What is a consensus algorithm?
A consensus algorithm is a mechanism that allows distributed systems like blockchains to reach agreement on shared data without relying on a central authority.
In blockchains like Bitcoin or Ethereum, consensus algorithms enable multiple participants (nodes) to agree on the network’s current state. This agreement is required for validating transactions, adding new blocks, and maintaining a reliable, shared version of data across the network.
Consensus algorithms play a critical role in ensuring network reliability, security, and consistency, allowing all participants to operate from the same "source of truth".
What does a consensus algorithm do?
The purpose of consensus algorithms is to establish a unified version of truth across a network. "Truth" refers to an agreed-upon state, accepted by all participants (nodes). This includes the accurate history of all transactions, balances, and ownership on the network. Achieving "truth" means that all nodes share the same view of the data, so there are no conflicts in ownership or transactions.
In the absence of a central authority, consensus algorithms are the mechanism to ensure all participants follow the same rules, even if some nodes act maliciously. They prevent issues like transaction fraud (creation of false transactions) and forking disputes (conflicting transaction histories). This shared "truth" is essential for maintaining trust, security, and integrity in a decentralized network, allowing participants to operate with confidence that the data they see is correct and accurate.
Components of a blockchain consensus algorithm
A blockchain consensus algorithm consists of two components:
- A Sybil resistance mechanism
- A chain selection rule
Sybil resistance mechanism
A Sybil resistance mechanism is a system designed to prevent Sybil attacks, where a single entity pretends to be multiple users to gain influence over the network. Security and trust are core requirements of decentralized systems like blockchains. Ensuring different nodes genuinely represent distinct participants, rather than being controlled by a single actor, is crucial.
This is achieved by making it costly or difficult to create multiple identities. In Proof of Work (PoW) systems, miners must expend significant computational power, making it prohibitively expensive to control many nodes. In Proof of Stake (PoS) systems, participants must stake a large amount of cryptocurrency, which limits the ability of one entity to dominate the network.
Chain selection rule
The chain selection rule determines which version of the blockchain to recognize as the "true" chain. In a decentralized network, different nodes may propose competing blocks, each containing different transactions, which can lead to competing chains. The chain selection rule enables nodes to reach consensus on which chain to follow, ensuring a unified and consistent record of transactions across the network.
Key concepts in consensus algorithms
Consensus algorithms are built on a few core principles:
- Agreement: All network participants must agree on the validity of data, the legitimacy of transactions, and the contents of new blocks.
- Fault tolerance: Blockchains are prone to failure, both accidental ( network issues) and intentional (attacks). Consensus algorithms are designed to tolerate a certain number of faults, even when a portion of nodes behave maliciously. This resilience allows the network to continue operating reliably under various conditions.
- Decentralization: Consensus algorithms enable nodes to work together, make collective decisions, and operate without a centralized authority to enforce decisions.
Types of consensus algorithms
There are several types of consensus algorithms, each with unique approaches and trade-offs. We’ll highlight three here:
- Proof of Work (PoW) + longest chain rule: The first consensus algorithm, famously implemented in Bitcoin, was created by combining the Sybil resistance mechanism Proof of Work with the longest chain rule, where the longest chain is considered the "real" Bitcoin chain. In PoW, nodes (known as "miners") compete to solve complex mathematical puzzles to validate transactions and create new blocks. The first miner to solve the puzzle adds a new block and earns a reward. PoW is secure and decentralized, but it is also energy-intensive, requiring significant computational power.
- Gasper: Ethereum uses a consensus mechanism called Gasper, which combines Casper FFG (Friendly Finality Gadget) with the GHOST (Greedy Heaviest Observed Subtree) fork-choice rule. A combination specifically designed for Ethereum.
In PoS, validators stake, or lock up, tokens as collateral. Ethereum requires validators to stake a minimum of 32 ETH to qualify. Once qualified, validators are selected randomly to propose new blocks.
If multiple blocks are proposed simultaneously, Gasper uses a fork-choice algorithm that selects the block forming the chain with the greatest "weight." Weight is determined by the accumulated sum of validator votes (confirmations or attestations) in support of a specific block. Each validator casts a vote for the block they believe should become part of the main chain. This voting system helps the network quickly converge on a single chain, reducing the likelihood of forks and ensuring consistency across the blockchain.
- Delegated Proof of Stake (DPoS) + Weighted Longest Chain Rule:
Tron uses Delegated Proof of Stake (DPoS) combined with the Weighted Longest Chain Rule as its consensus algorithm.
The Tron DPoS system addresses Sybil resistance by allowing token holders (TRX) to vote for 27 "Super Representatives" (SRs) they trust to validate transactions. Each token holder's voting power is proportional to the amount of TRX they hold. This delegated voting system is designed to ensure no single entity can gain disproportionate control over the network, promoting decentralization and security.
For chain selection, Tron implements the Weighted Longest Chain Rule, a variation of the traditional Longest Chain Rule. This method incorporates the input and votes of elected SRs to determine the authoritative chain, in addition to chain length. By relying on the consensus of trusted validators, this approach ensures the selection of a single, valid chain.
Benefits and drawbacks of consensus algorithms
Benefits:
- Security: Consensus algorithms help secure blockchain networks by defining the rules all network participants must follow. They make it difficult to alter data or disrupt the network with Sybil resistance mechanisms and distributed validation. Additional features like cryptographic techniques, economic incentives (e.g., staking in PoS), and penalties for malicious behavior further deter attacks and increase security.
- Transparency: Consensus algorithms promote transparency and distribute control across a network of nodes. All transactions and network changes are visible, collectively validated, and recorded on a shared ledger. Since decisions are visible, it’s difficult for any single party to censor or alter information without detection.
Drawbacks:
- Energy consumption: Some consensus mechanisms, when paired with Sybil resistance methods like Proof of Work, require enormous amounts of computational power, which leads to high energy consumption.
- Potential for centralization: Certain mechanisms, such as Proof of Stake, can result in wealthier participants acquiring greater control over the network, which may undermine decentralization.
- Scalability issues: Many consensus algorithms, especially those used in public blockchains, struggle to process high transaction volumes. This can create bottlenecks, particularly as networks grow and demand increases.
