The protocol that determines how crypto transactions are added to a decentralized blockchain network that has no central authority. At the very heart of public (permissionless) blockchain operations, the consensus protocol determines which node is the valid author of the latest block of transactions. Also called a "consensus method" and "consensus engine," it ensures that at least 50% of the active nodes in the network "plus 1 more" agree (commonly cited as 51%). See blockchain
Consensus Is Necessary and Complicated
For example, in the proof-of-work (PoW) method used in Bitcoin and Ethereum 1.0, several miners may solve the mathematical puzzle at the same time, but only one can be the winner. There has to be agreement by a majority of nodes, and that is the purpose of the consensus mechanism. See 51% consensus
Writing program logic that deals with one input is relatively simple, but creating well-designed consensus logic that arbitrates between multiple inputs requires an enormous amount of experience or a lot of genius.
The two primary consensus methods for public blockchains are proof-of-work (PoW) and proof-of-stake (PoS). Proof-of-work consumes enormous amounts of electricity solving a mathematical puzzle, whereas proof-of-stake relies on how much crypto the miner owns (has at stake).
Public vs. Private Blockchains
The consensus protocol in public blockchains has to be much more robust than in private blockchains. In a public blockchain, anyone can participate, and the consensus mechanism has to be secure enough to prevent an erroneous transaction, malicious miner or external hacker from abusing the system.
In contrast, private blockchains require permission to participate, and a vetting process allowing participants to come on board is already in place to some degree. The consensus mechanism can be more streamlined and less complicated, thus improving the speed of transaction execution. See proof-of-work algorithm
, proof-of-stake algorithm
A Summary of Consensus Methods
Following is a summary of popular consensus algorithms. There are many more, and while some fade away, new methods are coming online routinely.
Proof-of-Work and Proof-of-Stake
These two are the primary methods. Bitcoin and Ethereum use proof-of-work, although Ethereum is changing to proof-of-stake (see proof-of-work algorithm
and Ethereum 2.0
Proof-of-Authority and Proof-of-Burn
Proof-of-authority relies on reputation, while proof-of-burn is based on how much crypto is destroyed. See proof-of-authority algorithm
and proof-of-burn algorithm
Proof-of-Capacity and Proof-of-Contribution
Proof-of-capacity is based on cryptographic solutions, whereas proof-of-contribution is based on confidence levels. See proof-of-capacity algorithm
and proof-of-contribution algorithm
Proof-of-History and Proof-of-Importance
Proof-of-history is a time stamp method, while proof-of-importance is based on activity. See proof-of-history algorithm
and proof-of-importance algorithm
Proof-of-Storage and Proof-of-Assignment
For decentralized storage networks, proof-of-storage is based on replication and storage. Sensors and other IoT devices can be used to mine crypto using proof-of-assignment. See proof-of-storage algorithm
and proof-of-assignment algorithm