The process used by blockchain networks to agree on the state of the distributed ledger.
Consensus in the context of blockchain technology refers to the process used by network nodes to agree on the state of the distributed ledger. This agreement is crucial to ensure that all participants have a consistent view of the data stored on the blockchain, despite the decentralized nature of the network. Consensus mechanisms are the backbone of blockchain technology, enabling trustless transactions in a distributed environment without requiring a central authority.
For instance, in the Bitcoin network, nodes reach consensus on the state of the blockchain by following the longest chain rule, which states that the valid chain is the one with the most accumulated proof of work.
Bitcoin Cash implements a similar consensus mechanism to Bitcoin but with modifications to enable larger block sizes and faster transaction processing, allowing for more efficient everyday transactions while maintaining security and decentralization.
Social Consensus refers to the agreement among the community members, including developers and miners, over the direction of the protocol's development and how transactions should be included in blocks. While this often aligns with the technical consensus mechanism (like Nakamoto Consensus), differences can lead to contentious forks. Social consensus is critical for the long-term stability and evolution of blockchain networks, as it represents the collective will of the community.
The Bitcoin Cash hard fork in 2017 is an example of a situation where social consensus led to a split in the network. A segment of the community disagreed with the proposed SegWit upgrade and decided to create a new version of the blockchain with different rules, primarily to increase the block size and improve transaction throughput.
The ongoing debates within cryptocurrency communities about scaling solutions, privacy features, and governance structures demonstrate how social consensus shapes the technical evolution of blockchain protocols beyond just the code implementation.
Nakamoto Consensus is a fundamental concept in Proof of Work (PoW) blockchains that provides security and decentralization. It is a rule where miners follow the chain with the most accumulated Proof of Work (PoW) at any given moment, for a given ruleset. This incentivizes miners to cooperate and act honestly, building upon the same ledger as the rest of the network instead of splitting off. The brilliant aspect of Nakamoto Consensus is how it aligns economic incentives with network security.
If a miner tries to mine a double-spend transaction in a block against the rest of the network, the honest chain will grow faster than the dishonest chain unless the miner can accumulate more proof of work than all other miners combined. This forces the dishonest miner to either waste resources mining their minority chain or join the longest chain and act honestly, indirectly punishing them for violating Nakamoto Consensus.
When multiple miners discover a block nearly simultaneously, each node will use the block they received first as the valid one, causing a temporary fork. Once a second block is found, that chain becomes the longest, and all miners switch to building on that one. In this case, one miner loses their block reward, even though they acted honestly.
Bitcoin Cash improves upon Nakamoto Consensus by implementing optimizations like Graphene block propagation, which reduces the risk of orphan blocks despite the larger block size. This allows the network to maintain security while processing more transactions per block.
Besides Nakamoto Consensus, there are other consensus mechanisms used in different blockchain networks. These include Proof of Stake (PoS), Delegated Proof of Stake (DPoS), Proof of Authority (PoA), Practical Byzantine Fault Tolerance (PBFT), and Federated Byzantine Agreement (FBA), among others. Each has its own advantages and trade-offs in terms of security, decentralization, energy efficiency, and scalability.
Ethereum, for instance, has transitioned from Proof of Work (PoW) to Proof of Stake (PoS) to improve scalability and energy efficiency. In PoS, validators are chosen to create new blocks based on their stake in the network, rather than their computational power.
Bitcoin Cash maintains a Proof of Work consensus mechanism similar to Bitcoin, valuing the security and decentralization properties it provides. However, it implements additional features like the Adjustable Blocksize Cap (ABC) that allows the network to adapt to increasing transaction demand without requiring contentious hard forks.
Some newer blockchain projects experiment with hybrid consensus mechanisms that combine elements of PoW and PoS to achieve a balance between security, decentralization, and energy efficiency. These innovations demonstrate the ongoing evolution of consensus mechanisms in the blockchain space.
Finality refers to the guarantee that once a transaction is added to the blockchain, it cannot be reversed or altered. Different consensus mechanisms offer different levels of finality. In Proof of Work blockchains like Bitcoin and Bitcoin Cash, finality is probabilistic – the more confirmations a transaction has, the less likely it is to be reversed. In contrast, some consensus mechanisms like certain Proof of Stake implementations offer deterministic finality, where transactions are irreversible after a certain point.
In Bitcoin Cash, merchants often consider a transaction to be secure after 6 confirmations (approximately 1 hour), though for smaller transactions, fewer confirmations may be acceptable. This allows for secure yet practical everyday commerce.
Some fast-payment solutions built on top of Bitcoin Cash, like the deprecated 0-conf transaction approach, aim to provide reasonable security for small-value transactions with zero confirmations, by leveraging network propagation properties and economic incentives.
All terms and definitions may update as the Cryptionary improves.