What Is A Consensus In Crypto?

Are you wondering how cryptocurrencies like Bitcoin and Ethereum keep track of the transactions and mitigate fraud without a central authority? Well, the idea of consensus, that is.

Consensus is a protocol that enables all nodes in a distributed blockchain network to arrive at the same single data group. They become the approval criteria that cause every blockchain transaction to be verified.

Think of it like this: you play a game with your friends. To make it fair, you must agree on each move’s rules and the result. This is the foundation of the game’s consensus. Likewise, in the crypto world, this consensus is how everyone agrees on the state of the blockchain, which is a digital ledger of all transactions.

How Does Consensus Work?

Consensus mechanisms are of different types, each with its positives and negatives. Among the most widespread are Proof of Work, Proof of Stake, and the Ripple Protocol Consensus Algorithm. Let’s see how they function.

Proof of Work

Proof of Work (PoW) is a consensus mechanism used in Bitcoin. Imagine a scenario where you and you and a group of people are unraveling a complicated puzzle. Whoever solves it first gets to check a block of transactions and add it to the blockchain. This process uses a lot of energy but is very secure because you would need a lot of computing power to tamper with the blockchain. That’s how PoW works.

Proof of Stake

Unlike Bitcoin’s PoW, Ethereum has the PoS, or Proof of Stake, as a consensus mechanism. Instead of solving puzzles, people who want to validate blocks on the Ethereum network have to put up some of their cryptocurrency as a stake, saving electricity and forcing validators to act honestly to avoid losing their stake.

Ripple Protocol Consensus Algorithm

Among other crypto projects, some employ more complex protocols, such as Ripple, which requires the Ripple Protocol Consensus Algorithm (RPCA). Under this arrangement, a panel of reliable referees devises the principles and procedures of the game that determine which transactions are proper and valid for enrolling in the ledger.

Role of Consensus 

Consensus plays a crucial role in protecting against fraud. For example, in a card game, other individuals will notice and expose the cheater if someone tries to cheat in the transaction network. The same principle applies to the blockchain network. All fake changes to the transaction history are collectively rejected when they do not align with the consensus rules and the agreement of all participants.

Consensus not only guarantees the security of the ledger and its reliability but allows users to send cryptocurrencies to anyone without relying on a third-party trust if over 50% of miners are in agreement. With this, there is no need for a single party to validate and verify transactions. Alternatively, the community of users does this collectively, making it open and hard to censor.

Now, on the role of consensus in decentralization, Think about sitting with your group while you plan your group project. Decision-taking is not the sole property of one individual, but everyone has an equal share in making decisions. 

This approach involving plenty of confederates eliminates the possibility that, for example, a particular associate or group of individuals can determine the project’s outcome. For instance, the decentralized blockchain network diffuses power to involve participants in that way of consensus and thus is becoming more tolerant and rigid to censorship and manipulation.

But consensus isn’t always easy to achieve. Sometimes, conflicts arise among participants, leading to “forks” in the blockchain. A fork occurs when the community defects and goes on with the digital currency without integrating the new blockchain version. As an illustration, Bitcoin encountered a challenging phase that required Bitcoin to fork in 2017, leading to the development of Bitcoin Cash.

What are the Pros and Cons of Different Consensus Mechanisms?

On the contrary, each of the consensus mechanisms is shown to have both pros and cons. Here are some of them:

 

• Proof of Work: The merits of this system’s Proof of Work policy are that it is very secure and resistant to interference because of large investments of time, effort, and hardware. The main con of Proof of Work is that it is relatively energy-intensive and meaningless, consuming a lot of electricity and it generates a lot of heat and noise. 

However, a problem with proof of work is the possibility of the appearance of centralization due to insignificant mining pools in comparison with large-scale miners. It can give the latter the power to influence the network and the protocol.

• Proof of Stake: An essential benefit of PoS is that it is an energy-saving and less eco-toxic process since it does not depend on significant hardware power and electricity as PoW did. This can be labeled as the drawback of the Proof of Stake system. 

It is inefficient and provides opportunities for attackers who can quickly put a finger on the validators that may not be straightforward in their approach. A disadvantage of Proof of Stake is that it can lead to inequality: the rich will be even richer if they pledge more and get higher rewards than the others.

• Ripple Protocol Consensus Algorithm: The Ripple Protocol Consensus algorithm’s strength lies in its fast scalability capability; it can process thousands of transactions in a second and handle many users simultaneously, making it user-friendly. 

One of the drawbacks of the Ripple Protocol Consensus Algorithm is that it is centralized and depends on trust since it relies on a network of validators with different levels of independence and diversity. 

Another criticism of the Ripple Protocol Consensus Algorithm is that it is less transparent and more controlled since it is set by a private company, which can use its power to impact the protocol or the whole network.

How to Choose the Best Consensus Mechanism for Your Crypto Project?

It is impossible to find a solitary algorithm that will be used in all the projects of the crypto era. The best mechanism ultimately depends on your defining features, things you believe in, and prioritization criteria. Everything, starting from process security until implementation speed to scalability, cost, fairness, and innovation, has to be weighed up.

If you wish to put more emphasis on steadiness and reliability at the expense of speed, Proof Of Work might be better. However, if you are looking for a network that prioritizes efficiency and sustainability over all else, then Proof of Stake might be a better network for you. And if you want to prioritize speed and scalability over everything else, the XRP protocol might suit you. Of course, these are just some prospects since there exists plenty of other consensus mechanisms you can try and check out.

The bottom line is that consensus is a complex and evolving concept that is essential for the functioning and success of cryptocurrencies