What Is Consensus Algorithm?
Also known as: Consensus Mechanism, Consensus Protocol, Agreement Algorithm
In short
A consensus algorithm is the set of rules that allows mutually distrusting nodes, without a central authority, to agree on which transactions are valid and in what order they are added to the blockchain.
In a distributed network, nodes are in different locations, messages can be delayed and some participants may be malicious. A consensus algorithm ensures that, even under these conditions, a single shared ledger is agreed upon and the same coin cannot be spent twice (double spending). In computer science, this problem is known as the Byzantine Generals Problem.
The best-known methods are Proof of Work and Proof of Stake. In Proof of Work, miners earn the right to produce blocks by expending computing power; Bitcoin uses this method. In Proof of Stake, validators lock up their coins as collateral and may lose part of it if they break the rules; Ethereum switched to this method in 2022. Delegated Proof of Stake (DPoS), Proof of Authority (PoA) and Byzantine fault tolerant (BFT) algorithms are also common.
Each algorithm strikes a different balance between security, decentralization and scalability. BFT-based systems can finalize transactions quickly but are better suited to operating with a limited number of validators; Proof of Work offers a strong security model but is criticized for its energy consumption. This trade-off is discussed under the concept of the scalability trilemma.
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