Blockchain Consensus Algorithms - what is it?

Today we will talk about blockchain consensus algorithms. To understand the essence of this question, let's go back to the very origins.

Blockchain is a decentralized network in the form of a sequential chain of data blocks. Blocks are written one after another, and it is the ways of writing them that determine certain basic properties of the blockchain. Blockchain decentralization means that there are a number of computers (nodes) independent of each other in the network, which are responsible for writing new blocks to the chain - that is, in fact, they form the blockchain and are responsible for its operability. But for well-coordinated work, it is very important to have uniform rules for validating transactions and writing blocks into the chain for all nodes, otherwise chaos will reign and the system will collapse. These very rules are called the blockchain consensus algorithm.

In other words, the blockchain consensus algorithm is a set of principles and rules by which all nodes (nodes) functioning in the network automatically come to a consensus about its current state. This guarantees the reliability of all data stored in the network, that is, its security. The list of consensus algorithms that already exists today is periodically updated. At the same time, the choice of a specific algorithm depends on the individual goals and objectives of developers when building a blockchain. So why can't we use already created algorithms, why do we need to develop all new versions of them at all? Here we turn to the legendary trilemma of the blockchain - that is, to the desire to simultaneously ensure all three key properties of the blockchain: decentralization, scalability and security. Nevertheless, let's get acquainted with some of the most common algorithms today.

1. Proof-of-Work (PoW or "proof of work") is the most famous and one of the most popular consensus algorithms, which initiated the development of the industry. Forming another block, node (miner) performs a huge amount of mathematical calculations in search of a hash of a cryptographic function, which in turn serves as a proof of the computational work done for the network.

2. Proof-of-Stake (PoS or "proof of ownership") is an honorary silver rating of the popularity of consensus algorithms. There is no mining in PoS - certain “frozen” volumes of cryptocurrencies (steaks) belonging to the corresponding nodes (nodes or validators) act as evidence here. And the more steaks a node has, the higher the probability of confirming the transaction and receiving a reward for it.

3. Delegated Proof-of-Stake (DPoS or "delegated proof of ownership") is a variation of the PoS algorithm described above with an attempt to rid it of the key drawback, which is the risk of centralization. In DPoS, validators get the right to approve transactions as a result of voting for them by coin holders. That is, any network participant with a certain amount of cryptocurrency can either become a validator or lose this status at any time due to the withdrawal of votes in favor of another participant.

So, the consensus algorithms we have considered are only a small part of this constantly evolving industry. But whether this will bring its development of the participants of the crypto market closer to solving the blockchain trilemma, we will see only after a while.

The GRIN4 ecosystem

We have created a bot to make money on crypto exchanges. You set the settings, and he trades 24/7. Manage all assets from one service: with your own hands or with the help of algorithmic trading. Anonymously. Simply. Stress-free.