Front Matter
Author: Parma Bains

Title Page

FINTECH NOTE

Blockchain Consensus Mechanisms: A Primer For Supervisors

Prepared by Parma Bains

January 2022

Copyright Page

©2022 International Monetary Fund

Blockchain Consensus Mechanisms: A Primer for Supervisors

Note 2022/003

Prepared by Parma Bains

Names: Bains, Parma, author. | International Monetary Fund, publisher.

Title: Blockchain consensus mechanisms : a primer for supervisors / prepared by Parma Bains.

Other titles: A primer for supervisors. | FinTech notes (International Monetary Fund).

Description: Washington, DC : International Monetary Fund, 2022. | January 2022. | Note 2022/003 | Fintech notes. | Includes bibliographical references.

Identifiers: ISBN 9781616358280 (paper)

Subjects: LCSH: Blockchains (Databases) -- Law and legislation. | Electronic funds transfers -- Law and legislation | Banks and banking -- Technological innovation.

Classification: LCC K564.C6 B35 2022

Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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Contents

  • Glossary

  • I. EXECUTIVE SUMMARY

  • II. INTRODUCTION

  • III. WHY CONSENSUS MECHANISMS MATTER

  • IV. PUBLIC AND PRIVATE BLOCKCHAINS: REGULATORY IMPLICATIONS

    • A. Consensus Mechanisms in Public Blockchains

      • Proof-of-Work (PoW)

      • Proof-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–Money Laundering

BCBS

Basel Committee on Banking Supervision

BFA

Bali Fintech Agenda

BFT

Byzantine Fault Tolerance

CBDC

Central Bank Digital Currency

CTF

Counter Terrorist Financing

DLT

Distributed Ledger Technology

DPoS

Delegated Pos

fBFT

Federated Byzantine Fault Tolerance

iBFT

Istanbul Byzantine Fault Tolerance

IMF

International Monetary Fund

PoA

Proof-of-Authority

pBFT

Practical Byzantine Fault Tolerance

PoET

Proof-of-Elapsed-Time

PoS

Proof-of-Stake

PoW

Proof-of-Work

Blockchain Consensus Mechanisms: A Primer for Supervisors
Author: Parma Bains