Throughout the past decade, blockchain technology has gone from a new financial experiment with a cult following, to a potential revolutionizer of data management. As blockchain has gained more and more traction, many people still struggle to understand: what exactly is blockchain? And why would anyone want to use it? In this series, we answer those very questions and provide the foundation needed to understand blockchain and cryptocurrency.
In the last section of Blockchain 101, we discussed what a blockchain really is - a secure database. In order for the blockchain to operate successfully, there has to be rules to validate new information and avoid double spending. Consensus protocols are the processes used to validate / add new data to a blockchain.
Consensus protocols enable all blockchain systems (nodes) to come to agreement that new information is valid without centralized leadership. Consensus protocols have Byzantine Fault Tolerance (BFT), the ability of a peer to reach consensus even if some of the nodes fail.
The most popular consensus program currently being used is the Proof of Work (Pow) protocol. Both Bitcoin and Ethereum use this protocol. This consensus protocol has users compete to solve difficult mathematical puzzles to verify data and add new blocks to the blockchain. Users who verify data (miners) are given cryptocurrency coins as a reward for their work. This protocol is very secure. A hacker would have to control at least 51% of the network to disrupt it (a 51% attack). Proof of Work requires significant computing power and is not very scalable. Due to this other consensus protocols are beginning to gain popularity (e.g. Proof of Stake, Proof of Authority).
The consensus protocol of choice depends on the goals of the blockchain. In the following section of this series, we discuss a variety of potential applications of blockchain technology along with the benefits and challenges. Click here to continue to the next section of Blockchain 101 – Applications.
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