1.3 Consensus Algorithm
Consensus Algorithm
A consensus algorithm is the mechanism by which participants in a blockchain network agree on the validity of transactions and the state of the ledger. Since blockchains are decentralized, consensus ensures that all nodes maintain a consistent and accurate copy of the ledger without relying on a central authority.
Key Concepts
Decentralization
All nodes work collaboratively to validate transactions, ensuring no single point of failure.
Fault Tolerance
Blockchain networks are designed to operate even if some nodes are malicious or fail to respond (Byzantine Fault Tolerance).
Finality
Once a block is added to the blockchain, it is considered final and cannot be altered without consensus.
Types of Consensus Algorithms
Proof of Work (PoW)
Mechanism: Miners compete to solve complex mathematical puzzles to validate transactions and add a new block.
Energy Consumption: High, due to the computational power required.
Security: Resistant to tampering but vulnerable to 51% attacks if a single entity controls the majority of the network's hash power.
Examples: Bitcoin, Ethereum (pre-merge).
Proof of Stake (PoS)
Mechanism: Validators are chosen to create blocks based on the amount of cryptocurrency they stake as collateral.
Energy Efficiency: Much lower than PoW since it doesn’t require intensive computations.
Security: Malicious validators risk losing their stake, discouraging dishonest behavior.
Examples: Ethereum (post-merge), Cardano, Solana.
Delegated Proof of Stake (DPoS)
Mechanism: Token holders vote to elect a small number of delegates to validate transactions and add blocks.
Speed: Faster than PoW and PoS due to fewer participants in block validation.
Examples: EOS, TRON.
Practical Byzantine Fault Tolerance (PBFT)
Mechanism: Nodes exchange messages to reach a consensus, tolerating malicious nodes as long as they are fewer than one-third of the total.
Use Case: Ideal for private or permissioned blockchains.
Examples: Hyperledger Fabric, Ripple.
Proof of Authority (PoA)
Mechanism: Validation is performed by a pre-approved group of trusted nodes.
Use Case: Common in private and consortium blockchains.
Examples: VeChain, Binance Smart Chain.
Proof of Burn (PoB)
Mechanism: Validators "burn" (permanently destroy) cryptocurrency to demonstrate commitment to the network.
Use Case: Alternative to PoW that avoids high energy consumption.
Importance of Consensus Algorithms
Security: Ensures the integrity of transactions and blocks.
Decentralization: Prevents a single entity from controlling the blockchain.
Scalability: Determines the speed and efficiency of block validation.
Energy Usage: Varies significantly between algorithms, impacting sustainability.
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