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Consensus Mechanism

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What Is A Consensus Mechanism?

A consensus mechanism is a system blockchain validators use to determine what information to store permanently in the blockchain.

Deeper Definition

The consensus mechanism is a crucial concept behind every blockchain as it helps define the underlying requirements a block must meet before being added to the blockchain. Blockchains are essentially distributed databases designed to store transactions across various networks of computer systems without the need for a central authority. Since blockchains distribute transactions across multiple nodes, it needs a mechanism to synchronize all nodes and ensure an agreement on the kind of transactions to add or exclude from the blockchain.

There are majorly three key priorities every blockchain tackles – scalability, decentralization, and security. Every blockchain develops or adopts a consensus mechanism that it deems more efficient in the quest to tackle one or more. There are two most widely used blockchain consensus mechanisms:

  • Proof of Work (PoW): It is the first to be created. PoW is the system used by Bitcoin and several other blockchain technologies. It relies on miners who use extensive computational power to solve complicated mathematical puzzles. Miners get rewarded with new coins for solving the puzzles. The PoW system has certain limitations, such as speed and scalability. For instance, bitcoin generates one block almost every ten minutes and consumes an estimated power of 51.13 TWh annually.
  • Proof of Stake (PoS): It is a consensus mechanism designed to solve many of the issues PoW blockchains experience, such as lack of speed, high energy consumption, and poor scalability. PoS requires blockchain users to stake a certain amount of the blockchain’s native token to become a validator. The system then randomly selects a validator to confirm a transaction and rewards them with network transaction fees. Generally, the higher the number of tokens a user takes, the higher the number of blocks they validate.

Consensus Mechanism Example

Although Proof of Work and Proof of Stake are the most common consensus mechanisms in blockchain, many others exist. They include but are not limited to:

  • Proof of Authority (PoA)
  • Proof of Activity (PoA)
  • Proof of Burn (PoB)
  • Proof of Capacity (PoC)
  • Proof of History (PoH)
  • Proof of Importance (PoI)
  • Delegated Proof of Stake (DPOS)
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