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  • 20 May 2024

What is a consensus algorithm and how does it work?

A consensus algorithm in the world of blockchain refers to reaching a unified viewpoint among all participants in the network regarding a specific matter. Consensus algorithms are a set of rules and protocols that make this possible in the decentralized environment of blockchain.

Consider blockchain as a distributed ledger that stores account balances and transaction details. Since this ledger is shared among all nodes (computers) in the network, the accuracy and integrity of the information in it are of critical importance. Consensus algorithms are responsible for ensuring this accuracy and integrity, preventing discrepancies in information, fraud, and data manipulation.

A consensus algorithm must ensure that all users in the network utilize a single source, and if some users leave the network, it does not harm the system as a whole. In other words, the consensus algorithm helps the system to be fault-tolerant. To get more acquainted with the concept of consensus algorithms in blockchain, stay with us as we continue this article.

History and Evolution of Consensus Algorithms

Hashcash and Proof of Work (PoW)

In 1997, Adam Back introduced the Hashcash algorithm as a solution to combat email spam and denial of service (DoS) attacks. The main idea was that the email sender or poster must solve a complex mathematical equation, requiring computational resources. This process is similar to the Proof of Work (PoW) algorithm in blockchain. In 2002, Adam Back formally detailed this concept in a paper titled "Hashcash: A Denial of Service Counter-Measure." The goal of this paper was to show that if individuals spend more time and computational resources solving these equations, they would have less time to send spam.

The Term "Proof of Work"

The term "Proof of Work" was first used in a 1999 paper by Markus Jakobsson and Ari Juels. This paper laid the groundwork for the use of this concept in various fields and paved the way for its broader acceptance.

Satoshi Nakamoto and Bitcoin

In 2008, Satoshi Nakamoto introduced Bitcoin and blockchain to the world, drawing inspiration from the Hashcash algorithm. Nakamoto used the concept of Proof of Work for consensus in the Bitcoin network. This algorithm required miners to compete to solve complex cryptographic problems, with the first miner to solve the problem being allowed to add a new block to the blockchain and receive a reward in the form of Bitcoin.

Byzantine Fault Tolerance (BFT)

Before the emergence of Bitcoin, Byzantine Fault Tolerance (BFT) algorithms and examples like Practical Byzantine Fault Tolerance (PBFT) existed. These algorithms were developed in the 1980s and 1990s to address the issue of consensus in the presence of malicious and faulty nodes. They were primarily used in distributed systems and databases.


Paxos is another older consensus algorithm developed by Leslie Lamport. Introduced in 1990, Paxos is recognized as one of the foundations of consensus algorithms in distributed systems. It is particularly used in banking and commercial systems to ensure data integrity.

The history of consensus algorithms shows that these concepts have been researched and developed over the past decades, with each algorithm contributing to the evolution and stability of distributed systems. The Proof of Work algorithm used in the Bitcoin blockchain is just one result of this research, which, by leveraging previous concepts like Hashcash, has revolutionized the world of cryptocurrencies.

Nature of Consensus Algorithms

The nature of consensus algorithms in blockchain relates to how agreement is reached among network nodes for adding new blocks to the blockchain. These algorithms provide mechanisms through which all nodes can achieve a unified and valid state in the network. In this process, the role of validators (validator nodes) and financial incentives for maintaining the security and integrity of the network is crucial. We will further examine the details of this process below.

Role of Validators and Incentives


Validators are nodes responsible for adding new blocks to the blockchain. They verify new transactions and ensure that these transactions comply with the network's rules. Each validator must add some form of value to the network, which prevents them from cheating and encourages honest participation.


Validators must allocate a specified stake to the network. This stake can include computational power (in PoW), cryptocurrency (in PoS), or even reputation. The stake acts as collateral, deterring the validator from engaging in dishonest activities. If a validator cheats, they lose their stake, which is costly for them.

Incentive Mechanisms and Rewards


The rewards given to validators serve as an incentive for honest participation in the network. These rewards typically come from two main sources:

Transaction Fees: Validators receive the fees that users pay to conduct transactions.

-New Coins: Validators receive a portion of the new coins generated in each block as a reward.

Applications of Consensus Algorithms

Consensus algorithms in blockchain have extensive applications that help the network function correctly and cohesively without the need for a central authority. Below, we examine these applications and their important features in detail:


Transaction Verification

One of the most important functions of consensus algorithms is verifying transactions in the network. Each new transaction must be reviewed and validated by nodes before it can be added to the blockchain. This process includes checking the accuracy of the information, ensuring there is no double-spending, and verifying the sender's account balance. By validating transactions, the consensus algorithm ensures that all transactions are legal and valid.

Selecting Nodes to Represent the Network in the Distributed Ledger

In blockchain systems, not all nodes can directly participate in validating every transaction, especially in large networks with many nodes. The consensus algorithm increases the network's efficiency by selecting valid nodes to represent the network in the transaction recording process and the creation of new blocks. This selection is usually based on criteria such as the amount of stake (in PoS) or computational power (in PoW).


Ensuring Data Consistency in the Network

The consensus algorithm ensures that all nodes in the network have access to the same version of the distributed ledger. This data consistency is achieved through a voting process and the public validation of transactions and blocks. Thus, the blockchain network ensures the accuracy and integrity of the data, preventing interference or inconsistency in the information.


Voting Among Network Members

Each node in the blockchain network has the right to vote and participate in decision-making processes. This voting may be for approving a transaction, creating a new block, or making changes to network protocols. The consensus algorithm ensures that network decisions are made democratically with the participation of all members, requiring a majority of nodes to reach an agreement.

Maintaining Decentralization

One of the main features of blockchain is its decentralization. In centralized systems, a central authority is responsible for managing and validating data. However, in decentralized blockchain systems, data is stored and processed across many nodes. The consensus algorithm helps coordinate these nodes to reach agreements without the need for a central authority.


Fault Tolerance

In a decentralized system, the likelihood of data loss in the event of a node failure is very low because multiple copies of the data are stored across different nodes. The consensus algorithm helps ensure that even in the event of failures, the network continues to function correctly and maintains accurate data.

Security and Fraud Prevention

The consensus algorithm guarantees the security of the network by creating financial incentives and imposing heavy penalties for dishonest behavior. These mechanisms make fraud in the network very costly and unprofitable, while rewarding honest behavior.

Introduction to Types of Consensus Algorithms

Consensus algorithms in blockchain play a crucial role in determining how agreement is reached among all nodes in the network to validate transactions and create new blocks. Below, we introduce the most commonly used blockchain consensus algorithms, their mechanisms, and their advantages and disadvantages.

Proof of Work (PoW)

The Proof of Work algorithm, used in Bitcoin, is the first and most well-known consensus algorithm.


Miners compete to solve complex mathematical problems to add a new block to the chain.

The first miner to solve the problem receives a reward (usually in the form of Bitcoin).

Solving these problems requires high computational power and a significant amount of energy.


High security: The difficulty of solving the problems and the need for high computational power make network attacks very difficult and costly.

Decentralization: Due to the wide distribution of miners, decision-making is done in a decentralized manner.


High energy consumption: One of the biggest criticisms of PoW is its high electricity consumption and negative environmental impact.

Hardware costs: Miners need expensive and powerful equipment, increasing the cost of entering the network.

Proof of Stake (PoS)

The Proof of Stake algorithm was introduced as an alternative to PoW to address some of its problems.


In PoS, nodes (validators) are selected to create new blocks based on the amount of cryptocurrency they hold (their stake).

Instead of competing to solve problems, the network selects validators based on the amount of locked stake.


Lower energy consumption: PoS does not require complex computations and high energy consumption.

Encourages holding: Users with more stake are incentivized to hold their coins, which helps stabilize the price.


Centralization: Those with more stake have a higher chance of creating new blocks, which can lead to power centralization.

Security: Some believe PoS may not be as resistant to certain types of attacks.

Byzantine Fault Tolerance (BFT)

The BFT algorithm is used for permissioned networks.


All nodes work together and coordinate to agree on which block is valid.

A majority consensus among the nodes is required to validate a block.


High efficiency: Due to the lack of complex computations, transactions are validated faster.

Security: The need for majority consensus among nodes provides high fault tolerance.


Scalability limitations: BFT is suitable for small to medium-sized networks, and performance decreases as the number of nodes increases.

Trust requirement: This algorithm is more suitable for networks where all nodes trust each other.

Proof of Authority (PoA)

The PoA algorithm is used for networks with known and trusted nodes.


Only specified and trusted nodes have the right to create new blocks.

The validity of these nodes is verified by a designated organization or group.


High speed: Due to the limited number of trusted nodes, transactions are validated faster.

Lower energy consumption: It does not require high computational power and energy consumption.


Centralization: This algorithm is highly centralized, with all power in the hands of the trusted nodes.

Trust requirement: Trust in the validated nodes is crucial, and if one node becomes corrupt, the entire network can be affected.

There are various consensus algorithms in blockchain, each with its unique advantages and disadvantages. The choice of the appropriate algorithm depends on the network's needs and the intended application. PoW and PoS are used for public networks with a focus on security and decentralization, while BFT and PoA are used for private and permissioned networks with a focus on efficiency and speed. 


Consensus algorithms are vital for the proper and efficient functioning of blockchain networks. These algorithms play a fundamental role in the success and sustainability of blockchains by maintaining decentralization, ensuring data integrity, resisting failures, facilitating democratic decision-making, providing security, preventing fraud, and selecting representative nodes. Without consensus algorithms, blockchain networks cannot operate effectively and securely, nor achieve their goals of decentralization and trustworthiness.


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