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Consensus Mechanism (Cryptocurrency)

Consensus Mechanism (Cryptocurrency)

What Is a Consensus Mechanism?

A consensus mechanism is a shortcoming lenient mechanism that is utilized in computer and blockchain systems to accomplish the important agreement on a single data value or a single state of the network among distributed processes or multi-specialist systems, for example, with cryptocurrencies. It is helpful in record-keeping, in addition to other things.

On the Bitcoin blockchain, for example, the consensus mechanism is known as Proof-of-Work (PoW), which requires the effort of computational power to settle a troublesome yet erratic riddle to keep all nodes in the network legitimate.

Consensus Mechanism Explained

In any centralized system, similar to a database holding key data about driving licenses in a country, a central administrator has the authority to keep up with and update the database. The task of making any updates — like adding/erasing/refreshing names of individuals who qualified for certain licenses — is performed by a central authority who stays the sole responsible for keeping up with genuine records.

Public blockchains that operate as decentralized, automatic systems work on a global scale with next to no single authority. They include contributions from countless participants who work on verification and authentication of transactions happening on the blockchain, and on the block mining activities.

In such a progressively changing status of the blockchain, these publicly shared ledgers need an efficient, fair, real-time, functional, solid, and secure mechanism to guarantee that every one of the transactions happening on the network are genuine and all participants settle on a consensus on the situation with the ledger. This everything significant task is performed by the consensus mechanism, which is a set of rules that settles on the authenticity of contributions made by the different participants (i.e., nodes or transactors) of the blockchain.

Blockchain Consensus Mechanisms

There are various types of consensus mechanism algorithms, every one of which deals with various principles.

The proof of work (PoW) is a common consensus algorithm utilized by the most well known cryptocurrency networks like bitcoin and litecoin. It requires a participant node to demonstrate that the work done and presented by them qualifies them to receive the right to add new transactions to the blockchain. Nonetheless, this whole mining mechanism of bitcoin needs high energy consumption and a more extended processing time.

The proof of stake (PoS) is one more common consensus algorithm that developed as a low-cost, low-energy consuming alternative to the PoW algorithm. It includes the allocation of responsibility in keeping up with the public ledger to a participant node in relation to the number of virtual currency tokens held by it. Nonetheless, this accompanies the drawback that it boosts cryptocoin hoarding as opposed to spending.

While PoW and PoS are by a wide margin the most common in the blockchain space, there are other consensus algorithms like Proof of Capacity (PoC) which allow sharing of memory space of the contributing nodes on the blockchain network. The more memory or hard circle space a node has, the more rights it is conceded for keeping up with the public ledger. Proof of Activity (PoA), utilized on the Decred blockchain, is a hybrid that utilizes parts of both PoW and PoS. Proof of Burn (PoB) is another that expects transactors to send small measures of cryptocurrency to difficult to reach wallet addresses, in effect "burning" them out of presence.

Another, called Proof of History (PoH), developed by the Solana Project and like Proof of Elapsed Time (PoET), encodes the progression of time itself cryptographically to accomplish consensus without using numerous resources.


  • Pundits of Bitcoin diggers have contended that PoW is excessively energy-serious, which has started the creation of new and more efficient mechanisms.
  • With regards to blockchains and digital forms of money, proof-of-work (PoW) and proof-of-stake (PoS) are two of the most pervasive consensus mechanisms.
  • A consensus mechanism alludes to quite a few procedures used to accomplish agreement, trust, and security across a decentralized computer network.