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Definitions and terminology related to cryptoeconomics, blockchain and distributed ledger technology.

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Nakamoto Consensus

Nakamoto Consensus is the consensus mechanism employed by most Proof-of-Work blockchains, most notably Bitcoin. Its name derived from the Bitcoin creator’s pseudonym, Satoshi Nakamoto, Nakamoto Consensus states that the longest chain of verified blocks existing within a network of nodes is valid, and all others are to be ‘orphaned.’ In essence, nodes on the network ‘vote’ on the most valid chain by adding verified blocks to it.

A common misconception is that Proof-of-Work is, in and of itself, a consensus mechanism. In reality, PoW is merely a mechanism by which blockchains employing Nakamoto Consensus are secured. That is, the randomization and costs (electricity, time, etc.) inherent in generating a nonce necessary to create and propagate a block makes it theoretically unfeasible to spam the network with invalid blocks or launch a Sybil or denial of service attack. Thus, this act of ‘mining’ itself does not achieve consensus but rather introduces a level of difficulty to block production that eases consensus achievement by hindering the submission of potentially invalid or malicious blocks to the network.