#cryptocurrency #blockchain

What is Consensus Mechanism in Blockchain and Cryptocurrency?

The Consensus Mechanism is a system used by the cryptocurrencies such as Bitcoin and Ethereum to validate transactions’ authenticity and maintain the security of the underlying Blockchain.

Cryptocurrencies and Blockchains benefit from this mechanism because they replace slower human verifiers and their auditing process. For example, the Bitcoin Blockchain works on a proof-of-work pow mechanism, which requires a lot of computational power to solve the encrypted puzzle called a hash.

The verification takes much less time than the process of solving hash, called mining. In addition, it takes less time than a human verification process.

Key Takeaways:

  • A consensus mechanism is a consensus algorithm or a protocol that allows cryptocurrencies to work. They are the state of the agreement that determines the validity of transactions and governance of Blockchain.
  • In Blockchain and cryptocurrencies, Proof of work and Proof of stake are the most prominent consensus mechanisms.
  • The Consensus Mechanism enables security and trusts in the Blockchain network.

How does the Consensus Mechanism work?

Every crypto Blockchain operates with the use of a consensus mechanism. This system is mainly followed for the legitimacy of the transactions. It ensures that all the transactions are recorded on the Blockchain, and all the copies are valid.

The computers that validate the transactions are called miners, and the miners compete with others to get a significant advantage in mining. In the Proof of work mechanism, the miner has to compete with each other to validate the block of transactions.

It ensures that all miners agree to the next block of transactions and distributes all the information in a new block to all other miners. People are allowed to download the Blockchain on their devices as nodes. Now, let us know about some different types of Consensus Blockchains.

History of Consensus Mechanism

The concept of consensus has existed for centuries in various forms, such as in democratic decision-making processes. However, in the context of distributed computing, the consensus became a critical component for maintaining the integrity and reliability of networked systems.

The earliest consensus mechanism used in distributed systems was Byzantine Fault Tolerance (BFT). BFT was introduced in the Byzantine Generals Problem, a theoretical computer science problem in which a group of generals must agree on a coordinated strategy, despite some of them being potentially traitorous.

It ensures that nodes in a distributed system agree on a shared state even when faulty or malicious nodes are present. BFT is still used in some blockchain networks, such as Hyperledger Fabric.

Overall, the history of consensus mechanisms has evolved as new challenges and opportunities have emerged in distributed computing. Today, many different consensus mechanisms are used in various blockchain networks, each with its strengths and weaknesses.

Types of Consensus Mechanisms 

Today, Proof of work is powering the largest technology, Bitcoins. It is the only way to run a crypto network. Different consensus mechanisms are used today; let us know about them.

  • Proof-of-work

In the Proof of work mechanism, the miners compete against each other to validate transactions and earn a reward. It requires high energy, but at the same time, it builds a high level of trust. 

  • Proof of Stake

Proof of Stake is a consensus mechanism in which the largest holding of cryptocurrencies has the authority to validate new blocks. It also enables quick and low-cost transactions where the biggest stake will be rewarded for continued participation. 

  • Proof of Authority

Proof of Authority is a different form, mainly used by a private organization that uses blocks to create vetted resources with special permission to validate blocks. But, again, the assurance is based on regulation and authority rather than public consensus. 

  • Proof of Capacity

Proof of Capacity is highly reliable on a computer’s available hard drive storage for decentralized block verification and generation. 

  • Proof of Activity

Proof of Activity is the mix-up of Proof of stake and Proof of work mechanisms in which the miner aims to get the best out of both systems. 

  • Proof of Burn

With Proof of work, the miner drives the consensus by burning the coins. It is a significant process of finishing or deleting the coins from circulation. However, it also validates new transactions by preventing inflation.

If you invest in cryptocurrencies, you should know about the type of consensus mechanism and how it works.

Pros and Cons of Consensus Mechanisms

Below, we have given some of the pros and cons of the Consensus Mechanism.


  • It forms an agreement foundational to the crypto market and enables trust in a Blockchain.
  • Cryptocurrencies and distributed applications are highly relied on consensus mechanisms to enhance security.
  • Anyone can participate in the consensus mechanism and take benefits out of it.


  • As in other countries, Proof of work is extensive and requires a lot of energy.
  • There are always chances of some attack, mainly known as a 51% attack.

Bottom Line

Today, Consensus Mechanisms are becoming essential to distributed ledgers and blockchains because the world is becoming digital. You should know that the ownership of physical assets is being tokenized on digital ledgers; people who don’t have access to financial services will get access through Blockchains.

If you have an interest in running or mining your node, then it is necessary to understand the concept of the consensus mechanism the Blockchain is operating. As it will help in determining the investment, you need to make it to start mining.


Q. Which Consensus Mechanism is best?

Ans. The best consensus mechanism is something that fits your needs. For example, Proof of work remains best for Bitcoin, while Ethereum adopts Proof of Stake. Some other mechanisms are best for enterprises and organizations.

Q. What is an example of a Consensus Mechanism?

Ans. Proof of Stake is one of the best examples of a Consensus Mechanism.

Q. What are the types of Consensus mechanisms?

Ans. Several Mechanisms are there, but only a few are implemented. Some of the main consensus mechanisms are Proof of stake, Proof of authority, Proof of capacity, and delegated Proof of stake.