Consensus Algorithms
A consensus algorithm is a process that allows participants on a Blockchain network to reach an agreement on any transaction. It ensures that all, or at least a majority of, participants on the network agree on the validity of a transaction and the state of the data. In a Blockchain network, all participants must maintain an identical copy of the data, and for that, they also need to mutually and jointly validate transactions and approve their inclusion in the chain.
The three most common consensus algorithms are Proof of Work (PoW), Proof of Authority (PoA), and Proof of Stake (PoS).
- Proof of Work (PoW):
When a transaction is initiated by any participant, a minimum number of participants must mine the transaction (find a solution for the puzzle in the current block) to validate and approve its inclusion on the Blockchain. PoW consensus requires a very high amount of computational power from all participants.
- Proof of Authority (PoA):
When the network is set up, some or all of the participants are given the authority to validate a transaction and approve its inclusion on the Blockchain. Generally, at least 51% of the total number of participants are required to approve a transaction, but eventually, that could be taken up to 100%, where all must approve. PoA is computational far less intensive and therefore well suited for private networks having minimum known and trusted participants.
- Proof of State (PoS)
In this participants having a higher stake in the network (for example, more cryptocurrency) get a chance to be the approvers. However, this mechanism is slightly skewed towards those having more wealth (in the context of cryptocurrency networks). If only the participants with more wealth can approve, and the approval process rewards them with more wealth, the other participants will not get a chance to catch up.