Quick Summary

• Proof-of-Agreement is the consensus mechanism used by Stellar Network.
• To reach consensus, each node selects a group of nodes to decide whether or not a transaction is valid.
• If enough of these groups of nodes agree on the transaction, the network reaches consensus. 

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Traditional blockchain networks like Bitcoin use Proof-of-Work (PoW), which requires a lot of energy and computing power to validate transactions. Others, like Ethereum, are moving towards Proof-of-Stake (PoS), where participants must lock up some of their assets as a way to prove their trustworthiness. Proof-of-Agreement (PoAg), on the other hand, doesn't need heavy computing power or asset staking. Instead, it builds consensus through trust among participants (nodes) in the network.

Proof-of-Agreement is the consensus mechanism used by Stellar Network. 

Like other decentralized blockchains, Stellar doesn’t have a single authority that controls who can join and participate in the network. For the different nodes to agree that a transaction is valid, each node selects groups of other nodes that it can trust. Each group of nodes is called a quorum slice.

For example, Node A’s quorum slices may be:

Quorum Slice 1: Nodes B, C, and D

Quorum Slice 2: Nodes E and F

Here are the rules:

• All the nodes within a quorum slice need to agree with each other. For example, if the nodes in Quorum Slice 1 (B, C, and D) agree with each other, but the nodes in Quorum Slice 2 (E and F) do not, then Node A automatically cannot agree with Quorum Slice 2. It will have to go with Quorum Slice 1.
• Each node has to trust at least one of its quorum slices. If Quorum Slice 1 and Quorum Slice 2 both agree that the transaction is valid, then Node A will agree that yes, the transaction is indeed valid. If Quorum Slice 1 approves the transaction while Quorum Slice 2 disapproves, then Node A has to choose between the two.
• Each node chooses different quorum slices based on who they trust in the network. For example, Node A might trust Nodes B, C, and D, while Node B might trust Nodes D, E, and F.

Now, let’s say a new transaction is submitted to the network, and the nodes need to decide whether to approve it. The nodes start discussing the transaction with their quorum slices. During this process, many of these quorum slices will overlap, meaning that some nodes are trusted by multiple other nodes. 

For instance, in this scenario:

Node A’s trusted Quorum Slice: Nodes B, C, and D

Node B’s trusted Quorum Slice: Nodes D, E, and F

Node C’s trusted Quorum Slice: Nodes A and B

You’ll notice an overlap between the nodes. Since both Node A and B trust Node D, there’s a bigger chance that their decisions will be similar. Also, if both Node A and B agree that a transaction is valid, then Node C will also have to agree that the transaction is valid. If enough of these quorum slices approve a transaction, it becomes accepted by the entire network and recorded on the blockchain.

Here’s another example, in which Node N has three different quorum slices. The 2nd and 3rd quorum slices overlap since they share Node E.

This method not only helps in reaching a decision quickly but also ensures that the network remains secure. First, since each node only trusts a small group of other nodes, and these groups overlap, it’s difficult for any single node to control the whole network. Second, if some nodes are slow, offline, or even acting maliciously, as long as the majority of the quorum slices agree, the network can continue to function and make decisions.

Because Proof-of-Agreement relies on trust among nodes rather than on energy-heavy processes or financial stakes, it is much faster and more energy-efficient than methods like PoW. Furthermore, since many nodes need to agree to reach consensus, this system keeps the network decentralized and secure. Altogether, these traits make Proof-of-Agreement an effective and efficient consensus mechanism for managing a distributed network.

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