With the recent popularity of cryptocurrencies like Bitcoin and Ethereum, blockchain has consistently made headlines. Many organizations now use cryptocurrencies as a smart way of generating new sources of revenue for their organizations.
Beyond that, multiple organizations are also utilizing the blockchain technology behind these cryptos to create amazing applications that will help skyrocket the growth of their organizations.
These applications use different types of consensus mechanisms to ensure that all nodes on their network are synchronized and all transactions are legitimate. The applications built using blockchain technology perform different functions – that means they are designed with a purpose in mind. Because of that, the consensus mechanisms used for the applications are not the same. Blockchain developers choose a consensus mechanism based on the purpose they are looking to fulfill with the application. So, what are these consensus mechanisms, and what functions do they perform? Let’s check that all out.
What is Crypto Consensus Mechanism?
For more than 30 years, consensus mechanisms have become an integral part of computer processing. And today, they are the backbone behind the cryptocurrency industry because they make the fundamental concept that makes it possible for blockchain to do what it does today.
A consensus refers to the underlying principles used in blockchain block verification. It holds the conditions that nodes and validators need to meet in order for a new block to be added to the blockchain. There are different forms of consensus mechanisms, and they are all designed to uphold the basic principles of blockchain technology, that is to be a decentralized, distributed, and public ledger.
How Do Consensus Mechanisms Work?
In a centralized setup, a central administrator has power over the system. Such a single entity can update the database and make changes as they wish. There is no need to reach any consensus amongst many administrators.
But in a decentralized system like blockchain, the story is completely different. Blockchain is a decentralized system that works without any single authority. It requires the contribution of many participants – hundreds of thousands of them before transactions can be verified and authenticated on the blockchain.
That is why any blockchain needs to have a reliable, efficient, functional, and secure mechanism behind it to make sure every transaction happening on it is genuine and all participants agree on the status of the ledger. But more than just helping to secure the system, consensus mechanisms also perform different important roles in blockchain systems. Let’s take a look at some of these benefits.
Why Are Consensus Mechanisms Important?
Consensus mechanisms perform different important roles in blockchain technology. First, they make sure crypto blockchain functions properly as they ensure all nodes work in agreement and in accordance with the same rules and conditions.
Consensus mechanisms also make sure the blockchain continues to be safe for users as they ensure that node validators are provided with predefined rules necessary only for valid transactions.
Another way consensus mechanism plays a beneficial role in blockchains is that for a transaction to be successful, and then registered on the ledge, there has to be a consensus achieved between all nodes. That means that even in a situation when one or more nodes aren’t functioning well, the task can still be done so far there is a consensus between the remaining nodes – 51% of them.
Some Types of Crypto Consensus Mechanisms
Like we earlier said, consensus mechanisms are not one. There are different types of them, and each of them is different from the other based on the principles they are built to operate on.
The most common among them is the Proof of Work (PoW) consensus mechanism. It is a very popular mechanism and it is used by cryptocurrencies such as Bitcoin and Litecoin. The mechanism involved some validators performing certain tasks before they can be qualified to add new blocks of transactions to the blockchain. However, one downside of this consensus mechanism is that it consumes too much energy. At the same time, the transaction processing time is too long.
The next consensus mechanism after PoW is Proof of Stake (PoS). This is a more energy-efficient consensus mechanism compared to PoW. Here, validators are required to stake certain virtual currency tokens to qualify for the role of validating a transaction. Cryptocurrencies like Solana and Cardano use PoS as their consensus mechanism. Ethereum is also planning to switch from PoW to PoS soon in order to reduce the amount of energy expended on mining.
Proof of Work and Proof of Stake is not the only consensus mechanisms that are. There are others like Proof of Capacity (PoC) where contributing nodes share memory space on the blockchain network. The node that has the largest memory space will be given the responsibility of maintaining the public ledger.
Others include Proof of Burn (PoB), Proof of Activity (PoA), and Proof of History (PoH). The Proof of History consensus mechanism is developed by Solana Projects and it’s designed to achieve consensus without expending many resources.
A consensus mechanism is used to refer to any number of methodologies used to secure the underlying principles of blockchain technology. Consensus mechanisms help to achieve trust, agreement, and security across a decentralized computer network.
Cryptocurrency blockchains use different types of consensus mechanisms where Proof of Work and Proof of Stake are the most common. While PoW requires too much energy, which is its major downside, PoS seems to be more energy-efficient.
However, those are not the only type of consensus algorithms used by crypto blockchain. Some others include Proof of Capacity, Proof of History, Proof of Burn, Proof of Activity, etc. The type of consensus mechanism used in any blockchain is determined by the underlying principles it’s meant to uphold.
Lisa has a Bachelor’s of Science in Communication Arts. She is an experienced blogger who enjoys researching interesting facts, ideas, products, and other compelling concepts. In addition to writing, she likes photography and Photoshop.