Blockchain is said to be a decentralized distributed network that proposes higher transparency, safety, and stability. I am sure we all understand that. 

But, have you ever, for once, questioned how it is capable of accomplishing all of this? No, right?

Well, the question is: Who manages this network and authenticates every transaction, as long as there is no centralized authority? It is Blockchain consensus algorithms. 

This article will look at the fundamentals of the Blockchain enlargement world and how it is essential to the functioning of cryptocurrencies and distributed ledgers. 

What is the Blockchain Consensus Algorithm?

The best answer to this question is that it is a method through which all the Blockchain network peers harmonize in a distributed setting. Therefore, it is required to ensure that all users in the system can reach a common acceptance even if some users should fail. In other words, users must be capable of tolerating faults. 

In a centralized system, a single person has authority over the settings. Mostly, you will see those making changes as they please. There is no form of a complex governance system for reaching a joint agreement amongst several administrators.

However, in a decentralized system, it's the other way round.  Imagine working with a distributed database; how do we reach an agreement on entries to be added?

Nevertheless, Blockchain got introduced to overcome the challenge in an environment where strangers don't trust each other for a bit. 

Consensus Algorithms and Cryptocurrencies.

In the world of cryptocurrencies, users' balances get inputted in a database which is the Blockchain. Every user (or, more precisely, every node) must keep a duplicate copy of the database. If not, in a little while, you will end up with contradictory information, destabilizing the whole determination of the crypto coins network.

Also, Public-key cryptography makes sure that users cannot spend each other's coins. But, in other words, you still need a single source of truth that network users can rely on to decide whether funds have already been used up or not.


The founder of Bitcoin, Satoshi Nakamoto, recommended a Proof of Work system to harmonize crypto users. We will discuss POW works in a little while, but before that, let's identify some of the typical qualities of the many consensus algorithms that exist. 

To start with, we demand that miners who are interested in adding blocks should offer a stake. This stake stands as a value that all miners must put forward, as it discourages them from being deceitful. So that if they cheat, they will lose their stake—for example, computing power, cryptocurrency, or even status. 

Why would anyone want to risk their resources? Well, as there is a stake, there's also a reward available. This most times comprises the procedure's natural cryptocurrency, including fees paid by other users, newly-developed crypto coin units, or both.

The last thing needed is transparency. We must be able to identify when someone is cheating. It should be likely expensive for users to produce blocks but cheap for any other person to validate them. This process ensures that regular users monitor miners.

Types of Consensus Algorithm

There are two basic types of consensus algorithm. They are POW (Proof of Work) and POS (Proof of Stake).

POW (Proof of Work)

POW is said to be the godfather for the Blockchain consensus algorithm.  Proof of Work was first into practice in Bitcoin, but the fundamental concept has been around for some time. POW is data challenging (i.e. expensive and time-consuming) to produce but easy for others to authenticate and gratifies definite requirements. For example, before network users can verify a block, miners must at least fill in a proof of work that includes all the data in the block.

In Proof of Work, miners hash the data they want to add until they give out a detailed clarification.

In this system, the protocol sets out rules for what makes a block valid. For example, it might state that only a block whose hash starts with 00 will be correct. Nevertheless, a miner can only generate the one that matches that grouping is to force inputs. They can squeeze a limit in their data to design a mixed result for every guessing until they reach the correct hash. 

Your stake in the process of mining is the price of these machines and the electricity needed to run them. ASICs are constructed for one purpose, so they are of no use in applications from cryptocurrency mining. The only way to recover your primary investment is to mine, which produces a significant return if you positively add a new block to the Blockchain.

It's insignificant for the network to confirm that you have certainly generated the correct block. Even if you have tried trillions of combinations to get the right hash, all they need is to run your data through a function one time. Then, if your data generates a valid hash, it will be accepted, and you will get your reward. But if not, the network will not receive it, which means you have wasted time and electricity for nothing.

POS (Proof of Stake)

POS was proposed in the early days of Bitcoin as a substitute for Proof of Work. In this system, there is no idea of miners, specified hardware, or enormous energy consumption. Instead, all you need is a steady and regular computer system. 

Though, not totally. You must still invest some energy in the activity. In PoS, you don't put up an external resource like electricity or hardware, but an internal one like cryptocurrency. Rules vary with every protocol, but usually, the least amount of funds you must grip to be qualified for staking.

After you store your funds in a wallet, you can't move them in the process of staking. So, naturally, you are to decide with other users/miners what transactions should go into the next block. So you're taking on the block that will be designated, and the protocol will decide on one.

If your block got selected, you would be given a share of the transaction fees, depending on your stake. So the more funds you have stored, the more chances you get to gain. But if you try to trick by offering invalid transactions, you will lose a portion if not all of your stake. Thus, POW has a related procedure, i.e. being truthful is more rewarding than being deceitful. 

Up to this day, pure Proof of Stake has only really got positioned in minor cryptocurrencies. Hence, it's uncertain if it can function as a practical substitute to POW. While it looks ideally comprehensive, it will differ in terms of practice. 

Once PoS is moved out on a network with large quantity values, the system becomes the playing field of game theory and monetary enticements. Anyone with the expertise to "hack" a PoS system can only do that if they can achieve it. So, the only way you can detect if it's practicable is on a live network.

Final Thoughts

PoW and PoS are the most explained consensus algorithms. But there are a lot of other ones, each with its benefits and difficulties. They include; proof of burn, proof of authority, etc.

Mechanisms for accomplishing consensus are essential to the operating of distributed systems. For example, it is widely believed that the highest modernism in Bitcoin was the use of Proof of Work to allow users to consensus on a single source of truth.

Until today, Consensus algorithms support digital money systems and Blockchain, enabling inventors to run code through a distributed network. They are now the basis of Blockchain technology. They are serious about the endless possibility of the numerous networks that exist.

Out of the whole consensus algorithms, Proof of Work remains the leading proposal. A substitute that is more dependable and more protected is yet to get proposed. There is an excellent quantity of research and improvement into substitutions for POW, and we are prospective to see more of the surface in the coming years.

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