What is a Consensus?
In the world of cryptocurrency, consensus refers to the process by which all participants in a network agree on the current state of the system. This includes things like the balance of every account, the history of all transactions, and any other relevant information.
One of the most common forms of consensus used in cryptocurrency is called "proof of work." In a proof of work system, users, also known as "miners," compete to solve a difficult computational puzzle. The first miner to solve the puzzle gets to add the next block of transactions to the blockchain, and in return, they receive a reward in the form of a certain number of cryptocurrency tokens.
Another form of consensus is called "proof of stake," which is where users "stake" or lock up a certain amount of their own cryptocurrency as collateral. They are then chosen to add the next block to the blockchain based on the amount they have staked. This method is less energy-intensive compared to proof of work.
Both proof of work and proof of stake are used to ensure that the blockchain is secure and that no single user can take control of the network. By requiring multiple users to work together to add new blocks and validate transactions, consensus helps to keep the cryptocurrency system running smoothly and prevent fraud or hacking.
Consensus in cryptocurrency is best explained as a voting system. Let's use a basketball game as an example. Before the game starts, everyone in the stadium votes for the team that they think is going to win. Whichever team receives the most votes is the winner.
In the same way, cryptocurrency works on consensus. The cryptocurrency network consists of a set of nodes (computers). The nodes each “vote” on the transactions that are included in the network. Whichever transaction receives the most votes is the one that is accepted. This makes the system more secure and reliable than trusting a single source.
Proof of Work (PoW): PoW is a consensus mechanism used by Bitcoin and many other cryptocurrencies. In PoW, nodes compete to solve complex mathematical problems to validate transactions and add new blocks to the blockchain. The first node to solve the problem and add a block is rewarded with newly minted cryptocurrency.
Proof of Stake (PoS): PoS is a consensus mechanism used by several cryptocurrencies, including Ethereum. In PoS, nodes are chosen to validate transactions and add new blocks to the blockchain based on the amount of cryptocurrency they hold and are willing to "stake" as collateral. Nodes are rewarded with transaction fees for adding blocks to the blockchain.
Delegated Proof of Stake (DPoS): DPoS is a consensus mechanism used by several cryptocurrencies, including EOS. In DPoS, token holders vote to elect a smaller group of nodes, called "witnesses" or "delegates," who are responsible for validating transactions and adding new blocks to the blockchain. Witnesses are rewarded with transaction fees for their work.