What Is a Consensus Mechanism?

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What Is a Consensus Mechanism?

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The conventional financial system requires trust in institutions for transaction execution and verification.

Blockchains solve the need for trust between participants through built-in rules and consensus mechanisms.

With consensus mechanisms, nodes vote on whether to add a particular block of transactions to the blockchain. It is like a group of friends being split between going out or staying at home and voting to decide collectively.

The process requires the majority or all of the network’s nodes, depending on the blockchain and the adopted mechanism, to be in agreement. All nodes have equal voting rights and have to participate in the process.

Consensus mechanisms are crucial for maintaining the integrity and security of blockchains. They help ensure a single coin can’t be spent twice and prevent breaches, hacker attacks, and unintended protocol alterations.

Proof-of-Work (PoW) and Proof-of-Stake (PoS) are the most common mechanisms. Bitcoin uses PoW, while Ethereum started with PoW but switched to PoS. Other include Proof-of-Authority, Byzantine Fault Tolerance, etc.

The consensus mechanism's rules can be altered through a so-called “hard fork” – a radical change in the blockchain’s protocol. All nodes must switch to the updated version to continue participating in the network.

What do consensus mechanisms help with?

“The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be Bitcoin, probably over ten years, but it could go faster.”

Jack Dorsey

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