What is Consensus algorithm?

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The consensus algorithm is the method of gaining consensus on a change of data over the system or distributed network. Consensus algorithms are heavily used in blockchains as they enable the network of unknown nodes to reach consensus on the data that is being stored or shared through the blockchain.

 

A consensus algorithm is a crucial component of blockchain technology that enables a network of nodes to agree on the state of the distributed ledger. It ensures that all participants in the network reach a common consensus on the validity of transactions and the current state of the blockchain. There are several consensus algorithms, each with its own set of rules and mechanisms. Some common consensus algorithms include:

  1. Proof of Work (PoW): In PoW, participants, also known as miners, compete to solve complex mathematical puzzles. The first one to solve the puzzle gets the right to add a new block to the blockchain and is rewarded with cryptocurrency. Bitcoin initially popularized this algorithm.
  2. Proof of Stake (PoS): In PoS, validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral. This reduces the need for energy-intensive computations, as seen in PoW. Ethereum is transitioning from PoW to PoS.
  3. Delegated Proof of Stake (DPoS): DPoS is a variation of PoS where a fixed number of nodes, known as delegates, are selected to create new blocks and validate transactions. These delegates are chosen through a voting process by coin holders. EOS and Tron are examples of blockchains using DPoS.
  4. Proof of Authority (PoA): In PoA, validators are identified and trusted entities that are granted the authority to create new blocks. It is commonly used in private or consortium blockchains where the participants are known and vetted.
  5. Practical Byzantine Fault Tolerance (PBFT): PBFT is a consensus algorithm designed to achieve consensus in a distributed system where nodes may fail or act maliciously. It focuses on reaching consensus in the presence of Byzantine faults, ensuring the security and consistency of the blockchain. Hyperledger Fabric uses a variant of PBFT.
  6. Raft: Raft is another consensus algorithm designed for fault-tolerant distributed systems. While not as commonly used in public blockchains, it is popular in some permissioned or private blockchain implementations.

It’s essential to choose the right consensus algorithm based on the specific requirements and goals of a blockchain network. Different algorithms have varying levels of security, decentralization, and scalability.