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Why and How to Use Cryptocurrency Consensus

Pros and Cons of the Consensus Protocol

Blockchain is a network of individual nodes that are connected in a decentralised fashion and has no single leader. In order for any action or transaction to take place, a shared understanding must be formed. A consensus protocol governs the operation of this system (mechanism). The functionality of cryptocurrency consensus algorithms, as well as their varieties, peculiarities, and benefits, and downsides in various blockchains, are discussed in this article.

Blockchain is a decentralised digital ledger that allows for peer-to-peer payments and interactions. Its most distinguishing feature is its independence from centralised control and authority intervention. The blockchain is now tackling a variety of organisational challenges across a wide range of industries, as it is free of single-institution dependence and corruption. It offers consumers, providers, and organisations transparent record-keeping, immutability, increased security, and, of course, safe and quick transaction processing.

The implementation of blockchain, on the other hand, may not be as simple as the concept. It's critical to know how to make judgments within the system and how to carry out a variety of tasks without relying on the traditional model of centralised leadership management.

What Is a Consensus Mechanism, and How Does It Work?

Simply explained, the process of reaching consensus occurs when a group of people agrees that a specific activity is true and valid. This is usually done through a voting process to guarantee that the decision benefits the entire group of users rather than just a single individual or minority. What's remarkable is that this type of choice may be made by a group of nodes from any region of the world, regardless of their geographical location. Our modern society benefits from this approach since it promotes equality, fairness, and harmony.

The consensus mechanism (and there are numerous types of consensus that will be addressed) is used by various blockchains to achieve the following goals:

After defining consensus, it's critical to comprehend how it's applied in the blockchain. Given that blockchain is a massive network of nodes, providing a mechanism to create trust in the system is critical. Different methods of consensus can be used to reach an agreement on any transaction on the blockchain. If someone wants to transmit money to someone else, they must first verify that the sender has enough money in their wallet and that the receiver has followed the smart contract's instructions. The transaction is considered genuine once it has been confirmed, and only then may it be executed/processed.

Types of Blockchain Consensus Algorithms

Different methods of achieving cryptocurrency consensus inside the system are available thanks to blockchain technology. This is known as eventual consistency, and it means that any action or transaction must go through confirmation and validation at some point before being performed. For this, data blocks and transaction mechanisms are stored in the data patterns of parties who do not trust one another. These parties rely on a system of hashes within a Merkle tree to validate data veracity using bitcoin consensus techniques and cryptographic data audits:

An order-executive architecture is widely used in order to achieve eventual uniformity. This means that the blockchain system first arranges all transactions in chronological order before executing them one by one. Due to inefficiency in time and high computing costs, this strategy frequently yields poor results.

The proof-of-work consensus algorithm has several features. It was largely used by the first blockchain platform, Bitcoin. Let's take a closer look at its functioning principles as well as its primary advantages and disadvantages.

Consensus Algorithm based on Proof-of-Work (PoW)

Miners solve complex cryptographic challenges in order to mine a block and validate its authenticity for inclusion in the blockchain, which is known as Proof of Work. A transaction must go through six phases of verification before it can be completed. As a result, the proof-of-work procedure necessitates a significant amount of computing power, energy, and mining effort. In order to provide more security, the problems that miners solve frequently appear to be hard. This is advantageous in terms of security, but it greatly slows down the transaction verification process.

The following steps are included in the procedure:

Miners compete against one another to see who can solve a problem/puzzle the fastest.

Miners work on a variety of mathematical problems and puzzles, such as hash function definition, integer factorization, and the guided puzzle protocol.

The miners who accomplish jobs first are rewarded for their efforts (usually in cryptocurrency)

The main advantage of the PoW consensus protocol is that it is guaranteed to function. As a result, blockchains like Bitcoin, Ethereum, Litecoin, and many more continue to use it.

Pros: greatest scalability and security; one of the finest techniques for consensus smart contracts.

Low performance is a disadvantage.

The following are some of the variations:

There is currently a large number of consensus algorithms to choose from. Various platforms have begun to implement Proof of Work alternatives in order to overcome the problem of eventual consistency. As a result, blockchains have been able to achieve faster transaction processing, increased scalability, and improved security. Let's have a look at some other options for reaching a consensus.

Consensus Algorithm based on Proof-of-Stake

Another prominent algorithm for achieving a consensus is proof of stake. In truth, Ethereum has been considering switching from PoW to PoS. It hasn't happened yet, but the intention is still there.

The mining procedure of data verification using validators is replaced by proof of stake. This necessitates their owning a stake, which is a quantity of coins. Validators use this stake to vote on transaction validity. The votes of nodes with more stake value are more valuable. This is then multiplied by the amount of computing power available.

The following features are included in the procedure:

  • A block validator is chosen based on the amount of stake he or she owns.

  • Rather of receiving a reward, the miner collects transaction fees.

  • PoS currencies have the potential to be far more cost-effective.

Because the PoS algorithm requires less computer power than the PoW technique, it is less expensive.

The major disadvantage of this consensus protocol, on the other hand, is the so-called "nothing at stake." If a fork occurs, the consensus process allows the network to choose which chain to use. The difficulty is that the majority always wins, regardless of which chain is actually the best. Because there is nothing at stake, it is permissible to choose a "wrong" chain, even if it has evil intentions and would lose nothing. Furthermore, the block validator has the option of choosing between two chains and receiving the same benefits in each case.

High performance, scalability, and smart-contract support are all advantages.

Cons: average security, no stakes concern.

The following are the several types of PoS:

Algorithm for Delegated Proof-of-Stake Consensus

A version of the above-mentioned Proof of Stake algorithm is Delegated Proof of Stake. DPoS is now used by EOS, Steemit, and Bitshares in order to improve scalability.

Token holders are not required to vote on block validity according to the system's functioning premise. They can instead entrust their vote to other validators. There are between 21 and 100 random validators in EOS, for example.

This strategy allows a large number of users to participate in the decision-making process by allowing them to verify blocks based on the overall number of votes they receive in comparison to other producers.

The stages of the procedure are as follows:

  • In a round of 21, blocks are confirmed.

  • Block producers/validators are picked at the start of each new cycle (according to the number of votes they have).

  • Validators move around according to the block's random number to ensure that the balance and producer connection is maintained.

  • To avoid the penalty, producers must authenticate at least one block every 24 hours.

Another characteristic of DPoS is the lack of a forking option. This is due to a lack of competition and a need for collaboration. In the event of a fork, the DPoS consensus process will choose the longest chain.

Scalability, rapidity, and cost-effectiveness are all advantages.

In terms of legal agreement between the delegates, there is some centralization.

Variations to consider:

Byzantine Fault Tolerance

To reach an agreement, the Byzantine Generals Problem must be solved through the votes of many nodes on the decision-making leader. The leader is the node that receives the initial transaction to verify, and the rest of the nodes vote on whether or not they believe it.

This algorithm is used by Hyperledger, Stellar, Dispatch, and Ripple.

High throughput, cost-effectiveness, and smart-contract support are all advantages.

Low scalability and a semi-centralized system are also disadvantages.

Variations to consider:

Example of a Quorum-Based Protocol

Quorum has come up with yet another intriguing consensus protocol option. Quorum is an Ethereum sidechain platform that is particularly well suited to financial applications. This permissioned blockchain is designed specifically for businesses. This means that the network will not be available to the public or openly accessible. With specific read and write permissions, data can be stored both privately and publically.

The Quorum consensus process, also known as QuorumChain, starts with the first block, called the genesis block. The quorum protocol is simple to understand because it is based on a majority of votes. This principle states that a group of nodes can delegate voting privileges and reassign them to other nodes. Smart-contracts are useful for this since they track the conditions and state of voting nodes within the system. The smart contract initiates a voting operation and then pings the nodes to perform a transaction within a given block. Global transaction hashes, public-state root hashes, and the signature of the block originator are all included in quorum-protocol transactions.


After going over some of the most often used consensus protocols, it's evident that there's a lot to pick from. It's important to remember, though, that each consensus has its own set of benefits and drawbacks. There is no such thing as a perfect match.

The blockchain platform should be considered when choosing the proper algorithm. Because the PoW algorithm isn't the ideal match for financial-sector enterprises that need to confirm transactions rapidly and scalably with smart-contract use, the Bitcoin platform isn't a good fit. Even the Ethereum mainnet, which is the most widely used network, has hefty gas fees and still uses the PoW algorithm. As a result, Ethereum side chains like Quorum, Corda, Loom, Plasma, and Plasma Cash are better to explore since they take an entirely new approach to the problem of eventual consistency.

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