What is a Consensus Mechanism?

Introduction

In a distributed system, such as a blockchain, not everyone is authorized to make changes at any given time. As a result, every update of a blockchain requires validation by other participants, who collectively maintain the system’s security and integrity. Hence, a blockchain is just a linear sequence of events.

3 Steps of a Consensus Mechanism

While there are different types of consensus mechanisms, all of them share the general notion of utilizing a resource, such as computing power (Proof of Work - PoW) or a token (Proof of Stake - PoS).

In short, they can be broken down into 3 steps.

1. Selecting Someone in Charge

Someone is selected, usually, by chance, that is weighted in relation to the resource they are holding or contributing to the network. This someone decides the order of events/ transactions from their perspective of the system. In Proof of Work (PoW), this selection is made via the usage of computing power. On the other hand, Proof of Stake (PoS) makes this selection with the help of a synthetic token.

Put simply, a group reaches a consensus on the order of events in a decentralized environment with network latencies.

2. Updating the State of the System

Whoever was selected in step 1 is now required to do some work by updating the state of the system. In the case of a blockchain, this involves the creation of a block, that is appended to the blockchain. Every block holds information about transactions that occurred since the last block, including a reference to its preceding block and a timestamp.

In order to legitimize the selected entity of step 1, the block is signed cryptographically and transmitted to the network.

3. Validation by Network

As we know by now, the perk of such a mechanism is that no central figure is capable of making changes without approval by other participants. Thus, this work (block) now has to be validated by the network. In this step, every network participant reviews and audits the validity of the selected entity’s work.

Eventually, the network accepts the work, that is, unless it was deemed malicious or invalid - such as creating Bitcoin out of thin air or double-spending it. In that case, the validation step fails, and suggested changes to be made by the selected entity are not adopted by the system. The process repeats and valid transactions are processed over time while the blockchain is extended.

Conclusion

Technical details are manifold and vary from blockchain to blockchain. Therefore, there are many different implementations for Proof of Work (PoW) and Proof of Stake (PoS), each with its own minor adaptations and differences. In more general terms, however, these three steps can be used to at least grasp a basic understanding of what a consensus mechanism does and how it works.