Consensus Algorithm

A consensus algorithm is a mechanism used by a blockchain network to achieve agreement among nodes on the validity and order of transactions in a decentralized system.

What is Consensus Algorithm?

A consensus algorithm is a set of rules and processes that enables distributed nodes in a blockchain network to agree on a single, shared version of the transaction ledger, ensuring trust and security without a central authority. These algorithms address challenges like double-spending, network faults, and malicious actors, maintaining the integrity and consistency of the blockchain. They are critical for validating transactions and adding new blocks to the chain.

Primary consensus algorithms include Proof of Work (PoW) and Proof of Stake (PoS). In PoW, used by Bitcoin, nodes (miners) solve complex cryptographic puzzles to validate blocks, with Bitcoin’s network requiring significant computational power, consuming approximately 140 TWh annually as of recent estimates.

PoS, used by Ethereum since its 2022 upgrade, selects validators based on staked digital assets, reducing energy consumption by over 99% compared to PoW.

Other algorithms, like Delegated Proof of Stake (DPoS) or Practical Byzantine Fault Tolerance (PBFT), optimize for speed or fault tolerance, with DPoS (used by EOS) achieving faster transaction finality by delegating validation to elected nodes.