In our article “Blockchain Explained,” we used the metaphor of a fashion show to describe the participants and mode of operation of blockchains. The blockchain was visualized as the runway, where the models (aka blocks) are initially lined up, and as they walk down the runway, they will be added to the end of the line, thus building a chain of models/blocks. The audience members represent the nodes (computers) in the blockchain network. They watch the models walk and have a written copy of the runway procedure. In the front row of the audience, we find educated fashion experts who represent the validators in the blockchain network.

These fashion experts (validators) attentively examine the presented outfits (data) and model ID tags (hash). They are responsible for the authentication and integrity of the fashion show (blockchain), e.g., they monitor the models (blocks) and the exhibited outfits (data) to ensure they fit together and are genuine and not fake. If the experts are satisfied with the model`s walk on the runway, they signal (thumbs up) that this model will be next in line or added to the chain. But how can our experts be guaranteed to come to a unified agreement or common conclusion? Eventually, they might have different tastes, miss an outfit detail due to distraction (your mother calls), or simply do not trust each other. To agree to a standardized state of the runway (blockchain), they first must accept specific rules of the show (consensus mechanism).

To function properly, the decentralized network of computers (audience and fashion experts) that maintains a public blockchain (runway) must agree on the single state of the blockchain. This fundamental process is facilitated by the consensus mechanism, thereby eliminating the need for a central authority in the network. This decentralization is a key feature of blockchain technology, ensuring that all actors in the network have a consistent and verified copy of the ledger, much like all members of the audience seeing the same models, in the same outfits, in the same sequence.

In other words, the consensus mechanism is a crucial agreement that maintains the integrity and security of the decentralized platform (fashion show). Besides being a distributed agreement, consensus mechanisms are “fault-tolerant.” They will still operate even if some nodes act maliciously or fail (distraction of fashion experts). Another key characteristic of consensus mechanisms is the verification and validation of transactions (monitoring of models and outfits), i.e., ensuring all transactions are legitimate and added to the blockchain. The most common consensus mechanisms are Proof-of-Work, Proof-of-Stake, and Proof-of-Authority, but there are several more types of consensus mechanisms.

Good to remember is that the term consensus mechanism denotes the set of protocols, incentives, and ideas that are implemented to enable a network of nodes to agree on the common state of a blockchain. Ethereum, for example, uses a Proof-of-Stake-based consensus mechanism. Participants must lock up capital (“stake”) that is exposed to a set of rewards and penalties. This creates an incentive structure that encourages every single staker to run honest validators and punishes those who are distracted, which ultimately leads to crypto-economic security (and the extremely high cost of an attack attempt on the network). The choice of the consensus mechanism is a very important decision in the design and operation of any blockchain since it will also impact a blockchain's scalability, security, and degree of decentralization.

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This article was authored by Nils Otter for ALANA