A consensus algorithm is a mechanism that allows users or machines to coordinate in a distributed setting. It needs to ensure that all agents in the system can agree on a single source of truth, even if some agents fail. In other words, the system must be fault-tolerant. Say we’re working with a distributed database – how do we reach an agreement on what entries get added?
Overcoming this challenge in an environment where strangers don’t trust each other was perhaps the most crucial development paving the way for blockchains. In this article, we’ll take a look at what is consensus algorithm and its types.
What Does “Consensus” Mean in Crypto?
Starting with the most obvious question: What does consensus mean in the first place? Consensus is the process of agreeing on a single, shared version of the truth. In a blockchain network, consensus is necessary to ensure that all nodes agree on the state of the blockchain. That’s essential for preventing double spending, and for maintaining the network’s integrity.
What is Consensus Algorithm in Crypto?
The term “consensus algorithm” refers to a process for reaching an agreement among a group of nodes in a network. The goal of a consensus algorithm is to ensure that all of the nodes in a network agree on the state of the blockchain.
Consensus algorithms are a crucial requirement for the proper function of any blockchain protocol. They're responsible for weeding out invalid transactions, ensuring high security levels for users, and making sure that each action is checked and validated in a matter of milliseconds.
History of Consensus Algorithms
The concept of consensus algorithms isn't actually new. The technology is based on a theoretical problem outlined by scientists more than 40 years ago. Called the Byzantine Generals' Problem, it poses the question of whETHer it's possible to form a consensus in a PC network that comprises independent nodes. Consensus algorithms present the answer to that proposed question.
Types of Consensus Algorithms
There are many different types of consensus algorithms, but the most common are proof of work and proof of stake.
- Proof of Work (PoW)
Proof of work is the most common type of consensus algorithm. In a PoW system, nodes must solve a cryptographic puzzle in order to add a new block to the blockchain. The difficulty of the puzzle is adjusted so that it takes an average of 10 minutes to solve. That means that, on average, a new block is added to the blockchain every 10 minutes.
- Proof of Stake (PoS)
Proof of stake is a newer type of consensus algorithm. In a PoS system, nodes aren’t required to solve a cryptographic puzzle. Instead, they can stake their tokens in order to validate transactions. The more tokens a node has staked, the more likely it is to be chosen to validate a transaction. In simple terms, a PoS system is more energy-efficient than a PoW system.
- Proof of Burn (PoB)
Proof of burn is a consensus algorithm that’s still in development. In a proof of burn system, nodes must burn a certain amount of tokens in order to add a new block to the blockchain. The idea behind proof of burn is that it will create an incentive for nodes to validate transactions. The more tokens a node burns, the more likely it is to be chosen to validate a transaction.
- Proof of Capacity (PoC)
In the proof of capacity model, digital storages such as hard disks are used to store solutions to complex mathematical equations. This storage process is called plotting. After a hard disk is filled with the solutions to equations, users can utilize it to produce blocks.
- Proof of Authority (PoA)
The PoA mETHod uses a reputation-based model for validating transactions and generating new blocks. More often than not, validators within a PoA consensus are users that have been hand-picked by other high-ranking network users to act as moderators.
- Proof of Activity (PoA)
Not to be confused with the aforementioned proof of authority, which uses the same abbreviation, proof of activity combines the PoW and PoS protocols, allowing users to mine and stake their tokens to validate the blocks in a blockchain’s network.
Closing Thoughts
And that’s a wrap for this short article on what is consensus algorithm and its types. Mechanisms for achieving consensus are vital to the functioning of distributed systems. Many believe that the greatest innovation in Bitcoin was the use of Proof of Work to enable users to agree on a shared set of facts.
Consensus algorithms today underpin not only digital money systems, but blockchains – allowing developers to run code across a distributed network. They’re now a cornerstone of blockchain technology and are critical to the long-term viability of the various networks in existence.
Of all of the consensus algorithms, Proof of Work remains the dominant offering. An alternative that’s more reliable and more secure has yet to be proposed. That said, there’s a tremendous amount of research and development into replacements for PoW, and we’re likely to see more of them surface in the coming years.
