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What Is a Blockchain Consensus Algorithm? | by CointradeIndia | Dec, 2022

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  • December 14, 2022

Blockchain Consensus Algorithm

The consensus algorithm is a mechanism for coordinating users or machines in a distributed environment. All agents in the system must agree on a single source of truth, even if some fail. Fault tolerance refers to a system’s ability to handle failures.

The system is controlled by only a single entity in a centralized system. A majority of the time, they are free to make changes as they please — there is no complex governance system to reach a consensus amongst many administrators. A decentralized setup, on the other hand, is a whole different ballgame. Let’s say we’re working with a distributed database — how do we decide what entries to add? The most crucial development that paved the way for blockchains was overcoming this challenge in an environment where strangers don’t trust each other. To understand how cryptos and distributed ledgers work, let’s examine consensus algorithms.

Bitcoin and other cryptos have a blockchain database that records user balances. Keeping an identical copy of the database is essential for everyone (or, more accurately, for every node). A crypto network would quickly become a mess of conflicting information, undermining its whole purpose. It is impossible for users to spend each other’s coins thanks to public-key cryptography. To determine whether funds have been spent, network participants still need a single source of truth.

Bitcoin’s creator, Satoshi Nakamoto, proposed a Proof of Work system for coordinating participants. Our next step will be to determine some of the common traits among the many consensus algorithms on the market today. To begin with, we require that users who want to add blocks (we’ll call them validators) provide a stake. A stake is a value that a validator must provide to discourage them from acting dishonestly. In the event that they cheat, they will lose their stake. This can involve the use of computing power, crypto, or even reputation.

What would be the point of putting their own resources at risk? Moreover, there’s a reward for your efforts. A protocol’s native crypto is usually comprised of fees paid by other users, freshly-generated crypto units, or both. There is no need for transparency at this point. In order to detect cheating, we need the ability to detect it. To produce blocks, they should be expensive, but to validate them, they should be cheap. The purpose of this is to ensure that regular users are keeping a check on validators.

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