A consensus mechanism is the essential algorithm that enables a decentralized system to reach global agreement on a new network update. Without it, a cryptocurrency’s blockchain wouldn’t be able to keep transactions synchronized in real-time. As more and more companies adopt distributed ledger technologies (DLT), it’s vital for them to understand what a consensus mechanism does and how different types of consensus mechanisms function differently.
Essentially, consensus mechanisms are systems designed to encourage validators in a blockchain to follow the rules through coercion and/or incentivization. This is accomplished by introducing rewards to those who behave properly and penalizing those who don’t. For example, when crypto miners or other validators successfully verify transactions, they receive newly generated tokens as a reward. This enticement is what keeps them from engaging in bad behavior and ensures the security of the crypto network.
This process also helps to solve the double-spending problem that exists in some decentralized networks. For instance, if crypto user Anthony wants to spend his coins with Bethany, the transaction would be recorded in two separate blocks on the blockchain. If he wanted to change the records on the blockchain, he would need to gain control of more than half of all nodes in the network to do so. But because consensus mechanisms make it expensive and difficult to propose a block of validated transactions, bad actors are less likely to try to do so.
In addition to solving the double-spending problem, consensus mechanisms also help to prevent 51% attacks on a blockchain network. This is achieved by ensuring that more than 51 percent of all network nodes agree to the current state of the blockchain.
Consensus mechanisms are used by nearly all cryptocurrencies, and some of the most popular include proof-of-work (PoW) and proof-of-stake (PoS). These methods make it very difficult to gain control of more than 51 percent of a network by convincing users to change the blockchain’s state, and they also reduce hacking by ensuring that bad actors can be quickly identified and stopped from attacking the system again in the future.
Besides PoW and PoS, there are a few other notable consensus mechanisms that power the blockchain ecosystem. For example, proof of importance (PoI) is a spinoff of PoS that takes into account other factors than capital requirements when determining the proportional governance capabilities of a node.
There are many other ways to achieve consensus in a decentralized blockchain, but they all share similar core principles. In the future, it’s expected that more and more business leaders will implement these consensus mechanism into their enterprise blockchain platforms. This is an important step as it will enable them to reap the full benefits of the technology while maintaining a secure, reliable, and decentralized environment.
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