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Blockchain Consensus Algorithm

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Algoritma Konsensus Blockchain Indodax Academy

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Hello Indodax member!

Now, Indodax Academy Team will explain the algorithms in the Blockchain world that you may have heard of before.

Before that, the algorithm itself basically describes all the procedures that must be done in solving a problem. Because of the distributed nature of the blockchain, an algorithm is needed to reach a consensus by sorting and formulating a problem (data) together. So that an authentic and valid result (hash) can be set/published into a block in the Blockchain network.

So, what are the most famous Blockchain Consensus Algorithms?

1. Proof of Work

Proof of Work is a piece of data that is difficult (expensive, time consuming) to produce but easy for others to verify and that meets certain requirements. Producing proof of work can be a random process with low probability so many trials and errors are needed on average before a valid Proof of Work is produced. Bitcoin uses a Proof of Work called Hashcash.

Hashcash Proof of Work is used in Bitcoin for block making. In order for a block to be accepted by network participants, miners must complete proof of work that includes all data in the block. The difficulty of this work is adjusted so as to limit the rate at which new blocks can be generated by the network for every 10 minutes. Because the probability of success in generation is very low, this makes it unpredictable which worker computers in the network will be able to produce the next block.

For blocks to be valid, the hash must be less than the current target; this means that each block shows that work has been done to produce it. Each block contains hashes from the previous block, so each block has a chain of blocks that together contain a large amount of work. Changing a block (which can only be done by creating a new block that contains the same predecessor) requires the regeneration of all successors and repeating the work they contain. This protects the block chain from interference.

The most widely used proof-of-work scheme is based on SHA-256 and was introduced as part of Bitcoin.

Proof of Work is a protocol that has a function to prevent the activity of cyber attacks (DDos), which can paralyze / weaken a computer system’s resources. The POW concept was first introduced by Cynthia Dwork & Moni Naor in 1993 and was only implemented by Markus Jakobsson (Shell currency) in 2009.

In Blockchain technology, POW is used by Satoshi Nakamoto as a consensus algorithm and Bitcoin itself as the currency of the consensus Proof of Work. The main requirement in the POW consensus is the mining activity process (the computing process of CPU, GPU, ASIC, FPGA) which functions as an inventor, solution seeker and validates every problem (hash) into a block and will be distributed into a ledger. called the Blockchain.

To reach a consensus, a transaction must go through several processes that also involve the computation process carried out by several miners, so that a valid Block can be created.

Proof of Work consensus distribution system:

– A (several) transaction that arises from a wallet that acts as a Full Node (a copy of the Blockchain) will be published on a P2P network.
– These transactions will be connected to a network that is also connected to the Miners node
– Miners will perform the computational process (hash function) to solve this complex mathematical problem into a block.
– The maximum number of transactions in each block depends on the applicable protocol.
– After the problem (hash) is resolved, the miner who first solves this problem will broadcast a new block to the network (P2P).
– Other nodes (miners) that receive this block will carry out the verification process (validation).
– After the block has been validated, this block will be distributed to the blockchain as a valid new Block.
– Miners who act as valid block makers will receive a reward.

Some examples of crypto assets that use the PoW consensus algorithm are Bitcoin (BTC), Ethereum (ETH), Monero (XMR), Litecoin (LTC) and many more.

2. Proof of Stake

The Proof of Stake (PoS) consensus algorithm was first introduced by Sunny King and Scott Nadal in 2012. The use of this method is expected to overcome the amount of power needed to compute the PoW consensus. Broadly speaking, the Staking process is locking some amount of coins (cryptocurrency) as collateral, in a wallet that runs the Full Node of a blockchain. This guarantee is proof of ownership of a coin holder (tokens holder) as a function of the node, in contributing to the PoS consensus network with a process called Forging.

Unlike the PoW consensus that requires the process of computing using equipment with electric power sources. In the PoS method, to reach a consensus only requires a Full Node (Wallet) with tokens/coins in it. And every token/coin holder that is always connected to the network (node) blockchain, has the opportunity to become a staker/forger by fulfilling the requirements in accordance with the applicable protocol. Therefore in this PoS consensus, it does not need a lot of energy resources (electricity) in the process of achieving a consensus.

Consof Proof of Stake Distribution System:

– To be able to do forging (minting), the token/coin holder must lock a number of coins in his wallet (Full Node) connected to the blockchain network.
– When one/several transactions enter the network (P2P). Making a block (transaction validation) is chosen by Pseudorandom based on the number of coins in stake and how long the coins have been in stake.
– Token/Coin Holder with a large amount of Staking Coin and a long time (age) for staking, has a higher chance to make the forging process in the next block.
– After the block creation process and validation process is complete, then this block will be distributed to the blockchain network as a valid new block.
– Forger (staker) will receive a reward from his work and for the age of the staking coin will be reset.

An example of crypto assets that uses the PoS consensus algorithm is NXT.

From here, are you interested in learning more? Don’t forget to keep the Indodax Academy article updated so you don’t miss information about blockchain and other crypto assets!


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