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Technology plays an increasingly important role in financial services. With the pace of technological inno-vation moving ever faster, the role new technology plays in the provision of financial services is becoming increasingly fundamental. New technology can generate efficiencies for firms, lowering costs that can be passed on to end users. It can increase access to financial services and products for consumers, particularly the most vulnerable; however, new technology can also create new risks and unintended consequences that can harm financial stability, consumer protection, and market integrity. This primer is designed for financial supervisors at central banks, regulatory authorities, and government departments. It adds to existing literature by summarizing key aspects of popular consensus mechanisms at a high level, with a specific focus on how such mechanisms may impact the mandates of supervisors and policymakers when deployed in financial services markets. It could also help inform IMF staff on policy development and technical assistance related to crypto assets, stablecoins, and blockchains.
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-of-Stake (PoS) Delegated-Proof-of-Stake (DPoS) B. Consensus Mechanisms in Private Blockchains Practical and Istanbul Byzantine Fault Tolerance (pBFT/iBFT) Federated Byzantine Fault Tolerance (fBFT) DiemBFT Proof-of-Elapsed-Time (PoET) V. CONCLUSION VI. REFERENCES Box 1. Definitions Box 2. How Consensus Fits into Distributed Systems Box 3. Selected Risks of Some Consensus Mechanisms FIGURE 1. Bitcoin Mining Pools November 2020 to November 2021 TABLE 1. Comparison of Different Consensus Mechanisms Glossary AML Anti

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decentralized environment with the potential for quicker transaction rates. That said, because the mechanism has not been tested as long as PoW or PoS have been, regulators should consider associated network-security risks, cartel-like behavior, and limited voter participation. B. Consensus Mechanisms in Private Blockchains This section covers the most common consensus mechanisms deployed in private blockchains within financial services: Practical Byzantine Fault Tolerance Federated Byzantine Fault Tolerance DiemBFT Proof-of-Elapsed-Time Practical