2021 International Conference on Advances in Electrical, Computing, Communication and Sustainable Technologies (ICAECT) | 978-1-7281-5791-7/20/$31.

00 ©2021 IEEE | DOI: 10.1109/ICAECT49130.2021.9392489

Consensus Algorithms in Blockchain-Based

Cryptocurrencies
1
*Rameez Yousuf, 2Zubair Jeelani, 1Dawood Ashraf Khan, 1Owais Bhat and 3Tawseef Ahmed Teli
1
Department of Computer Science University of Kashmir, J&K, India
2
Islamic University of Science and Technology, J&K India
3
Cluster University Srinagar, J&K India
E-mail : shahrameez019@gmail.com, zubairj347@gmail.com, dawood.khan@uok.edu.in, owais031@gmail.com,
mtawseef805@gmail.com,

Abstract: — Blockchain has been a breakthrough in the
technology since the last decade and is anticipated as the go-
to thing due to features presented by it. The features such as
secure, immutable, transparent, and anonymous makes
Blockchain technology the frontrunner in the untrustworthy
distributed environment. The driving force behind the
Blockchain technology are the consensus algorithms that are
at the heart of any Blockchain technology. These algorithms
determine the security and performance of any Blockchain.
The most popular consensus algorithm is the Proof-of-Work
which was first used in the Bitcoin. Since then, a number of
consensus algorithms have been proposed. This paper
presents a brief overview of the Blockchain Technology and
popular cryptocurrencies based on Blockchain. Next, the
most popular consensus algorithms in the context of
Blockchain and cryptocurrencies are discussed.
Keywords—Blockchain, Cryptocurrencies, Consensus
Problem, PoW, PoS, pPBFT, SCP.
Cryptocurrency can be thought of as a digital asset that can
be used as a method of transaction between untrustworthy
parties without the need of an intermediary body like a
bank. Carrying out transaction in such a distributed system
wherein the parties are not fully trusted, there is a
requirement of a system that can build the trust among the
other wise untrusted parties. Consensus algorithms in such
Blockchain-based cryptocurrency systems make sure that
only valid transactions are committed in the system and
invalid transactions are blocked.
The rest of the paper is organized as follows. Section II
presents an overview of the Blockchain technology and its
architecture. Section III discusses Cryptocurrencies.
Section IV discusses various consensus algorithms and
their comparison. Finally in section V summarizes the
work presented in this paper.

I. INTRODUCTION II. BLOCKCHAIN TECHNOLOGY AND ITS ARCHITECTURE

Blockchain technology has been a buzzword in this decade
as it offers applicability in various fields such as
healthcare, IoT, supply chain management, agriculture,
finance, insurance, and e-voting[1-3]. Blockchain is a
distributed ledger which eliminates the need of a central
authority for the transactions to occur in the network. It
addresses the issues such as security and performance
bottlenecks that are prevalent in centralized systems.
Blockchain ensures integrity in an untrustworthy peer-to-
peer network which consists of both genuine and
malicious nodes. Blockchain was first implemented in
2009 in Bitcoin by Satoshi Nakamoto.
Blockchain is a peer-to-peer network which maintains a
distributed ledger which is always in sync. Blockchain
consists of a number of blocks which are linked together
by cryptographic functions to create a chain which is
immutable in nature and is append-only. The blocks
consist of records or transactions which are visible to
anyone. The block size is limited and contains a limited
number of transactions. Whenever a transaction is added to
a block, it is time stamped so that in future it can be
audited easily. The block diagram of Blockchain is shown
in Figure 1.

The market size of Blockchain technology is ever growing

and it is expected that by 2025 the market size for
Blockchain will reach to USD 39.7 billion.

Although there is a paradigm shift from the traditional

centralized system towards the decentralized Blockchain-
based system, there are still many challenges that the
Blockchain technology need to address. Some of the issues
are security, privacy, speed, adoption, regulation,
awareness, cost and efficiency [4].
Figure 1: Blockchain Technology architecture

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 The blocks in the Blockchain technology consists of block
header and transactions. The block header consists of
Block version, Merkle Tree hash, nonce, parent hash and
timestamp [6]. Table 1 shows these fields in Bitcoin Block
#45000. These fields are explained as follows.
Block version: Block version defines the version of the
block and the corresponding validation rules defined in it.
The versions of Bitcoin are version 1 (2009), version 2
(2012), version 3 (Feb 2015), and version 4(Nov 2015).
Parent hash: It is a 32 byte hash in the form of SHA256 [5]
and is the hash of the previous block in a Blockchain. By
means of this hash, blocks are linked together in a
chronological fashion.
Merkle tree hash: Merkle tree hash is a 32 byte hash of all
the transactions contained in a block. It is useful in the
verification process of the transactions and ensures the
integrity of the transactions in a block.
Block hash: Block hash is a 32 byte hash which is the hash
of all the fields of a block header including the Merkle
hash.
Nonce: It is a 4 byte random number that is used for the
authentication purposes so that a new block is not created
from the previously used hashes that have been used in the
creation of previous blocks. It enhances the difficulty level
in solving a mathematical problem by the miners.
Time stamp: It is a Unix epoch time of 4 bytes and defines
the time when a block was created.
Difficulty: It defines the time taken for the miners to create
a new block. It is adjusted in a way that it takes an
average of 10 minutes to create a block in the Bitcoin
network. Table 1 shows different fields in Bitcoin block
#45000.
Table 1: Block #45000 BTC
Hash 0000000007758365e4eef39e396f257a3caebb285
0906f054066a58ffe657e3b
Time 2010-03-13 00:08
stamp
Diffic 4.53
ulty
Merkl 456c8415a423176b0c3f537b80cc88f655b3000a3
e root 5aaf4d3e0dad5e6d0ab0928
Versi 0x1
on
Nonc 1,299,615,251
e Work as its consensus algorithm till 2015. In 2015, Proof
III. CRYPTOCURRENCIES
Cryptocurrencies are digital or virtual money which are
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secured by using cryptographic algorithms.
Cryptocurrencies do not require any central authority to
make transactions in a distributed peer-to-peer network.
These currencies have no intrinsic value and are not
regulated by the governments [7-8]. Some of the popular
cryptocurrencies are Bitcoin, Ether, and XRP. A brief
description of these cryptocurrencies follows next.
Bitcoin: Blockchain technology was first implemented in
Bitcoin by Satoshi Nakamoto in 2009. Bitcoin is a
cryptocurrency that can be transacted between parties
without any intermediary in a peer-to-peer network. The
transactions in Bitcoin network are verified by the miners
who get incentives for validating the transactions in the
Bitcoin network. The blocks in a Bitcoin network are
generated after every 10 minutes. The number of
transactions committed in a Bitcoin network per second is
7. Bitcoin uses the Proof-of-Work consensus mechanism
to confirm transactions and to generate new blocks [9-10].
Figure 2 shows Bitcoin cryptocurrency values as on 13-
Dec-2020.
Bitcoin suffers from the scalability problem as the
maximum block size is 1MB, which limits the number of
transactions to be executed to around 7 per second. For the
new set of transactions, the network has to wait for the
creation of a new block which will further increase the
latency in the network.
Figure2: Bitcoin cryptocurrency values as on 13-Dec-2020
Ether: Ether overcomes the limitations of Bitcoin in
having the block generation time to around 15 seconds.
Ether is a cryptocurrency that is built on the Ethereum
platform which uses smart contracts to control the
execution of the transactions [11-12]. Ether used Proof of
of Stake was adopted as consensus algorithm by the
Ethereum platform. Figure 3 shows Ether cryptocurrency
values as on 13-Dec-2020.
 Each user in an Ethereum network has ETH balance which
he can send to other users in the network. For a transaction
to occur in such a cryptocurrency, Gas or fee is required,
which is set by the miners. The unit of gas is gwei.
Table 2 presents the comparison of the cryptocurrencies:
Bitcoin, Ether, and XRP. Bitcoin uses the well-known
SHA256 hashing algorithm, Ether uses Ethash and XRP
uses the Ripple Protocol Consensus Algorithm (RPCA).
Bitcoin tends to be moderately decentralized whereas both
Ether and XRP are highly decentralized. The problem with
the Bitcoin is that its transaction time is quite high. Ether
reduced the time considerably but the transaction time is
yet smaller in case of XRP. Consequently, the transaction
throughput is highest in XRP and smallest in Bitcoin. But,
by far, the Bitcoin is the most popular Blockchain-based
cryptocurrency and enjoys a market capital to the tune of
USD 357.94 billion.

Table 2: Comparison of Bitcoin, Ether, and XRP.

Cryproc Hash Decentra Trans Throu Cons Mar
urrency ing lization action ghput ensus ket
algor time Algor Capit
ithm ithm al
Bitcoin SHA Moderat 10 7 PoW $357
256 ely min .94B
Ether Etha High 15 sec 15-20 PoW/ $66.
Figure3: Ether Cryptocurrency values as on 13 Dec 2020. sh PoS 47B
XRP RPC High 4 sec 1500 RTP $52.
XRP: XRP, Ripple cryptocurrency is built on XRP A 06B
Ledger; an open source and permission-less Blockchain
network. It takes 3-5 seconds for the settlement of a IV. CONSENSUS ALGORITHMS
transaction in Ripple network. This cryptocurrency came
into existence to address the issues of transfer of funds Byzantine Generals’ problem [13] is a serious problem in a
between banks which would otherwise take days for the distributed environment wherein a node can send
conversion of money and the subsequent settlement of the conflicting information to other nodes in the network. The
transactions. Byzantine Generals problem consists of generals who need
to attack a city; the only way to win the battle is when all
The validators in the Ripple network ensure that the nodes the generals attack at the same time. However, in order to
in the network follow the RTXP protocol. xRapid, xVia make all the generals inform about the time of attack,
and xCurrent products are offered by the Ripple network messengers are used. The problem with using messengers
to the companies to transfer money to any part of the is that the information may be intercepted or modified,
world in a matter of seconds. Figure 4 shows the value of messenger may get killed, or the messenger may give false
XRP cryptocurrency as on 13-Dec-2020. information to the generals. So the messenger is an
untrustworthy entity in this scenario.

Blockchain comes to the rescue to solve the Byzantine

Generals problem. In a Bitcoin network, the nodes can be
thought of as generals. The condition to reach a decision
here is that there must be less than 3m+1 traitors in the
network, where m is the number of malicious nodes. The
validating nodes in the network validate and verify each
message in the network and keep the traitors at bay. The
nodes in the network reach consensus with the help of
consensus algorithms. A review of the important
consensus algorithms used in Blockchain networks is
presented next.

Figure 4: XRP values as on 13-Dec-2020.
Proof-of-Work
Proof-of-Work (PoW) is a consensus algorithm used in
permissionless Bitcoin network. PoW proves to the
network server that some computational work has been
performed by the nodes in the network. The network

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 server gives problems such as Hash sequences,
computational puzzles or other mathematical problems to
be solved by the nodes in the network. The nodes perform
the computations and provide answers to the network
server which then reward the nodes that compute the
correct answers. Figure 5 shows this scenario.
Figure 5: Proof-of-Work
PoW consensus algorithm is used to confirm the
transactions that are submitted to the network. It is further
used in the creation of blocks which holds the transactions.
These two operations are overseen by the special nodes in
the network and are called miners.
In PoW, the complexity of a problem to be solved by the
nodes is determined by the number of users, load on the
network, and the current power. It is adjusted in such a
way that it takes around 10 minutes for the creation of a
block. Once the block is created, all the unconfirmed
transactions are placed in a new block and are confirmed
later. This newly created block is linked with its previous
block to create a chain of blocks to enhance security.
Despite being the driving force in cryptocurrencies, PoW
suffers from issues. The first issue is that it consumes a lot
of computational power which results in the consumption
of large amount of electricity. Secondly, it may suffer from
51% attack in which 51% of the total mining power of the
network is controlled by the malicious nodes. The
malicious nodes while controlling the network can create a
new chain of block which is longer than the original one.
This process is called forking. In a Blockchain network the
longest chain is followed and as a result of which the
transactions can be denied and reversed. In Figure 6, 51%
attack is shown.
Fig 6: 51% attack
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In Fig 6, blocks B0 and B1 are created without any
problem in the network. However, blocks B2 and B3 are
created almost at the same time; so both the blocks are
appended in the Blockchain on different branches using
forking. At this point, the mining power is controlled by
the malicious nodes which results in the faster creation of
blocks, B4 and B5. Hence, blocks B3, B4, and B5 are
created by malicious nodes. The rule for the Blockchain in
this case is to follow the longest chain which results in the
rejection of block B2 in our example. Now, the network is
controlled by the malicious nodes which can hamper the
creation of further legitimate blocks in the network.
Proof-of-Stake
To address the issues of PoW, Proof-of-Stake (PoS) was
conceptualized and implemented in many systems
including the Ethereum platform. In PoS, a validator can
mint/forge a block or verify transactions according to the
stake he puts in the network. If a validator confirms a
fraud transaction, he may lose his stake in the network
[14].
PoS networks are more decentralized in nature as
compared to PoW networks and allows sharding to
improve the scalability of the network. In PoS, the attacker
needs 51% of the cryptocurrency to execute 51% attack
which is very less likely. It can result in the loss of
holdings an attacker possesses in case the value of the
cryptocurrency falls. Ether, NXT, PeerCoin
cryptocurrencies use the PoS consensus algorithm.
Byzantine Fault Tolerance
Byzantine Fault Tolerance (BFT) consensus mechanism
uses messages to reach consensus in a network which
consists of both genuine and faulty nodes.
In a faulty network, consensus can be reached when there
are more than two-third genuine nodes in the network. The
network can tolerate at most m faulty nodes when there are
3m+1 correctly working nodes in the network [13].
Practical Byzantine Fault Tolerance (pBFT) operates in
rounds within which it selects a node as a primary node
and the other nodes as the secondary nodes.
pBFT reaches the consensus after the termination of the
following rounds in the sequence as follows:
a) In the first phase called the request phase, client
sends a request to the primary or leader node in the
network.
b) Upon the receipt of request from the client node, the
primary nodes broadcast this message to the
secondary nodes.
c) In the third phase, the primary as well as the
secondary nodes sends their reply to the client node.
d) The consensus is reached when the client node
receives the same reply from at least m+1 nodes in
the network, the network being tolerant to a
 maximum of m faulty nodes. The whole scenario is
shown in Figure 7 below.
Fig 7: pBFT rounds
pBFT is inclined more towards centralization rather than
decentralization because there is a single authority that
decides which validators the network should trust.
D. Stellar Consensus Protocol
Stellar Consensus Protocol (SCP) is an open membership
consensus protocol and is a construction for Federated
Byzantine Agreement (FBA). In this protocol, each
validator choses other validators which it can trust. This
list of validators is called quorum slice. The quorum slices
of each validator overlap to form a quorum. Figure 8
below shows the concept of SCP.
Fig 8: SCP
In Figure 8 there are 4 quorum slices A, B, C, and D. The
validators in each quorum overlap to reach the consensus.
SCP consensus mechanism has the following four
properties that coexist at the same time: decentralization,
low latency, flexible trust, and asymptotic security. In a
distributed asynchronous system such as Stellar, two of the
three properties i.e., fault tolerance, safety, and liveliness
can be guaranteed [15]. SCP uses nomination protocol and
ballot protocol to reach consensus. SCP prefers safety over
liveliness. Figure 9 shows this feature.
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Fig 9: Safety over liveliness
E. Comparison of Consensus Algorithms
PoW consensus algorithm is implemented in Bitcoin
network which is a permissionless network; anyone can
join the network and participate in the mining process. The
PoW consumes a lot of energy in the form of electricity to
run the mining process. The block creation time is also
high in PoW systems and is around 10 minutes with the
throughput of around 7 transactions per second. This low
throughput of the transactions results in the delay of the
execution of the transactions.
PoS works in a permissionless network which does not
consume huge energy like PoW. The block creation time is
significantly low around 1 minute in case of PoS and the
throughput is good. Peercoin is an example which uses
PoS.
pBFT consensus algorithm is applicable to a permissioned
network which is more centralized in nature. The blocks
are created at a much faster rate and the transactions are
settled in a matter of seconds.
SCP is a permissionless protocol which is fully
decentralized in nature and is energy efficient as it requires
messages to reach the consensus process. The transaction
speed is very fast and the block creation time is also very
less. The comparison of consensus algorithms is given in
table 3.
V. CONCLUSION
Blockchain technology was introduced as the base
technology for driving the Bitcoin, the largest
cryptocurrency in the world today. Blockchain technology
has been used in various fields because of its unique
features. The cryptocurrency is a very serious as well as
sensitive application of the Blockchain technology and
therefore, demands utmost security, fast transaction
processing and reliability. Consensus algorithms help to
introduce security in Blockchain-based cryptocurrency
systems. However, some cryptocurrencies are computation
intensive utilizing a lot of energy whereas some are more
centralized than others. We have a myriad choice of
consensus algorithms available for use. The choice of a
particular consensus algorithm will depend on the specific
application. In general, the desirable features of a
 consensus algorithm for cryptocurrency systems include
permission-less, low power utilization, fast transaction
processing/ low latency and security. In this paper, we
presented an overview of the Blockchain technology,
Blockchain-based cryptocurrency systems and consensus
algorithms used in these systems.
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Table 3: Comparison of consensus algorithms

Consensus Blockchain Energy Decentralized Low Flexible Block creation Asymptotic
Speed Example
Algorithm Type Saving Control Latency Trust time(minutes) Security
PoW Permissionless No Slow Yes No No 10 No Bitcoin
PoS Permissionless Partial Normal Yes May be No 1 May be Peercoin
pBFT Permissioned Yes Fast No Yes Yes 0.06 Yes Hyperledger
SCP Permissionless Yes Fast Yes Yes Yes 0.08 Yes Stellar

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