Why Is It Important To Have A Cryptocurrency Consensus Mechanism?

One of the greatest innovations about Bitcoin was the process with which it solved the cryptocurrency consensus issues. The Byzantine Generals Problem was solved successfully by Satoshi Nakamoto who eventually formulated the Bitcoin blockchain that prevails now. 

Now you may wonder what this means? What is a blockchain consensus? Today we will discuss everything that we need to know about the cryptocurrency consensus algorithm and how the consensus mechanism used in Bitcoin is working.

What Is Cryptocurrency Consensus?

Generally, a Consensus is an agreement among various parties. In the case of digital currencies like Bitcoin, consensus refers to an agreement revolving around the present status of that crypto’s network. For example, Bitcoin nodes receive consensus after the verification of Proof of Work. When consensus is achieved by the Bitcoin nodes it enables the entire blockchain of Bitcoin to move forward. After a consensus is achieved by the nodes a block can be added to the blockchain of the Bitcoin and a new block or transaction can proceed. 

Without the consensus, it is difficult for the cryptocurrency network to agree on anything. It is impossible for Bitcoin to process any transaction. Digital currency networks will not be able to agree on a plain set of rules. Stability to the crypto network is provided by the consensus. 

Why Is It Difficult To Create Cryptocurrency Consensus?

The issue of various systems of consensus relates to the decentralized network in the crypto industry. In the traditional financial system, there was no need for creating consensus across a network of various people. Instead, people relied on the traditional banks to provide them with consensus protocol. 

But in the case of cryptocurrencies, there is no centralized body to control the whole procedure. So the crypto network has to create its own consensus through a network of different individuals. This decentralized network powers Bitcoin. 

Before Bitcoin, nobody was able to securely formulate consensus through a group of trustless, decentralized nodes. Bitcoin initiated this consensus. Now let us know what are the types of consensus mechanisms in blockchain. So here is a list of 8 cryptocurrency consensus algorithms. 

  1. Proof of Work (PoW)
  2. Proof of Stake (PoS) 
  3. Delayed Proof-of-Work. 
  4. Delegated Proof-of-Stake. 
  5. Proof-of-Authority. 
  6. Proof-of-Weight. 
  7. Proof of Reputation.
  8. Proof of Elapsed Time.

What Is The Byzantine Generals Problem?

The Byzantine Generals Problem is a logical problem that was first introduced in a 1982 paper “The Byzantine Generals’ Problem.” In this paper, Leslie Lamport who is the author, and also Marshall Pease and Robert Shostak, discussed the issue of formulating consensus within an electronic and distributed system. To explain the issue, the authors were dependent on a medieval metaphor.

The basic idea of Byzantine Generals Problem:

A team of generals from the Byzantine Empire is surrounding a city. Each general orders a division of the Byzantine army. Each general is surrounding the city from varied sides. The generals can talk with one another exclusively by messenger.

No general can capture and attack the city on his own. Instead, the generals need to attack together in order to take the city. When one general decides to attack, it’s important that all other generals attack at the same time.

Taking the issue further is that the enemy city has sent spies among the surrounding camp. These spies give false messages to the generals. There are also generals who are traitors within the Byzantine army that wish to stop the loyal generals from reaching a decision.

To solve the Byzantine Generals Problem, a solutions need to be created where:

  • All loyal generals settle for the same plan of action and attack simultaneously.
  • A small number of traitors (including spies and disloyal generals) are stopped from affecting the loyal generals to adopt a sudden plan of action. 

The best way to solve the Byzantine Generals Problem is by availing a consensus algorithm. Different cryptocurrencies use different types of consensus algorithms to resolve this issue.

Proof of Work (PoW)

Bitcoin uses a proof of work consensus mechanism. This was the main consensus algorithm that had solved the Byzantine Generals Problem. Presently, the most widely-used consensus mechanism is PoW. It’s the consensus algorithm used by big cryptocurrencies. Among them, Ethereum consensus algorithms,  Bitcoin, Monero, Litecoin, ZCash, are some important one. 

Initially, the Proof of work systems was used as a security measure. Networks could use PoW to determine denial of spam and service attacks. PoW needs to obtain a “proof” of “work” before interacting with the service. This “proof” portrayed that your device did “work” prior to getting engaged with the service. Typically, this work required doing a complex calculation in mathematics.

How To Validate Blocks Using Proof of Work?

Till now, we have discussed how miners “prove” their “work” in a PoW (proof of work) consensus algorithm. They apply brute force to attempt quadrillions and quadrillions of hashes until they attain the correct hash.

Once a right hash has been created by a miner, that miner has proof they did the task. They’ve assembled all current transactions on the network, availed those transactions to formulate the block header, and went through all the work to find the “Nonce” prior to producing the hash (the string of characters above). This is the point where the block requires to be validated. 

One of the most crucial things looked after by other blocks on the consensus network is the payment rules within the block known as the block reward. The miner who submits the block can only pay itself a reward that is based on the present block number. If the other miners, during the process of validation, notice an attempt to hamper the rules of the network, then they will not accept that block.

So finally, this takes the miner to a system where they are incentivized to propose valid blocks and contribute to the reliability of the network. Miners that attempt to hamper the network will not be accepted by other miners. Unaccepted blocks will have formulated their “proof of work” for nothing: they will ultimately waste electricity and resources having no chance to receive a block reward. There’s no incentive for a block to act like this.

Knowing Proof of Stake 

Proof of work has been formulated since the 1990s. It’s the consensus algorithm that is used by bitcoin and many other important blockchains and digital currencies. So the second most common consensus algorithm after Proof of Work is Proof of stake. Proof of stake (PoS), was formulated in 2012 by Sunny King and Scott Nadal, although the theories related to PoS date back to the early days of Bitcoin.

The consensus algorithms of PoS were created to solve an important issue in the bitcoin network that is electricity consumption. Even in the early days, users identified that the electricity consumption of the bitcoin network could become a big issue in the future. Providing the “proofs” of work for the PoW consensus algorithm needed huge amounts of processing power, and that power was boosted by electricity.

Keeping that in mind, developers decided to formulate a consensus algorithm that did not need proof of work or the processing power of a computer. Soon, Sunny King and Scott Nadal published their “proof of stake” idea in August 2012 when they launched their whitepaper for PPCoin or PeerCoin.


Currently, the market is on the verge of deciding on which cryptocurrency consensus algorithm is the best. So consensus algorithm can be measured based on: 

  • Efficiency and electricity consumption
  • Risk of centralization
  • Stability
  • Speed
  • Byzantine Generals Problem solving capability. 

A goal of any digital currency consensus is to create a consensus across a network of decentralized platforms. The consensus conference 2021 was held between 24 to 27 May 2021. The consensus crypto conference 2021 brought together entrepreneurs, developers, traders, students, academics, and the curious individuals to explore development in crypto and blockchain. The consensus 2021 was a big success. 

Frequently Asked Questions On Cryptocurrency Consensus

1. What is consensus in Cryptocurrency?

A cryptocurrency consensus mechanism is a fault-tolerant mechanism that is used in blockchain and computer systems to get the agreement that is necessary on a single data value or a single strand of the network among allocated processes or multi-agent systems, such as with digital currencies.

2. What is a consensus in Blockchain?

The consensus protocol ensures that every new block that is added to the Blockchain is the sole version of the truth that is accepted upon by all the nodes in the Blockchain. Thus, a consensus algorithm wishes to find a common agreement that is a success for the entire network.

3. How does Bitcoin achieve consensus?

To reach a consensus, Bitcoin uses a process that is known as mining. This process involves forming a block that contains a series of transaction records and then finds a valid proof of work for that block that agrees to certain rules.

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