3. Liveness: As long as the number of compromised nodes is below the tolerance limit, these cannot stop or delay the network from reaching consensus.

4. Authentication: This property assures that there is a mechanism to verify the identity of the participant nodes.

5. Quorum Structure: In a distributed system, only the minimum number of votes is necessary to operate.

6. Non-repudiation: A way to verify the sender account’s identity so it may have the capacity to dispute the transaction.

7. Equal Authority: All nodes in the network must have the same capacity, with no central authority capable of overriding a decision.

Again, this is a basic set of properties for an ideal decentralized consensus algorithm. Not all of the real mechanisms out there conform to these set of rules. One example is IOTA, which has a central observer capable of modifying the decisions of the nodes. For a purist, such an inclusion means that IOTA is not truly a decentralized network even though it has some other properties.

Before reviewing the most common consensus algorithms in use, we need to note something. The ones we will discuss work, for the most part, with blockchains. That is to say, the data structure known as blockchain is where these are meant to work. Other data structures can be used in a decentralized network such as directed acyclic graph (DAG), Hashgraph, etc. These have their consensus algorithms.

That being said, blockchain remains the most popular data structure. It was first implemented with Bitcoin; Ethereum adopted it, and even now, new third-generation protocols such as Cardano use it. It seems that for the foreseeable future, blockchain will remain the dominant technology.

China is at the forefront of blockchain integration. Check out their entire blockchain strategy and why they are so quick to integrate blockchain technology in their economy.

Types of consensus algorithms

Here we will give a general overview of the most popular ones in the blockchain.

Proof of Work

Proof of work is the first viable consensus algorithm and still the most widely used. In it, individual nodes compete to find a hash function that represents the list of transactions inside the block and a nonce added on top of it. A nonce is a number that requires that the hash function is preceded by a number of zeros to be valid. The process of finding this hash function is known as mining.

Click here to read all about the complete guide to the architecture of Bitcoin.

All the network nodes compete in the very hardware demanding process of mining to gain Bitcoin as a reward. Many have criticized that the energy intensity of proof of work is wasteful and harmful to the environment. Additionally, the mining’s electricity and hardware costs have led to the centralization of the network in a handful of countries.

This has resulted in new consensus algorithms being designed.

Proof of Stake

The main alternative to proof of work (PoW), proof of stake (PoS), has gained traction quickly in the world of blockchain. In it, the nodes in the network deposit the protocol’s main currency and lock for some time. This allows them to enter a semi-random lottery to validate the next block of transactions.

The possibility of being selected depends on the quantity of the coins staked. A node with a deposit of 1,000 coins is more likely to be chosen than one with 500. This can lead to centralization since those nodes with bigger pools of money can dominate the network. Even with this possibility, proponents claim that PoS is cheaper to run than PoW since no expensive hardware is needed to validate transactions.

Delegated Proof of Stake

This is a variation of PoS. Here the stakeholders use their coins to select which node will validate the next block of transactions. The nodes allotted money by the participant become validators and are in charge of propagating the blocks to the network. They can be voted out by the stakeholders if they are slow or behave dishonestly. There is a greater level of centralization in this model since the nodes that can become validators are of limited number and are selected prior to the vote by some other means.

Proof of Elapsed Time

This is a preferred consensus algorithm of few blockchains. Here each node generates a random waiting period in which a node goes to sleep. The node that wakes up first becomes the next validator. The disadvantage is that the nodes’ identity has to be known by the system since the waiting period needs to be random. Otherwise, dishonest nodes can cheat the system.

The consensus algorithm is at the heart of a blockchain. It is the main design decision that determines what is possible and how fast the rest of the system will perform. For those looking to develop in a given protocol or for investors trying to determine which protocol will be the best one in the future, it is crucial to understand the basics.

This content is sponsored and should be regarded as promotional material. Opinions and statements expressed herein are those of the author and do not reflect the opinions of The Daily Hodl. The Daily Hodl is not a subsidiary of or owned by any ICOs, blockchain startups or companies that advertise on our platform. Investors should do their due diligence before making any high-risk investments in any ICOs, blockchain startups or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.

Source: https://dailyhodl.com/2020/09/09/types-of-consensus-algorithms/

Blockchain

Standard Custody takes new route to ‘qualified custodian’ status

It’s the first digital asset firm to receive approval on a de novo application for a New York trust license.

The post Standard Custody takes new route to ‘qualified custodian’ status appeared first on The Block.

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Standard Custody received its license to operate as a New York state-chartered trust on May 4, and it’s already making a play to gate-crash the institutional custody space.

Just days after its licensing, the firm announced the close of a $53 million Series B round for its parent firm, PolySign.

Cowen Digital Asset Investment Company led the round with a $25 million strategic investment. The two will also partner, with PolySign providing digital asset custody solutions for Cowen clients through its newly licensed trust arm, Standard Custody. Blockchain.com and Race Capital also participated in the round.

Through Standard Custody, PolySign is looking to fill a gap in the custody space. While many crypto firms are attempting to build all-in-one services, with exchange, brokerage and custody housed under the same roof,  CEO Jack McDonald says Standard Custody plans to differentiate itself by focusing solely on custody-based services for institutions.

Though Standard Custody plans to expand its range of services, McDonald says it will stop short of being an exchange unlike others in the custody space.

“We think that ultimately the institutions that are wading into the space, more and more of the traditional institutional asset managers, are going to want to see a segregation of duties there between exchange activity and custody activity,” he said.

That could mean hedge funds, family offices, endowments and exchanges could make up its client base going forward, but not retail-facing activities. Others serving the retail market have expressed interest in Standard Custody’s services, mostly due to its recent licensure. It’s the first to get approval for a de novo trust application in New York, and that’s positioning it to emerge as a favorable partner for a variety of clients, according to McDonald. 

To build out custody and escrow services, Standard Custody needed to be a qualified custodian. There’s more than one way to gain the distinction, but some fit better than others. To be a qualified custodian, firms can either become a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA), a futures commodities merchant regulated by the Commodities Futures Trading Commission (CFTC) or you can be a federally or state-licensed trust bank.

For firms mainly looking to custody, it makes the most sense to become a trust but it’s recently become unclear how far a trust license extends outside state borders. The Securities and Exchange Commission (SEC) is currently seeking comment on how it should view state-licensed qualified custodians in the wake of a letter from Wyoming’s regulators. On the national level, Congress is still debating how much power the Office of the Comptroller of the Currency (OCC) should have to designate digital asset firms as national trusts and therefore qualified custodians.

Still, a New York trust license from the New York Start Department of Financial Service is the gold standard of state licenses. It’s the highest barrier of the state licensure frameworks, and also has more reciprocity than other states, meaning some other states recognize the New York trust charter and don’t require an additional license. Standard Custody is the first to receive a de novo approval, meaning it’s operating a new business as opposed to converting a previous entity like Gemini and Coinbase. That’s made it more attractive to businesses looking to set up shop in the U.S. without going through onerous regulatory frameworks.

“We do have a lot of interest in our technology from some of the more retail-oriented strategics out there and specifically wanting to tap our capabilities to business in New York and more broadly in the U.S.,” said McDonald.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Source: https://www.theblockcrypto.com/post/104979/standard-custody-qualified-custodian-raise-bank-charter?utm_source=rss&utm_medium=rss

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Blockchain

Chainlink price prediction: Chainlink retests $41, set to move higher?

TL;DR Breakdown LINK tests $44 resistance overnight. Support retested at the $41 level over the past hours. Next support at $40. Today’s Chainlink price prediction is bearish as the market moved lower after setting a lower high around $44. Currently, LINK/USD retests the $41 support, once it is broken, we should see further downside over […]

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TL;DR Breakdown

  • LINK tests $44 resistance overnight.
  • Support retested at the $41 level over the past hours.
  • Next support at $40.

Today’s Chainlink price prediction is bearish as the market moved lower after setting a lower high around $44. Currently, LINK/USD retests the $41 support, once it is broken, we should see further downside over the next 24 hours.

Chainlink price prediction: Chainlink retests $41, set to move higher? 1
Cryptocurrency heat map. Source: Coin360

The overall market trades with mixed results as Bitcoin trades flat around 0 percent, while Ethereum has lost almost 3 percent. Stellar (XLM) is among the best performers with a gain of 5 percent. 

LINK/USD opened at $41.5 after bearish close yesterday set a lower high at $48. Earlier today, another lower high was set around $44.5 after a retest of $41 support. Therefore, the market trades in an increasingly tighter range. Once the range is broken, we will see where the market is headed next week. 

Chainlink price movement in the last 24 hours

The LINK/USD price moved in a range of $41.08 – $44.61, indicating a moderate amount of volatility. 24 trading volume has decreased by 13.92 percent and stands at $2.2 billion. Meanwhile, the total market cap stands at $17.7 billion, ranking the cryptocurrency in 13th place overall.

LINK/USD 4-hour chart – LINK 

On the 4-hour chart, we can see the Chainlink price pushing to break the $41 mark once again. 

Chainlink price prediction: Chainlink retests $41, set to move higher?
LINK/USD 4-hour chart. Source: TradingView

Overall the market continues retracing from the all-time high set around the $53 mark on the 10th of May. The new all-time high was set due to a 70 percent upswing from the previous major support level around $31 set on the 23rd of April. Therefore, we could see similar performance over the upcoming weeks once the Chainlink price stops retracing.

Earlier this week, Chainlink made two separate waves lower, resulting in a total retracement of around 25 percent. The support around the $40-$41 mark has already been retested twice. Therefore, we could see the support break later today as bears continue pushing LINK/USD lower.

Once the support is broken, we could see LINK/USD move towards the next minor support, around $38. From there, the market could potentially start to reverse in a similar way as during the middle of April. 

Alternatively, if a further downside is rejected over the next hours and the $40-$41 support holds, we could see LINK/USD move sideways over the next 24 hours as it prepares a base from which to push higher early next week.  

Chainlink Price Prediction: Conclusion 

Chainlink price prediction is bearish as the market continues trading in a bearish momentum over the past days. Earlier today, another lower high was set around $44.5, indicating that bears are still in control, and we are likely to see LINK move below the $41-$40 support area early next week.

While waiting for further Chainlink price action development, read our latest guides on Litecoin mining software, Ethereum mining pools, as well as Ethereum mining software.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Source: https://www.cryptopolitan.com/chainlink-price-prediction-2021-05-16/

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Blockchain

Solana (SOL) Surges Into Top 15 as Price Breaks $50

Solana (SOL) has climbed into the top 15 following a new all-time high of $52.60

The post Solana (SOL) Surges Into Top 15 as Price Breaks $50 appeared first on BeInCrypto.

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Solana (SOL) has climbed into the top 15 following a new all-time high of $52.60

While the weekend saw relatively bearish price action for the majority of the market. SOL managed an impressive gain of over 20% to reach a new all time high. 

The project now sees itself being catapulted into the top 15 spot in terms of market capitalization. With a total market capitalization of $13.6 billion. Not bad considering it started the year priced at a measly $1.51. The recent all-time high now means that SOL has seen a 3,100% gain in 2021 alone. 

Source: Tradingview

Solana had previously been dubbed one of the projects that could potentially kill ethereum,

Solana hackathon commences 

The new all-time high comes off the back of the launch of Solana’s hackathon which began on May 15. The Solana Season Hackathon has attracted over 10,000 registrations to the event. The hackathon is set to run from May 15 to June 7. The event is offering up to $1 million in global prizes and seed funding for participants, including an all-star lineup of speakers. 

Solana has seen rapid growth within the crypto space in 2021. Having launched late in 2020, the project is now vying for a top ten spot after moving swiftly into the top 15. 

Solana is described on its website as “a fast, secure, and censorship resistant blockchain providing the open infrastructure required for global adoption”.

The project has already implemented key features to its ecosystem, including decentralized finance (DeFi) capabilities, non-fungible tokens (NFT), and a decentralized exchange (DEX). 

Price analysis

Previous analysis from BeInCrypto suggested that SOL was one of May’s top altcoins to watch. With technical analysis indicating the project could climb to suggested targets of $60 and possibly $68 in the future. 

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Ryan is a Fintech specialist with a passion for cryptocurrencies and blockchain adoption. He discovered Bitcoin in 2016 when investing in a Ponzi scheme, and it was the best decision he ever made.

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Source: https://beincrypto.com/solana-sol-surges-into-top-15-as-price-breaks-50/

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