BTC

$88192.026

-1.89%

ETH

$3078.158

-4.60%

BNB

$621.553

-0.99%

XRP

$0.828

18.79%

Glossary

Consensus

November 21, 2023 - Around 4 mins mins to read

Consensus is a fundamental concept in both centralized and decentralized systems, and it plays a crucial role in the functioning of blockchain networks. In centralized systems, decisions are made by a single center of authority or entity, such as a business’s accounting department. This central authority is responsible for managing and updating the entries in a centralized ledger, which records economic transactions.

In contrast, decentralized systems consist of multiple independent actors or nodes that have equal levels of authority. Decisions in these systems are made collectively, without any central authority dictating the rules. One prominent example of a decentralized system is blockchain, which is a distributed ledger that records transactions across multiple nodes.

In a blockchain network, individual participants known as miners are responsible for updating the ledger, and they do so without any central authority overseeing the entries. This lack of a central authority or trusted third party requires the network to achieve consensus on the precise state of the ledger. Consensus ensures that all nodes in the network agree on the valid transactions and their timing, preventing double-spending and other fraudulent activities.

What is The Challenge of Achieving Consensus?

Achieving consensus among numerous remote nodes in a decentralized network is a complex task. The complexity is further amplified by the possibility of nodes malfunctioning or intentionally acting against the network’s interests. This challenge is illustrated by the Byzantine Generals’ Problem, a hypothetical scenario where a group of generals must coordinate their attack on a city while accounting for the possibility of traitorous generals.

What are Consensus Algorithms in Blockchain?

To address the challenge of achieving consensus in blockchain networks, cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) utilize consensus algorithms such as proof-of-work (PoW) and proof-of-stake (PoS).

What is Proof-of-Work (PoW)?

Proof-of-Work is the consensus algorithm initially introduced by Bitcoin. In this algorithm, miners compete against each other to solve complex mathematical puzzles or cryptographic hashes. The first miner to solve the puzzle and add a new block to the blockchain is rewarded with newly minted cryptocurrency.

Solving these puzzles requires significant computational power and energy consumption. The difficulty of the puzzles is adjusted automatically by the network to ensure that new blocks are added to the blockchain at a constant rate. PoW ensures that malicious actors cannot easily manipulate the blockchain since they would need to control a majority of the network’s computational power, which becomes increasingly difficult as the network grows.

What is Proof-of-Stake (PoS)?

Proof-of-Stake is an alternative consensus algorithm used by cryptocurrencies like Ethereum. Unlike PoW, where miners compete to solve puzzles, PoS relies on a validator’s stake in the network. Validators are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and “stake” as collateral.

With PoS, validators are randomly selected to create new blocks, and the probability of being chosen depends on the size of their stake. Validators are incentivized to act honestly since any malicious activity can result in their stake being slashed or confiscated. PoS is known for its lower energy consumption compared to PoW, making it a more environmentally friendly alternative.

What are other consensus mechanisms?

While PoW and PoS are the most widely known consensus algorithms, there are other mechanisms designed to address specific requirements and limitations. Some of these mechanisms include Delegated Proof-of-Stake (DPoS), Practical Byzantine Fault Tolerance (PBFT), and Raft.

Delegated Proof-of-Stake is employed by blockchain platforms like EOS, where token holders elect a limited number of delegates to validate transactions on their behalf. PBFT, on the other hand, is a consensus algorithm used in permissioned blockchain networks and focuses on providing high throughput and low latency. Raft is another consensus algorithm that emphasizes simplicity and fault tolerance, commonly used in distributed systems beyond blockchain.

What is the conclusion?

Consensus is a critical component of blockchain networks, ensuring that all nodes agree on the precise state of the ledger and preventing malicious activities. Through consensus algorithms such as proof-of-work and proof-of-stake, blockchain networks achieve trust and decentralization, making them resilient against attacks and censorship. Understanding consensus mechanisms is essential for anyone interested in exploring the world of blockchain technology and its potential applications across various industries.

Avatar of Coincu

Author

Coincu

Glossary

Consensus

Consensus is a fundamental concept in both centralized and decentralized systems, and it plays a crucial role in the functioning of blockchain networks. In centralized systems, decisions are made by a single center of authority or entity, such as a business’s accounting department. This central authority is responsible for managing and updating the entries in a centralized ledger, which records economic transactions.

In contrast, decentralized systems consist of multiple independent actors or nodes that have equal levels of authority. Decisions in these systems are made collectively, without any central authority dictating the rules. One prominent example of a decentralized system is blockchain, which is a distributed ledger that records transactions across multiple nodes.

In a blockchain network, individual participants known as miners are responsible for updating the ledger, and they do so without any central authority overseeing the entries. This lack of a central authority or trusted third party requires the network to achieve consensus on the precise state of the ledger. Consensus ensures that all nodes in the network agree on the valid transactions and their timing, preventing double-spending and other fraudulent activities.

What is The Challenge of Achieving Consensus?

Achieving consensus among numerous remote nodes in a decentralized network is a complex task. The complexity is further amplified by the possibility of nodes malfunctioning or intentionally acting against the network’s interests. This challenge is illustrated by the Byzantine Generals’ Problem, a hypothetical scenario where a group of generals must coordinate their attack on a city while accounting for the possibility of traitorous generals.

What are Consensus Algorithms in Blockchain?

To address the challenge of achieving consensus in blockchain networks, cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) utilize consensus algorithms such as proof-of-work (PoW) and proof-of-stake (PoS).

What is Proof-of-Work (PoW)?

Proof-of-Work is the consensus algorithm initially introduced by Bitcoin. In this algorithm, miners compete against each other to solve complex mathematical puzzles or cryptographic hashes. The first miner to solve the puzzle and add a new block to the blockchain is rewarded with newly minted cryptocurrency.

Solving these puzzles requires significant computational power and energy consumption. The difficulty of the puzzles is adjusted automatically by the network to ensure that new blocks are added to the blockchain at a constant rate. PoW ensures that malicious actors cannot easily manipulate the blockchain since they would need to control a majority of the network’s computational power, which becomes increasingly difficult as the network grows.

What is Proof-of-Stake (PoS)?

Proof-of-Stake is an alternative consensus algorithm used by cryptocurrencies like Ethereum. Unlike PoW, where miners compete to solve puzzles, PoS relies on a validator’s stake in the network. Validators are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and “stake” as collateral.

With PoS, validators are randomly selected to create new blocks, and the probability of being chosen depends on the size of their stake. Validators are incentivized to act honestly since any malicious activity can result in their stake being slashed or confiscated. PoS is known for its lower energy consumption compared to PoW, making it a more environmentally friendly alternative.

What are other consensus mechanisms?

While PoW and PoS are the most widely known consensus algorithms, there are other mechanisms designed to address specific requirements and limitations. Some of these mechanisms include Delegated Proof-of-Stake (DPoS), Practical Byzantine Fault Tolerance (PBFT), and Raft.

Delegated Proof-of-Stake is employed by blockchain platforms like EOS, where token holders elect a limited number of delegates to validate transactions on their behalf. PBFT, on the other hand, is a consensus algorithm used in permissioned blockchain networks and focuses on providing high throughput and low latency. Raft is another consensus algorithm that emphasizes simplicity and fault tolerance, commonly used in distributed systems beyond blockchain.

What is the conclusion?

Consensus is a critical component of blockchain networks, ensuring that all nodes agree on the precise state of the ledger and preventing malicious activities. Through consensus algorithms such as proof-of-work and proof-of-stake, blockchain networks achieve trust and decentralization, making them resilient against attacks and censorship. Understanding consensus mechanisms is essential for anyone interested in exploring the world of blockchain technology and its potential applications across various industries.

Leave a Reply