What is a consensus algorithm in blockchain?
Blockchain is one of the most significant technological innovations of the past two decades. A blockchain network is a type of distributed data ledger that is immutable, append-only and protected by cryptographic mechanisms. Blockchains enable a network of participants to store and update records without relying on a central authority, while preserving data integrity and resistance to tampering.
To achieve these properties, the network must continuously agree on a single, valid version of the ledger of transactions. This shared agreement is known as consensus, and maintaining it is fundamental to the reliability and security of any blockchain system.
In this article, we discuss what a consensus algorithm is, how it functions as part of the broader blockchain process, how decentralized networks achieve consensus and what popular consensus algorithms are currently implemented in the industry.
Key Takeaways:
Consensus algorithms are critical for blockchain networks. They ensure all nodes agree on a single, tamper-resistant ledger state, resolve conflicts, and prevent issues such as double-spending, thus maintaining trust and integrity within a decentralized system.
A consensus algorithm is the mechanism that ensures all nodes in a blockchain network agree on the state of the distributed ledger.
Among the most commonly used consensus algorithms are proof of work, proof of stake, delegated proof of stake, practical Byzantine fault tolerance and proof of authority.
What is a consensus algorithm?
A blockchain network is a decentralized system in which multiple nodes maintain a shared ledger of transactions. Each node is a computer (connected to the network) that holds at least a partial copy of the ledger, and participates in validating and relaying transaction data. Transactions are grouped into blocks, and each new block references the one before it, forming a chronological chain. Once added to the chain, data in a block cannot be altered without affecting every subsequent block, which makes the ledger tamper-resistant and immutable.
For this system to operate reliably, all participating nodes must agree on the current state of the ledger. Since nodes operate independently and may receive data at different times, they require a mechanism to resolve conflicts and ensure that every honest node sees and accepts the same version of the ledger. This is where the consensus algorithm becomes essential.
A consensus algorithm is the process used to achieve agreement among nodes on which transactions are valid, and which block should be added to the ledger next. Its role is to ensure that all honest participants converge on a single, authoritative version of the blockchain, even in the presence of delays, faults or malicious actors. Without an effective consensus mechanism, different parts of the network could disagree on transaction order or content, leading to problems like double-spending, data inconsistency and loss of trust in the system’s integrity.
The consensus process isn’t simply about majority rule, and it must account for the possibility of dishonest or malfunctioning nodes — which means the system must be robust against manipulation, and resistant to alterations and conflicting versions of the chain. A consensus algorithm’s design directly affects a blockchain’s security, performance and level of decentralization. It’s one of the most fundamental components of blockchain architecture, and is a prerequisite for ensuring that the network operates as a reliable and unified system.
How consensus algorithms work
Blockchain consensus algorithms rely on two interconnected processes that ensure all participants agree on a single version of the distributed network. The first process concerns the manner in which transactions are gathered, and one or more nodes earn the right to propose a new block containing those transactions, while the second process concerns the way in which the proposed block is shared across the network and verified by other nodes before it’s permanently added to the ledger.
On a blockchain, users continually initiate transactions by sending them to the network. These transactions are broadcast to all nodes, and are collected and temporarily stored in a pool of unconfirmed transactions. Instead of immediately adding each transaction to the ledger, the network groups a batch of transactions into a block. Each block contains a collection of transactions, along with metadata such as a reference to the previous block, timestamps and other protocol-specific data. This structure forms a continuous chain, as each new block references its predecessor, ensuring chronological order and preventing tampering.
However, nodes cannot add a block to the blockchain at will. The network must determine which node or nodes have the authority to propose the next block. This assignment, which represents the first key process in a consensus algorithm, varies across blockchains. Some systems rely on competitive processes, whereby nodes race to solve a cryptographic puzzle or demonstrate a form of stake or authority to win the right to propose the next block. Others use election or rotation mechanisms. Regardless of the method, the selection process is designed to control block proposals so that conflicting blocks are minimized, and the network can progress in an orderly manner.
The node or (nodes) that win the right to add the next block to the ledger broadcast the proposed block to other nodes for review. This propagation of the preliminarily validated block to the entire network for final confirmation is the second key stage of a consensus algorithm.
Next steps
Upon receiving the proposed block, nodes across the network begin a verification process. This process consists of multiple checks to ensure the block adheres to the blockchain protocol’s rules. Nodes first verify that the proposed block correctly references the previous block in the chain, maintaining the ledger’s sequential integrity. They then validate each transaction included in the block, confirming that digital signatures are valid and that transaction inputs haven’t been spent in prior blocks or transactions. This prevents double-spending and maintains the ledger’s consistency.
Verification also involves checking that all transactions conform to protocol rules, such as transaction size limits, formats and fee requirements. Nodes examine the proposed block’s metadata, including timestamps, to ensure the block wasn’t formed outside allowed time windows. Additionally, nodes verify any cryptographic proofs or signatures that demonstrate the proposer’s eligibility or authority to submit the block (as determined by the consensus mechanism in use).
If any verification step fails, nodes reject the proposed block. Rejection means the block isn’t added to the blockchain, and is discarded by all honest nodes. This rejection protects the network from invalid data and potential attacks. The network continues to rely on the last accepted block while the process of proposing a valid next block repeats.
If the proposed block passes all verification checks, consensus is achieved. All honest nodes accept the block, and add it permanently to their local copy of the blockchain. This collective agreement ensures that the blockchain remains a single, consistent record across all nodes. Once the block is added, nodes move on to collecting new transactions and preparing for the next block proposal cycle.
This two-step approach — i.e., the formation of a proposed block by a responsible node and further validation of the block by the wider network — represents the entire process of blockchain consensus. While the specific mechanisms for selection and verification differ among consensus algorithms, this general framework ensures that the network operates reliably without centralized control. It guards against errors, malicious behavior and inconsistencies that could undermine trust in the blockchain’s system.
Types of consensus algorithms in blockchain
As described above, every consensus algorithm carries out two key functions: first, selecting the node or group of nodes responsible for proposing the next block; and second, validating the proposed block across the wider network.
The second part of this process (network-wide validation) is typically quite similar across most blockchains and involves various checks, such as verifying transaction signatures, ensuring correct block linkage and checking for double-spending. However, the first part can differ dramatically, depending upon the consensus algorithm used. These differences have a big impact on network decentralization, energy use, performance and vulnerability to attacks.
Below are five of the most common consensus algorithms used in blockchain networks today. While there are many other consensus algorithms in use, these five are utilized by a solid majority of the most popular networks in the blockchain industry.
Proof of work (PoW)
Proof of work (PoW) is one of the two most popular consensus algorithms, introduced with Bitcoin (BTC), the very first viable blockchain, launched in 2009. In the PoW consensus algorithm, miners (specialized nodes) compete to solve a complex mathematical puzzle. Solving the puzzle requires significant computational effort, which is why it's referred to as “work.” The first miner to solve it has the right to propose the next block and earn a reward, typically in the form of new coins and transaction fees.
PoW is widely considered to be highly secure because an attacker would need to control the majority of the network’s computational power in order to manipulate the chain. However, this security comes at the cost of the high energy consumption involved in the PoW process, which has drawn criticism and led many newer chains to adopt alternative consensus algorithms. Aside from Bitcoin, PoW is also used by Litecoin (LTC) and Dogecoin (DOGE), among others.
Proof of stake (PoS)
Proof of stake (PoS) is the other widely used consensus method alongside PoW. Instead of using computational power to compete for block proposal rights, PoS selects block validators based on how many tokens they "stake" or lock up on the network. The more tokens staked, the higher the chances of being chosen to propose the next block.
Unlike PoW, PoS is far more energy-efficient and often enables faster transaction processing. PoS was widely popularized with the launch of chains like Cardano (ADA) and Polkadot (DOT), and gained further prominence when Ethereum (ETH) transitioned from PoW to PoS in 2022. Each network typically has its own variant of PoS, with minor tweaks to selection criteria.
Despite its energy efficiency and better performance as compared to PoW, PoS has a vulnerability of its own: this consensus algorithm could potentially lead to network usurpation by a small number of validator nodes with significant token stakes. This problem may not be as evident on highly decentralized chains like Ethereum, but it might become a real risk when decentralization — as measured by the number of active validators on the network — is limited.
Delegated proof of stake (DPoS)
Delegated proof of stake (DPoS) is a more democratic representative variant of standard PoS. In DPoS, token holders, including ordinary users, delegate their stakes to a group of trusted validator nodes. Validators who attract more stakes delegated to them have a higher chance of receiving the right to propose the next block. In essence, this smaller group of validator nodes take turns proposing and validating transaction blocks on behalf of the wider community.
This model allows for faster consensus and greater scalability, since fewer nodes are involved in proposing blocks at any given time. It also promotes user engagement, as even small token holders can influence consensus outcomes through delegation. However, critics argue that it may reduce decentralization because it concentrates power in a handful of delegates. Examples of networks using DPoS are EOS (EOS) and TRON (TRX).
Practical Byzantine fault tolerance (PBFT)
Practical Byzantine fault tolerance (PBFT) was originally developed for distributed computing systems in the 1990s and later adapted for use in blockchain technology. It’s designed to work efficiently in decentralized computer networks with a limited number of known validators (typically private blockchains). In PBFT, nodes reach consensus through a series of rounds that involve proposing a block, voting on it and reaching final agreement, as long as ⅔ of nodes agree.
PBFT offers fast transaction finality and high throughput, making it attractive for enterprise use cases. However, it doesn't scale well to thousands of nodes, which limits its use in open, decentralized networks. PBFT-inspired models are used in blockchains like Hyperledger Fabric and Tendermint, the latter powering the Cosmos (ATOM) ecosystem.
Proof of authority (PoA)
Proof of authority (PoA) is a consensus algorithm in which block proposers are preapproved and identified entities, often companies or individuals with a strong reputation. Rather than competing through computing power or staked tokens, validators are selected based on their identity and trustworthiness.
PoA is typically used in permissioned blockchains in which speed, efficiency and identity-based trust are more important than decentralization. It enables fast finality and high transaction throughput, but is often criticized for being too centralized. Networks like VeChain (VET) and numerous permissioned enterprise chains have implemented PoA consensus.
Conclusion
Consensus algorithms are the backbone of blockchain networks. They’re critical in ensuring that all participants agree on a single, tamperproof version of the ledger. While the overall process involves both selecting a block proposer and validating the block across the network, it’s the particular method of proposer selection that truly sets these algorithms apart.
From energy-intensive PoW to highly efficient and scalable models like PoS and DPoS, each algorithm reflects different trade-offs in security, decentralization and performance. Choosing the right consensus mechanism depends upon the goals and design of the blockchain — whether it's a public, permissionless network or a more centralized enterprise solution.
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