What is a consensus algorithm?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A consensus algorithm is the rule by which a network without an administrator agrees on which record is authoritative. Proof of Work and Proof of Stake are the best-known examples, and the choice shapes fees, finality speed and the security assumptions involved.
Key points
- The rule that decides whose record counts
- Designed to keep working when some participants misbehave
- Speed, cost and assumptions differ by design
- It also determines how long finality takes
Definition
The procedure by which participants in a decentralised network converge on the same view of the ledger without a central authority.
Any distributed network has latency and some dishonest participants. A consensus algorithm is the rule that gets everyone to the same ledger anyway, designed to reach the correct conclusion as long as misbehaving participants stay below a threshold.
Proof of Work grounds legitimacy in computation and Proof of Stake in locked capital. Others elect delegates to vote, or reach agreement among a small set of known participants. Prioritising speed usually means narrowing who can participate — openness and throughput tend to trade off.
What users feel is when a transaction can be considered settled. Bitcoin finalises probabilistically, so the convention is to wait for several blocks. Chains with explicit finality guarantee that, once a condition is met, the block will not be reverted. That difference is why exchanges specify a confirmation count before crediting a deposit.
Watch out for
- · With few confirmations, a transaction can still be reorganised away
- · Chains with few participants are correspondingly easier to overpower