Cointelegraph is following the event of a wholly new blockchain from inception to mainnet and past by means of its sequence, Contained in the Blockchain Developer’s Thoughts. In earlier components, Andrew Levine of Koinos Group mentioned some of the challenges the group has confronted since figuring out the important thing points they intend to unravel and outlined three of the “crises” which are holding again blockchain adoption: upgradeability, scalability, and governance. This sequence is concentrated on the consensus algorithm: half one is about proof-of-work, half two is about proof-of-stake and half three is about proof-of-burn. 

On this article, I need to leverage my distinctive perspective to assist the reader acquire a deeper understanding of a preferred idea in blockchain expertise, but in addition one that’s woefully misunderstood: the consensus algorithm.


With a purpose to acquire a deep understanding of this element of a blockchain, one of many issues I all the time love to do in these articles is begun by taking a step again and searching on the huge image as a result of the consensus algorithm is only one small a part of a a lot bigger system.

Blockchains are a recreation wherein gamers compete to validate transactions by grouping them into blocks that match the blocks of transactions being created by different gamers. Cryptography is used to cover the info that might permit these folks to cheat. A random course of is used to distribute digital tokens to individuals who play by the foundations and produce blocks that match the blocks submitted by different folks. These blocks are then chained collectively to create a verifiable report of all of the transactions that have been ever carried out on the community.

When folks produce new blocks with completely different transactions in them, we name this a “fork” as a result of the chain is now forking off into two completely different instructions. That is the precise reverse of what we need to occur. The entire worth of a blockchain stems from the truth that everybody agrees — has come to a consensus — on what transactions occurred when. Consensus algorithms are subsequently supposed to resolve forks.

Satoshi’s actual innovation

On the finish of the day, what ensures that everybody updates their database to match each other boils all the way down to how they’re punished when they don’t. The protocols include guidelines for the right ordering of transactions, but when there is no such thing as a repercussion for violating these guidelines, they are going to be ineffective. The actual innovation that Satoshi Nakamoto delivered within the Bitcoin (BTC) white paper was his elegant use of financial incentives.

Satoshi Nakamoto didn’t invent the thought of the “digital coin.” He created a chic system for combining cryptography with economics to leverage digital cash, now known as cryptocurrencies, to make use of incentives to unravel issues that algorithms alone can not remedy. His design pressured folks to sacrifice cash with a purpose to mine blocks of transactions. Individuals must sacrifice this cash time and again and over by taking part in by the system’s guidelines and making an attempt to prepare transactions into blocks that might be accepted by everybody else within the community. In the event that they did this lengthy sufficient, they might obtain a reward within the forex of the platform.

After all, there’s no method for the blockchain to know that cash was spent within the type of USD, yen, or euro, which is why he used a proxy within the type of meaningless work. He made the mining of blocks unnecessarily laborious in order that anybody who efficiently mined a block essentially will need to have spent cash on {hardware} and the power to run that {hardware}. So each block efficiently mined is backed by cash that had been sacrificed not simply on the {hardware}, however on the power required to run that {hardware} and produce that block. Each time there are forks, proof-of-work (PoW) consensus algorithms are an automatic system whereby the fork backed by probably the most work is the “proper” fork.

Associated: Proof-of-stake vs. proof-of-work: Differences explained

Because of this everybody who continues producing blocks on that fork will proceed to earn rewards and that everybody who continues producing blocks on the opposite fork won’t earn rewards. Since these folks have already spent their cash to amass {hardware} and run it to provide blocks, the punishment is simple as a result of they’ve already been punished monetarily. They spent their cash so in the event that they need to proceed producing blocks on the incorrect chain, that’s advantageous. They received’t earn any rewards they usually received’t make their a reimbursement. They may have sacrificed that cash for nothing. Their blocks received’t get accepted by the community and they received’t earn any tokens.

This proof-of-work system ensures that the one method somebody who doesn’t need to play by the foundations, a malicious actor, is to amass and run extra {hardware} than everybody else mixed, reminiscent of by mounting a 51% assault.

That is the class behind proof-of-work. The system can not work with out sacrificing ever-increasing quantities of capital. Satoshi mixed cryptography and economics to create a ledger of transactions that’s so reliable, it’s trustless.

There are, nonetheless, completely different consensus algorithms that function in barely alternative ways. Essentially the most well-known of which is proof-of-stake (PoS), which I’ll be discussing within the subsequent article on this sequence. After that, I’ll be discussing the algorithm we’ll be utilizing in Koinos which is a first-of-its-kind in a basic function blockchain.

The views, ideas and opinions expressed listed below are the writer’s alone and don’t essentially mirror or symbolize the views and opinions of Cointelegraph.

Andrew Levine is the CEO of Koinos Group, the place he and the previous growth group behind the Steem blockchain construct blockchain-based options that empower folks to take possession and management over their digital selves. Their foundational product is Koinos, a high-performance blockchain constructed on a wholly new framework architected to present builders the options they want with a purpose to ship the consumer experiences essential to unfold blockchain adoption to the lots.