By: Sameer Zubairi | 3 min read | 25/01/2019

Consensus Algorithms Securing Blockchain Transactions


The transparency and security offered on blockchain networks is arguably the most attractive aspect of this technology. A blockchain is a ledger of transactions that are distributed to every participant on a network of personal computers/devices. When a new transaction occurs, it must be validated by all the participants of the blockchain, establishing trust and transparency between multiple parties without the need of a central authority.

Ultimately, the process by which a growing blockchain validates transactions across the network of participants is known as the consensus algorithm. To understand what features make certain cryptocurrencies attractive over others, it is important to recognize technical differences between their underlying consensus algorithms.

Consensus algorithms help establish agreement on a value between two different nodes of a decentralized database, making them an essential tool for distributed computing. In the context of verifying blockchain transactions, these algorithms are responsible for two things: ensuring that all new entries to the chain are correct and securing the ledger against any adversarial attacks.

There are multiple consensus algorithms capable of carrying out these functions, including Proof of Work, Proof of Stake and Proof of Burn algorithms. Fundamentally, these consensus algorithms are trying to achieve one important goal: to prevent malicious nodes in the network from propagating incorrect information.


As mentioned earlier, there are different ways of establishing consensus on a distributed network. The differences between these algorithms have to do with how nodes are selected to authorize the generation of new blocks on the chain.


The first method of authorizing a participant to generate new blocks on the chain is the Proof of Work algorithm. This is the most common type of consensus algorithm used by cryptocurrencies, like Bitcoin and Litecoin. The purpose of this algorithm is to select miners who will provide computing power to generate a new block on the chain and subsequently earn a reward for their efforts.

Simply put, blockchain networks using a Proof of Work algorithm require miners to use their computing power to produce a new hash value for a transaction. Hashes are basically a unique cryptographic code that represents a transaction. When a miner finds the correct hash for a transaction, they are validated by the other nodes on the network to generate a new block for the transaction.

To produce a new block, the miner must put in even more computing power to solve complex cryptographic puzzles. Therefore, this algorithm requires a significant amount of computing power, which significantly impacts its scalability. It can sometimes take 10-60 minutes for these consensus algorithms to execute a transaction.


The Proof of Stake consensus algorithm selects its miners differently from a Proof of Work algorithm. In fact, miners in a Proof of Stake network are called “validators”. These are selected based on a different set of criteria, meaning validators are not chosen based on their ability to produce the correct hash value. Most commonly, validators are actually chosen based on their economic stake in the network. The probability of someone being chosen to generate a new block on the chain is proportional to the number of coins they possess on the blockchain.

Often times, this criteria takes the length of time the participant has been on the network into consideration. This is known as a participant’s coin age, which is calculated as the number of coins owned multiplied by the amount of time these coins have been held on the blockchain network.

Therefore, someone who holds a large number of coins on the chain for a long period of time will have a high coin age, and thus a high likelihood of being selected to generate new blocks on the chain and collect the subsequent reward. This type of consensus algorithm is appealing since the computing power and resources required by validators is significantly less than miners on a Proof of Work network.

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