How Blockchain Consensus Mechanism Works

Unless you’re living under a pineapple under the sea, you’ve probably heard about Blockchain and cryptocurrencies.

In case you haven’t, Blockchain is a shared and immutable ledger that is known for facilitating the process of recording transactions and assets in a certain business network.

What are those assets?

Well, those assets can be tangible or intangible, which means they can be a house, cars, lands, money, properties, patents, branding and even copyrights.

And with the help of blockchain, you can track anything between a blockchain network, which allows you to have a proper overview on what and where this product came from, it reduces manual labor, and it also reduces fraud or scams as the data between this network is known to be uncompromisable.

The thing is, there’s a lot more to know about Blockchain and how it works.

What Is Blockchain?

A blockchain is a distributed database or a ledger that’s shared in between the nodes of a certain network. As a database itself, this technology stores all the information in a format that we know as digital, which is particularly known in cryptocurrency systems such as Bitcoin, where all transactions are maintained in a secure and decentralized way.

This technology is so safe to use that it is unlikely that someone can hack into the system and make changes into it, which is why it is considered as the future of security amongst so many people.

Some of the places where Blockchain can be used include international payments, capital markets, trade finance, regulatory compliance and auditing, money laundering cases, transactions, insurance and supply chain management.

Why is it so safe?

The thing is, decentralized blockchains are immutable, which means that all the data that is endered is irreversible, making all the data encrypted into the network really safe and hard to alter.

How Does Blockchain Work?

Blockchain is a type of shared database that is different from the typical or old database that we know for storing information.

With this new technology, blockchains use blocks to store data, which are linked together with the help of cryptography. And as new data comes in, it is entered into a fresh block, with all the new data, and once the block is filled with data, they are chai into the block before it, meaning that everything is chained together in a chronological way.

Please do note that different types of information are allowed to be stored on a block in blockchain, however right now, this technology is mostly used as a ledger for transactions because of how secure it is.

Lastly, decentralized blockchains are immutable, meaning that all the data that is entered into it is irreversible.

Consensus Mechanisms In Blockchain

In Blockchain, there’s one thing that’s very important, and it’s known as the consensus mechanism.

In a consensus mechanism, the algorithm is used to keep network members synchronized under a certain democracy. And with decentralization, each network member has the power to make decisions in the system.

Basically, they form the backbone in all blockchains, and are what makes them secure.

The thing is, consensus mechanisms are used in this technology to achieve a certain agreement and it sets all the rules to protect networks from any malicious behavior or any attempts of hacking.

8 Different Types of Consensus Mechanisms And How They Work

While a lot of people might not know this, there are many different types of consensus mechanisms. Each one of them is different and is based on the blockchain and the application it’s in.

These are 8 types of consensus mechanisms:

Proof of Work (PoW)

Mostly used in bitcoin, ethereum and other public blockchain, PoW was the first consensus mechanism that was created.

PoW (Proof of Work) is a decentralized consensus mechanism that requires members of a certain network to expand the effort in solving an arbitrary mathematical puzzle, which stops anyone from mishandling the system. This type of consensus mechanism is mostly used in cryptocurrency mining, particularly in validating transactions, mining tokens, and processes.

Thanks to this mechanism, most cryptocurrency transactions are processed peer-to-peer in a very secure manner, and the best thing is that it can be done without the requirement of any trusted third party.

Also in PoW, miners usually compete with other miners so they can solve complex computational puzzles, and the first miner that comes up with the first 64 digit hexadecimal number, which is also known as a hash, gets the right to form a new block and confirm a transaction. The winner marker is then rewarded with a certain amount of crypto, which is mostly called by miners as a block reward.

Proof of Stake (PoS)

PoS, which means Proof of Stake, is a cryptocurrency consensus mechanism that is known for the processing of transactions and creating new blocks within a blockchain. In simple terms, this method circulates with a process that’s known as staking.

In this system, miners are supposed to pledge a stake of a cryptocurrency, which we can also call as a digital currency, for a chance so they could be selected as a validator. The process is not like a lottery, instead it’s who is richer. The more digital currency you have, the bigger chances you have to win.

Also, PoS was made to serve as an alternative to PoW, which is the original consensus mechanism that was used in validating blockchain and adding new blocks.

Delegated Proof of Stake (DPoS)

DPoS, which stands for Delegated Proof of Stake, is a consensus algorithm that was developed in the year 2014 by Daniel Larimer, the founder of BitShares.

In the DPoS based blockchain, everything is counted in a voting system, where stakeholders are required to outsource their work to a different party.

With this mechanism, a voting system is created that depends on the reputation of a delegate. And in case an elected node misbehaves or does not work properly, it is automatically removed from the system and will be replaced by another one.

Proof of Importance (PoI)

PoI, which is also known as Proof of Importance, is a system that’s used to determine which users are allowed to make calculations so they could add a new block of data in a blockchain and receive the payment that’s associated with it.

In simpler words, it is a blockchain consensus mechanism that is known for expanding on the proof of stakes method. But in the PoI, it includes the activity of a node along with the amount of crypto that is staked.

Proof of Capacity (PoC)

PoC, which means Proof of Capacity, is a consensu mechanism algorithm that’s used in blockchains that allows mining devices in a certain network in using their hard drive space to decide mining rights and to validate certain transactions.

In simpler terms, the PoC authentication systems employ spare space in a hard drive of a device so they could store solutions of a crypto or digital currency’s hashing problem. It is highly chosen over PoS systems because of how efficient it is, considering that its power consumption is so low that it can be used on smartphones.

Blockchain technologies that are known to run on PoC are SpaceMint, Chia, Storj and Burst.

Proof of Elapsed Time (PoET)

Proof of Elapsed Time, better known as PoET, is a consensus mechanism that was developed by Intel.

This one is known for enabling permissioned blockchain networks so they can determine who will be generating or creating the next block.

Basically, the PoET mechanism is known for following a system that spreads the chances of winning equality across all the participants within a network, meaning every node has the same chance of winning.

The PoET algorithm automatically creates a random wait time for all nodes that are in a specific blockchain network and all the nodes are required to sleep for a certain duration. The node that has the shortest wait time is going to wake up ahead and will win the block, which means that it will be allowed to commit to a new block of the blockchain.

The main benefit of the PoET is that it is known for consuming very less power. The main reason behind this is that it allows the nodes to sleep and switch to other tasks for some time.

Proof of Activity (PoA)

Proof of Activity, better known as PoA, is a blockchain consensus algo that is made up of 2 different blockchain consensus algorithms, which are the PoW and the PoS.

The PoA system is an attempt to combine the best aspects of the two systems. This means that the mining process starts with the PoW system and after a new block gets mined, the system goes to a system that is similar to the PoS.

Proof of Authority (PoA)

PoA, which stands for Proof of Authority, is a consensus algorithm that is capable of delivering efficient solutions for blockchains, particularly for the ones that are private.

This consensus algorithm was made by Gavin Wood, the co-founder of Ethereum Blockchain, in the year 2017.

In PoA, machines end up earning the right to generate new blocks by passing a strict vetting process. As a result, those machines that are trustworthy end up validating and protecting PoA blockchains.

The moderators of the systems are pre-approved participants that are capable of checking transactions or blocks.

The PoA model is scalable thanks to the small number of validators that it has.

One of the most popular platforms in this generation that uses the PoA mechanism is VeChain.


From what is blockchain to how blockchain works and the different types of Consensus Mechanisms along with what they do, we wrote everything for those that are trying to understand the technology in a better way!

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