Cointelegraph is following the development of an entirely new blockchain from inception to mainnet and beyond through its series, Inside the Blockchain Programmer's Mind. In previous parts, Andrew Levine of Koinos Group discussed some of the challenges the team has faced since identifying the key issues they intend to solve and outlined three of the "crises" that are holding back blockchain adoption: upgradeability , scalability  and governance . This series is focused on the consensus algorithm: Part i is nearly proof-of-piece of work, Part 2 is about proof-of-pale and Part three is about proof-of-burn down.

In this commodity, I desire to leverage my unique perspective to help the reader proceeds a deeper understanding of a popular concept in blockchain technology, but as well one that is woefully misunderstood: the consensus algorithm.

In lodge to gain a deep understanding of this component of a blockchain, one of the things I always similar to exercise in these articles is begun past taking a step dorsum and looking at the big picture because the consensus algorithm is just i small part of a much larger system.

Blockchains are a game in which players compete to validate transactions past grouping them into blocks that match the blocks of transactions being created by other players. Cryptography is used to hide the data that would permit these people to cheat. A random procedure is used to distribute digital tokens to people who play by the rules and produce blocks that match the blocks submitted by other people. These blocks are so chained together to create a verifiable tape of all the transactions that were always performed on the network.

When people produce new blocks with different transactions in them, we telephone call this a "fork" because the concatenation is at present forking off into two unlike directions. This is the exact contrary of what we want to happen. The whole value of a blockchain stems from the fact that everyone agrees — has come to a consensus — on what transactions happened when. Consensus algorithms are therefore intended to resolve forks.

Satoshi's real innovation

At the end of the day, what ensures that everyone updates their database to friction match one another boils downwardly to how they are punished when they practise not. The protocols contain rules for the proper ordering of transactions, but if at that place is no repercussion for violating those rules, they will be ineffective. The real innovation that Satoshi Nakamoto delivered in the Bitcoin (BTC) white newspaper was his elegant use of economic incentives.

Satoshi Nakamoto did not invent the idea of the "electronic coin." He created an elegant system for combining cryptography with economics to leverage electronic coins, now chosen cryptocurrencies, to utilise incentives to solve issues that algorithms lonely cannot solve. His design forced people to cede money in lodge to mine blocks of transactions. People would have to cede this coin over and over and over by playing by the system'due south rules and trying to organize transactions into blocks that would be accepted by everyone else in the network. If they did this long enough, they would receive a reward in the currency of the platform.

Of course, at that place's no style for the blockchain to know that money was spent in the course of USD, yen, or euro, which is why he used a proxy in the class of meaningless work. He made the mining of blocks unnecessarily difficult so that anyone who successfully mined a block necessarily must accept spent money on hardware and the energy to run that hardware. And then every block successfully mined is backed by money that had been sacrificed not just on the hardware, but on the energy required to run that hardware and produce that block. Whenever there are forks, proof-of-work (Prisoner of war) consensus algorithms are an automated arrangement whereby the fork backed past the well-nigh work is the "right" fork.

Related: Proof-of-stake vs. proof-of-work: Differences explained

This means that everyone who continues producing blocks on that fork volition continue to earn rewards and that anybody who continues producing blocks on the other fork will not earn rewards. Since these people accept already spent their money to larn hardware and run it to produce blocks, the punishment is easy because they've already been punished monetarily. They spent their money so if they desire to keep producing blocks on the wrong concatenation, that's fine. They won't earn any rewards and they won't make their money back. They volition accept sacrificed that money for zero. Their blocks won't become accepted by the network and they won't earn any tokens.

This proof-of-work organization ensures that the only manner someone who does not want to play by the rules, a malicious actor, is to learn and run more hardware than everyone else combined, such as by mounting a 51% attack.

This is the elegance behind proof-of-work. The system cannot piece of work without sacrificing ever-increasing amounts of majuscule. Satoshi combined cryptography and economic science to create a ledger of transactions that is so trustworthy, it is trustless.

There are, however, different consensus algorithms that operate in slightly different ways. The nigh well-known of which is proof-of-pale (PoS), which I'll be discussing in the adjacent commodity in this serial. Later on that, I'll be discussing the algorithm we'll be using in Koinos which is a first-of-its-kind in a general purpose blockchain.

The views, thoughts and opinions expressed here are the author's alone and practice not necessarily reverberate or represent the views and opinions of Cointelegraph.

Andrew Levine is the CEO of Koinos Grouping, where he and the former development team behind the Steem blockchain build blockchain-based solutions that empower people to accept ownership and control over their digital selves. Their foundational product is Koinos, a high-performance blockchain congenital on an entirely new framework architected to give developers the features they need in order to deliver the user experiences necessary to spread blockchain adoption to the masses.