Consensus Mechanisms

    Pathik Bhattacharya
    Pathik Bhattacharya
    Published on November 18, 2022 9:29 AM

    Updated on January 16, 2023 1:42 PM

    Consensus mechanisms are used to confirm transactions and uphold the security of the underlying blockchain. They are often referred to as consensus protocols or algorithms.
    Consensus Mechanisms
    Source: Unsplash

    Blockchain, as we know it, is a distributed decentralized network that offers immutability, privacy, security, and transparency. Even though there is no central authority to validate and verify transactions, every transaction in the Blockchain is regarded to be entirely secure and validated. This is only feasible because of the presence of the consensus mechanism, which is an essential component of any Blockchain network. 

    A consensus mechanism or algorithm is used to determine whether a transaction is valid or invalid during a token exchange. 

    Working of Consensus Mechanism

    A consensus mechanism is used by every cryptocurrency blockchain. It is a system that blockchain network users use to agree on transaction legality. This approach ensures that all valid transactions are recorded on the blockchain and that all valid transactions are present in each copy of the blockchain.


    If you purchase one bitcoin and add it to your wallet address, for instance, everyone (validators) else must acknowledge that you are the rightful owner of that bitcoin. Your currency would be worthless if they didn't. The "proof-of-work" (PoW) consensus used by bitcoin served as the initial consensus mechanism. Each new block added to the chain for each transaction needed network permission (in the form of a special hash). This ensured agreement on previous transactions and validated new transactions.

    Types of Consensus Mechanisms

    Proof of Work (PoW)

    Proof of work (PoW), which is used by Bitcoin, Ethereum Classic, and numerous other public blockchains, was the first consensus mechanism ever developed. Though there are several scaling difficulties, it is usually considered to be the most dependable and safe of all the consensus systems. Although the phrase "proof of work" was initially used in the early 1990s, Satoshi Nakamoto, the creator of Bitcoin, was the one to apply the concept in the context of digital currencies.

    The main goal of this algorithm is to quickly and readily provide a solution to a challenging mathematical puzzle. The node that completes this mathematical challenge as quickly as possible wins the right to mine the following block because it demands a lot of computational power. Please see Proof of Work for additional information about PoW.

    Proof of Stake (PoS)

    Proof of Stake (PoS) is the most typical substitute for PoW. On Ethereum, the consensus has changed from PoW to PoS. Instead of purchasing expensive mining rigs to solve a complicated puzzle, validators in this form of consensus algorithm invest in the system's currency by staking a portion of their own coins. All validators will then begin validating the blocks. If a validator finds a block that they believe can be added to the chain, they will validate it by placing a bet on it. All validators receive rewards proportionate to their stakes based on the real blocks added to the Blockchain, and their stake increases as a result.

    A validator is ultimately selected to create a new block based on their staked amount in the network. As a result, PoS motivates validators to agree through an incentive system.

    PoS is thought of as a more resilient and environmentally friendly substitute for PoW that is also more secure from a 51% attack. The PoS method has garnered criticism for its potential to promote centralization because it favours entities with more tokens. Popular PoS platforms include Tezos (XTC), Cardano (ADA), and Ethereum (ETH).

    Delegated Proof of Stake (DPoS)

    Delegated proof-of-stake is a kind of PoS in which individuals who stake their coins can decide how many delegates should be allowed to construct new blocks.

    The network's users "vote" to choose "witnesses" (sometimes referred to as "block producers") to guard the network on their behalf. Only the witnesses with the highest number of votes have the authority to confirm blockchain transactions.

    Users stake their tokens in a pool to cast their votes. The size of each voter's stake is then taken into account when weighing votes; the greater the stake, the greater the voting power. Those that voted for the elected witnesses earn a reward when they correctly verify transactions in a block.

    TRON Network uses DPoS as its primary consensus mechanism.

    Proof of Burn (PoB)

    Proof of burn is another more environmentally friendly substitute for Bitcoin's PoW algorithm (PoB). By "burning" (destroying) a predetermined number of tokens in a verifiable manner—specifically, by sending them to an "eater address" where they cannot be retrieved or used—miners are given the ability to mine a block in PoB. The likelihood of being randomly chosen increases with the number of coins burned.

    Burned coins cannot be recovered, in contrast to PoS, where miners can sell or retrieve their locked money if they ever decide to leave the network. This strategy of requiring miners to give up short-term wealth in exchange for the lifelong right to generate new blocks encourages miners to commit over the long run. Burning coins also make coins scarcer, which reduces inflation and increases demand.

    Cryptocurrencies like Factom, Counterparty and Slimcoin all employ the proof-of-burn system.

    Proof of History (PoH)

    Proof of History (PoH) offers evidence of historical occurrences, as the term implies. Solana's PoH technology enables "timestamps" to be incorporated directly into the blockchain, independently confirming the interval between transactions.

    This timestamping technique is made possible by a sequential-hashing verifiable delay function (VDF), like SHA-256 (Used by Bitcoin). It functions by using the outcome of a transaction as the input for the subsequent hash, allowing everyone to plainly understand which event occurred in a specific order. PoH significantly minimizes the processing weight of the blockchain because the VDFs can only be solved by a single CPU score, making it faster and more energy-efficient than many of his peers.

    PoH has not yet undergone extensive testing because Solana is the only protocol that uses it.

    Proof of Elapsed Time (PoET)

    One of the most ethical consensus algorithms is PoET, which only uses ethical criteria to determine the next block. In Blockchain networks with permissions, it is commonly employed. Every validator on the network has an equal opportunity to construct their own block using this process. 

    To do this, each node adds proof of their wait to the block after waiting for a different period of time. The produced blocks are sent out to the network for review by other users. The validator with the lowest timer value in the proof portion wins. The winning validator node's block is added to the Blockchain. Additional safeguards in the program prevent nodes from consistently winning the election or from producing the lowest timer value.

    Other consensus mechanisms include Leased Proof of Stake, Proof of Activity, Proof of Weight, Proof of Importance, and others. As a result, it is crucial to select one carefully based on the needs of the business network since consensus algorithms are essential to the successful operation of blockchain networks because they allow for the verification of all transactions that are committed.

    Advantages of Consensus Mechanism

    Forms a fundamental contract for the cryptocurrency market: Consensus methods provide for confidence in a blockchain by synchronizing data amongst all involved users.

    Secures the environment: The security of distributed apps and cryptocurrencies depends on consensus processes.

    Anyone may take part: With the most widely used consensus mechanisms, there aren't many obstacles to becoming a miner or running one's own nodes.

    Drawbacks of the Consensus Mechanism

    Apparently requiring a lot of energy: Proof-of-work uses as much energy as many nations' entire electricity supply.

    Potential for attacks: A 51% attack, along with other minor vulnerabilities, has a slim possibility.