Celo uses a Byzantine Fault Tolerant (BFT) consensus algorithm which validators use to advance the network. This has the advantage of creating blocks in five seconds, as opposed to the longer wait time needed in traditional Proof of Work networks.
Furthermore, all blocks enjoy immediate finality on Celo, meaning there’s no need to wait longer than one block to confirm transactions won’t be changed. The decentralized ledger is updated when at least two-thirds of nodes are in agreement.
Celo’s Proof of Stake (PoS) mechanism determines which nodes become these validators, and how incentives are aligned to serve the Celo network. Operating such a PoS system successfully guarantees Celo’s security, while minimizing the environmental impact that securing the network requires.
Celo is a highly inclusive blockchain as it allows anyone to participate in consensus. This means that holders of the native Celo token are incentivized to take part in the PoS protocol. Validators are responsible for maintaining the blockchain, determining which transactions get applied and producing new blocks. Rather than voting on the validators themselves, token holders can vote for Validator Groups, acting as intermediaries between voters and validators.
Each group has five validator candidates. Validator elections are held every epoch (roughly once per day), where the protocols elects a maximum of 100 validators. Each epoch, an elected validator must be re-elected to continue serving their role in the network. Validators are chosen relative to the amount of votes allocated to them for each Validator Group.
Decentralization of the network is encouraged, as Validator Groups can only have a small, fixed number of validators. This means that managing more Validator Groups becomes more complex for organizations or individuals wanting to participate more. These challenges dis-incentivize any single entity from creating many Validator Groups, encouraging a diversity of validators across the network.