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Consensus Algorithm: Building Blocks Of Blockchain Consensus

Introduction to Consensus Algorithm

Blockchain is a decentralized network which provides data security and transparency. Transactions on the blockchain network are safe and verified, as no central authority or third party is available to approve and verify transactions.

Consensus algorithms are the main backbone of blockchain technology. It ensures the contract and validation of transactions in a decentralized network. Here, we will explore consensus algorithms, their importance, functionality and types. By understanding and getting into it, you can gain valuable insight and how blockchain networks can achieve trust, security, and immutability. Here is an explanation of some popular consensus algorithms used in blockchain systems.

The Significance of Consensus Algorithms

Consensus algorithms are essential in the functioning of blockchain networks. These are crucial in these decentralized networks as they enable multiple participants to agree and validate transactions. The agreement is usually essential to ensure the integrity and immutability of the blockchain. There will be no trust in the network if no consensus algorithm is available, and the whole system will collapse.

Here are some features of consensus algorithms:

Security and Trust:- It provides a tool for securing the blockchain against hacks and fraud activities. The consensus algorithm makes it difficult to alter or manipulate blockchain data and enhance security.

Scalability and Efficiency:- Consensus algorithm helps determine scalability end efficiency. Some algorithms offer faster transactions and higher throughput and are suitable for high-speed transaction processing.

Decentralization:- Consensus algorithm does not rely on a central authority but instead distributes the power to validate transactions among multiple participants. It reduces the risk of failure, enhances network stability and promotes a democratic system.

Blockchain Consensus Mechanism Types

  1. Proof of Work (PoW): The PoW consensus algorithm is the first and most well-known algorithm behind the famous Bitcoin and many others, such as Ethereum. In PoW, participants compete to solve complex cryptographic puzzles to validate transactions and add new blocks to the blockchain network. These participants are known as miners. The first miner to solve the provided puzzle gets rewarded with newly minted coins. Proof of Work offers robust security but requires significant energy consumption. Ethereum is transitioning to a Proof of Stake consensus algorithm as Ethereum 2.0, which will consume less energy and improve scalability.
  2. Proof of Stake (PoS):- PoS consensus algorithm emerged as an alternative to PoW to address the issue of high energy consumption. Here validators are chosen based on the amount of cryptocurrency they hold and willing to stake their ownership as collateral. This algorithm offers scalability and reduces computational puzzles, making it more energy-efficient and ensuring robust security measures. But on the other side may introduce centralization issues. Cardano Blockchain uses a Proof of Stake consensus algorithm, which divides time into slots and validators are then selected to create new blocks based on their stake.
  3. Delegated Proof of Stake (DPoS):- DPoS offers a different approach to PoS by presenting only a selected group of delegates responsible for block validation. These delegates are selected through the voting system. Token holders vote for these delegates, and the top one with the most votes becomes the validator. However, all this is at the cost of some decentralized aspects due to the dependence on trusted delegates.

TRON and EOS use the Delegated Proof of Stake consensus algorithm. In TRON, TRX token holders are responsible for block production and validation, and in EOS, EOS token holders are accountable for the same.

  1. Practical Byzantine Fault Tolerance (PBFT):- PBFT is a consensus algorithm designed for permissioned blockchains, where the participants present are known and trusted. The algorithm works by setting a predetermined set of validators called nodes. These nodes exchange messages to reach an agreement on the order and validity of transactions. PBFT offers fast transactions and high throughput, making it convenient for use cases where the validators are known and trusted.
  2. Proof of Authority (PoA):- Proof of Authority is a consensus algorithm used for private blockchains where a few trusted authorities validate transactions and build new blocks. The validators are pre-approved and known entities. It does not rely on any computational puzzles or mechanisms but instead depends on the identity of validators. PoA offers high throughput and efficiency, making it convenient for applications. However, this results in sacrificing some decentralization as the decision-making power lies within a few trusted entities but offers security in the permissioned blockchain.
  3. Proof of Elapsed Time (PoET):- A consensus algorithm designed for permissioned blockchain networks. It randomly selects a validator to offer a block based on the time they wait. PoET ensures equal rights and chances for all validators to propose blocks and help minimize energy consumption. It delivers scalability and security, making it the best for consortium and blockchain applications.
  4. Directed Acyclic Graph (DAG):- In this consensus algorithm, transactions link together in a DAG-based structure. Every new transaction verifies with reference to the previous transactions ensuring that the network reaches a consensus as the transaction confirms. This algorithm provides scalability as well as low transaction fees.

What’s the difference between various algorithms?

The basic difference between various consensus algorithms lies within the mechanism they use. Each consensus algorithm offers different advantages in energy consumption, selection of validators, scalability, privacy and speed of transactions. Every consensus mechanism has advantages and disadvantages but helps blockchain networks work effectively and efficiently by providing robust security features.


The consensus algorithms mechanism allows blockchain networks to function effectively and efficiently. With an understanding of the different types of algorithms, you can gain insight into considerations while building a blockchain network. 

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