Consensus Explained
An overview of consensus algorithms
Consensus is defined as “a general agreement” (source) and in the case of cryptonetworks consensus algorithms allow computers on a network (e.g. bitcoin miners) to reach agreement on the truth (e.g. set of bitcoin transactions) and write it to the blockchain, i.e. an immutable database. It sounds straightforward but many things can go wrong making it hard to design good consensus mechanisms.
These algorithms, however, are a fundamental part of the Web 3.0 because they enable automation of trust without having a trusted 3rd party. With the growing popularity of bitcoin and ethereum, there’s a lot of innovation in the space and I’ve found the following posts to provide an excellent introduction, hopefully you will too:
- On consensus Medium post by Jordan Clifford;
- All Together Now: An Introduction to Distributed Consensus: video and slides from Tess Rinearson’s highly acclaimed Crypto Springs presentation — simple and clear visual representation of the protocols explained in the previous post (video recording will be shared here when available).
From around the web
Work is Timeless, Stake is Not (Medium) — Related to the above, exposes the weaknesses of proof-of-stake (POS) and explains why the proof-of-work (POW) consensus mechanism is better for cryptocurrencies. The main argument is that “having temporary skin in the game” using POS does not equate to having “unforgettable costliness” afforded by POW and a required property for money.
$100 Tillion (Multicoin Capital blog) — Tackles the question “How big can crypto really get?”
Short Convexity (Medium) by Jill Carlson — Argues that many crypto projects aren’t giving enough thought to their long term cash flows. Many assume that an increase in token value will suffice but this post argues that these projects are exposing themselves to long term financial risk similar to being short convexity on bonds.
Tokens are not equity (Tony Sheng blog) — Another post on tokens, this time arguing for token owner expectations to be adjusted to reality. Token’s don’t offer the same rights as owning equity. In addition, the more complex an ecosystem, the more likely there’ll be conflict of interest and misaligned incentives amongst the various stakeholders.
A Taxonomy of Stablecoins (Token Daily) — Good introduction to stablecoins. For those interested in a more advanced analysis Blockchain recently published an in-depth review of 50+ stablecoins in development.
Summary of SF Blockchain Week highlights in a tweet thread by @RyanTheGentry.
Fun corner 😃
310 BTC has been hidden in this image: can you find it?
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The views expressed are my own and do not necessarily represent the views of my employer.
