The Nakamoto Consensus gave birth to blockchain as we know it — what makes it so different from consensus mechanisms that came before it?
Prior to Satoshi’s creation of the Nakamoto Consensus, Byzantine Fault Tolerance was used in peer-to-peer networks to maintain their authenticity for a variety of cryptography-related projects, and even some early forms of digital currency.
However, there were problems — in just a Byzantine Fault Tolerant system, the voting system for consensus requires a rotating election of leaders. If a leader acted maliciously, as leaders are known to do, then they could be removed from the network by a vote from the other nodes. In the case of Bitcoin (and for the idea of a digital currency in general) this individual removal of leaders through a voting process would pose a huge problem when it came to scaling.
Why Proof-of-Work Matters
Satoshi’s addition to using BFT on a P2P network was to add the idea of a proof-of-work consensus mechanism, where nodes had to mine (along with other things we will explain below!) to create a fully trustless, decentralized network.
Proof-of-work blockchain technology also prevents the possibility of double spending, since the time-stamped blocks on the blockchain makes it immutable — the longest chain is the valid chain, since it is supported by the majority of the miners’ computing power.
In the Nakamoto Consensus, there is no block selection “voting” process like in BFT-only networks; instead, the miners compete to solve a cryptographic puzzle, and the winner (and their new block) is then accepted as valid across the entire network of miners. The mining computation process is a little bit like a lottery: it’s not possible to tell who will find the solution, meaning that miners have to be willing to honestly invest time and money in their participation to validate the next block.
Another aspect of the Nakamoto Consensus comes from Satoshi putting a hard cap on the amount of Bitcoin — there will only ever be a total of 21 million of the cryptocurrency in circulation. This creates artificial scarcity, which again adds to the incentives for miners to participate in the network.
The Nakamoto Consensus Beyond Bitcoin
Tldr; the Nakamoto Consensus answers much more than just a computer science thought experiment: it has been shown to provide real world value.