In a blockchain, a consensus protocol is a method used to agree on the validity of transactions and the state of the network across all participants (also called nodes). Since blockchains are decentralized, there isn’t a single authority to confirm or validate the transactions. Instead, all participants must come to an agreement—this agreement is reached through a consensus protocol.
Why are Consensus Protocols Needed?
Decentralization: In a decentralized system, there’s no central authority to verify transactions. Consensus protocols allow all participants to agree on what the blockchain should look like.Security: Consensus protocols help ensure that only valid transactions are added to the blockchain, protecting the network from malicious actors who might try to manipulate the data.Consistency: To maintain a consistent and accurate ledger, all nodes must agree on the same version of the blockchain. Consensus protocols make this possible.
How Consensus Protocols Work
After you make a transaction, it needs to be picked up by the network, included in a block, and confirmed by other nodes. This process can take several minutes to over an hour, depending on how busy the network is. The transaction isn’t fully secure until it’s confirmed multiple times.
1. Transaction Creation
You want to send some cryptocurrency (let’s say Bitcoin) to a friend. You create a transaction on your device, specifying the amount, the recipient’s address, and other necessary details.
This transaction is then broadcast to the Bitcoin network. Your transaction is now out there, waiting to be included in a block.
2. Transaction Pool (Mempool)
Once your transaction is broadcast, it enters a temporary holding area known as the mempool. Here, your transaction joins others that are also waiting to be processed. The mempool is like a waiting room for transactions before they get picked up by a miner.
3. Block Proposal
A miner (a node in the network) scans the mempool and selects a batch of transactions, including yours, to form a new block. The miner then begins the process of proposing this block to the network.
- In a
Proof of Work system, the miner has to solve a complex puzzle to get the right to propose the block. - In a
Proof of Stake system, a validator might be chosen based on the amount of cryptocurrency they have staked.
4. Validation
Other miners or validators in the network receive the proposed block and start validating it. They check if your transaction (along with others) is valid, meaning you actually have the cryptocurrency you’re trying to send, and that the transaction is formatted correctly.
This step ensures that your transaction and others in the block are legitimate and follow the rules of the blockchain.
5. Agreement
Once the block is validated, the majority of nodes in the network must agree that this block is valid. If they agree, your transaction is accepted, and the block is added to the blockchain.
This is where consensus is reached, ensuring that all nodes accept the new block with your transaction in it.
6. Propagation
The newly added block, containing your transaction, is now broadcast to the entire network. Every node updates its copy of the blockchain to include this new block.