Consensus is the process by which a community comes to a universally recognized, unambiguous agreement on piece of information. There are many algorithms society has developed for reaching consensus about who owns what. Every government on earth is a primitive consensus algorithm whereby the population agrees to abide by a certain set of rules enshrined in a constitution. Governments establish courts, judges, and juries to interpret the subjective facts and render a final decision. Most of the time people abide by the decision even if it was wrong.
The algorithms used by cryptocurrencies provide a better way to reach consensus. Cryptographically signed testimony from individuals is recorded in a public ledger that establishes the absolute global order of events. A deterministic computer algorithm can then process this ledger to derive a universally accepted conclusion. So long as the members of a community agree on the processing algorithm, the result of the algorithm is authoritative.
The primary consideration is determining what testimony is allowed to enter the public record. Systems should be designed to minimize the potential for censorship. Censorship on the public ledger is similar to preventing someone from voting in an election. In both cases an individual is prevented from impacting the global consensus.
Consensus in Steem
Conceptually, the consensus algorithm adopted by Steem is similar to the consensus algorithm adopted by companies throughout the world. People with a vested interest in the future value of Steem vote to select individuals responsible for including testimony in the public record. Voting is weighted proportional to each individual's vested interest.
In the world of cryptocurrencies, the public record or corporate ledger is commonly referred to as a blockchain. A block is a group of signed transactions.
With Steem, block production is done in rounds. Each round 21 witnesses are selected to create and sign blocks of transactions. Nineteen (19) of these witnesses are selected by approval voting, one is selected by a computational proof-of-work, and one is timeshared by every witness that didn’t make it into the top 19 proportional to their total votes. The 21 active witnesses are shuffled every round to prevent any one witness from constantly ignoring blocks produced by the same witness placed before.
This process is designed to provide the best reliability while ensuring that everyone has the potential to participate in block production regardless of whether they are popular enough to get voted to the top. People have three options to overcome censorship by the top 19 elected witnesses: patiently wait in line with everyone else not in the top 19, purchase enough computational power to solve a proof of work faster than others, or purchase more shares to improve voting power. Generally speaking, applying censorship is a good way for elected witnesses to lose their job and therefore, it is unlikely to be a real problem on the Steem network.
Because the active witnesses are known in advance, Steem is able to schedule witnesses to produce blocks every 3 seconds. Witnesses synchronize their block production via the NTP protocol. A variation of this algorithm has been in use by the BitShares network for over a year where it has been proven to be reliable.
Source: Pages 21 & 22 of The Steem Whitepaper