Stellar Consensus Protocol

The Stellar Consensus Protocol (SCP) provides a way to reach consensus without relying on a closed system to accurately record financial transactions.


What is a Consensus Mechanism?

Different cryptocurrencies are tracked on different blockchains. The term blockchain generally refers to distributed ledger technologies (DLTs) that use various methods to create a permanent record of transactions. This permanent record can then be viewed as a shared, accurate source of information. How each transaction gets verified and added to the shared record, or blockchain, is a defining characteristic of different protocols called a consensus mechanism. Some common mechanisms are Proof-of-Work (i.e. Bitcoin) and Proof-of-Stake (i.e. Ethereum 2.0), as well as newer methods of consensus using Proof-of-Agreement (PoA) like the Stellar Consensus Protocol (SCP).

Proof-of-Work (PoW)

Proof-of-Work (PoW) is the original blockchain consensus mechanism and is exemplified by Bitcoin. In PoW based blockchains, both consensus among validators and network security are achieved through a process called “mining.” Mining involves computers racing each other to solve complex computational puzzles and results in excellent network security, but also high energy consumption.

Proof-of-Stake (PoS)

Proof-of-Stake (PoS) is another type of consensus mechanism seen in the planned Ethereum 2.0 blockchain. PoS requires validators to hold, or “stake” a certain amount of the native cryptocurrency to participate and potentially receive transaction fees. When a block of transactions are confirmed on the ledger, the transaction fees collected are given to one randomly selected “staked” validator. PoS benefits validators who hold the most value on the network, and involves an element of chance in its payouts.

Proof-of-Agreement (PoA)

Proof-of-Agreement (PoA) describes the SCP consensus mechanism used by Stellar. PoA is a more efficient alternative to older blockchains that require brute force solutions to difficult math problems and the energy to run and cool massive stacks of hardware. Instead, PoA allows for non-mining based blockchains which achieve consensus through a very fast series of messages between participants to confirm transactions and finalize them on the ledger. Learn more about how Proof of Agreement works here.

A single blockchain can be used for recording movement and holdings for many different digital assets. In addition to the assets that can be transacted on the network, oftentimes the blockchain will have one or more “native” assets like Ether (ETH) on the Ethereum blockchain, or lumens (XLM) on the Stellar blockchain. Native assets may be used to pay for transactions, enable governance, or other functions of the network. On Stellar, lumens are a source of network security, used to pay a very small transaction cost that discourages spam and other malicious activity, and of liquidity, by serving as a bridge asset between exchange transactions on the network.


Proof of Agreement

The Stellar network is an open-sourced, public blockchain powered by the Stellar Consensus protocol (SCP), a Proof-of-Agreement (PoA) consensus mechanism. Thanks to PoA, the Stellar network is faster, cheaper, and far more energy-efficient than many other blockchains. Transactions are finalized and added to the blockchain once they are agreed upon by computers called “nodes” through a Proof-of-Agreement process called Stellar Consensus Protocol. Anyone can set up a Stellar node and participate, but they must provide their identifying information on the public record. This way, other nodes can decide who to include in - or exclude from - their trusted group. SCP gains Proof-of-Agreement on which transactions are added to its blockchain from a series of voting processes by these mutually trusted nodes. When enough nodes in their trusted overlapping groups (called a quorum) agree that a transaction set and the assets and actions in it are valid, it will be permanently added to the blockchain. This entire process generally takes about 5 seconds. Learn more about how Proof of Agreement works in this explainer blog.

Stellar Consensus Protocol

How does the Stellar Consensus Protocol (SCP) work?

The process of confirming transactions works a bit like this. Imagine you are a student assigned an at-home math test to be completed in groups, you’re like a Stellar node. First, you’ll decide which of your fellow students you want to work with and form a study group, that’s your Quorum Set. When you sit down to do the test together, you’ll want a certain number of fellow students you trust within your study group to compare answers and agree, that’s a Quorum Slice. But that’s just your own study group. In order to get widespread agreement on the answers being correct across the class, you’ll need members of your group to have their own trusted fellow students outside the group agree too. Now you have overlapping Quorum Slices that agree - and that achieves Proof-of-Agreement. And congratulations - the whole class gets an “A” on that test.

CAPTION: An example Quorum Set and the resulting Quorum Slices. If “Student A” has three other students in its Quorum Set and requires at least 2 of them to agree, “Student A” has 3 resulting Quorum Slices.


Are Blockchains Sustainable?

Sustainability and efficiency are integral to the Stellar network by design. The Stellar Consensus Protocol is extremely efficient because it gains Proof-of-Agreement by way of a series of messages sent back and forth among nodes about the transactions. This is quite different from “mining” with PoW algorithms that require a high amount of computing power to close and confirm blocks of transactions with complex math.

The Stellar Development Foundation (SDF) commissioned PwC to develop a framework to evaluate the environmental sustainability of blockchain protocols and apply the Framework to benchmark the environmental footprint of the Stellar network. Read the report to learn more about blockchain’s impact on sustainability, differences between blockchain networks, and what makes Stellar unique.


Knowing your chain

Finally, one of the most singular distinctions about the Stellar network is the transparency surrounding asset issuers and nodes. In order to participate in SCP and issue assets on the Stellar network, you must have a publicly-accessible and verifiable record (called a TOML file) that identifies you to the world. In SCP, each node chooses who will be in their quorum set, like the students in the math test example, so all are known to each other. Having a transparent and open process builds trust in the network and allows for flexible growth and collaboration.

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