What Is Consensus In Blockchain?: Understanding Differences between Proof-of-Work vs. Proof-of-Stake

By | December 11, 2023 | 60 Comments

In blockchain technology, one really important thing is to understand how a group of computers agrees on stuff and perform a action. This is called a “consensus mechanism.” Two important examples of consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS) but don’t worry as we will talk about it later.

This article is all about checking out these agreement ways, figuring out what they’re good at, what they’re not so good at, and why people keep talking about them. So let’s explore this together.

What is consensus mechanism in blockchain technology

In the blockchain, a consensus mechanism is like a security system that confirms a transaction as real. It keeps a record of all the legitimate transactions for a digital coin in a blockchain, building trust among traders. Many currencies, like Bitcoin and Ethereum, use this system to make sure everything is secure.

Consensus is crucial for establishing trust among global crypto coin traders. Given the decentralized nature of the crypto market, maintaining full transparency during the trade of a specific coin is vital to reduce the risk of buyers falling prey to fraud.

Types Of Consensus Mechanisms.

There are several types of consensus mechanisms used in blockchain networks. Here are some of the most common ones:

  • Proof of Work (PoW)

Participants (miners) solve complex mathematical problems to validate transactions and create new blocks. The first to solve it gets the right to add the next block and is rewarded.

Used in cryptocurrencies such as: Bitcoin (BTC), Ethereum (ETH) (although Ethereum is transitioning to Ethereum 2.0, which will use Proof of Stake).

  • Proof of Stake (PoS)

Validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral. It’s less resource-intensive compared to PoW.

Used in cryptocurrencies such as: Cardano (ADA), Polkadot (DOT), Tezos (XTZ).

  • Delegated Proof of Stake (DPoS)

Similar to PoS, but users vote for a limited number of delegates who have the authority to create new blocks. Enhances scalability and efficiency.

Used in cryptocurrencies such as: EOS, Tron (TRX), Lisk (LSK).

  • Directed Acyclic Graph (DAG) / Tangle

Instead of a linear chain, transactions are interlinked. Users validate previous transactions as they make new ones.

Used in cryptocurrencies like IOTA (MIOTA).

How Does The Consensus Mechanism Work?

For blockchain trust, the consensus mechanism ensures that once a transaction is verified, it quickly appears on the blockchain. Various methods are employed to guarantee security, trust, and agreement within the blockchain network. Consensus mechanisms also make sure that all transactions for a specific coin are accurately recorded in the blockchain.

1. Transaction Initiation

Users initiate transactions by sending information to the network, indicating the transfer of assets or data.

2. Transaction Verification

1Nodes on the network verify the validity of the transaction, checking if the sender has sufficient funds and if the transaction adheres to the network’s rules.

3. Creation of a Block

Verified transactions are grouped into a block by a node, forming a chronological chain of transactions.

4. Mining (Proof of Work)

Miners compete to solve a complex mathematical problem related to the block’s data. The first miner to solve it broadcasts the solution to the network.

5. Consensus Verification

Other nodes verify the solution and the validity of the block. If accepted, the block is added to the blockchain, and the miner is rewarded.

6. Blockchain Update

The updated blockchain is distributed to all nodes in the network. Each node maintains its copy of the blockchain.

7. Continuation of the Process

The process repeats for new transactions, with miners competing to add the next block to the blockchain.

This is a basic overview, and different consensus mechanisms may have variations in their processes. For example, Proof of Stake (PoS) replaces mining with the concept of staking, where participants lock up a certain amount of cryptocurrency as collateral to validate transactions and create new blocks.

Discussing The Types of Consensus mechanisms.

1. Proof-of-Work ( PoW)

Proof of Work is a consensus mechanism used in blockchain networks to validate and add new transactions to the blockchain. It involves solving complex mathematical puzzles to secure the network and create new blocks.

How PoW Works:

Step 1: Transaction is  Validated

Users on the network initiate transactions. These transactions are collected and need to be verified for accuracy.

Step 2: Mining takes place

Miners (participants in the network with powerful computers) compete to solve a challenging mathematical problem related to the transactions and available in the blockchain network of s currency such as Bitcoin.

This problem requires a lot of computational power and is hard to solve but easy to verify.

Step 3: Solving the Puzzle:

The first miner to solve the problem broadcasts ( tells other miners) the solution to the network. This solution is called a “proof of work.”

Step 4: Consensus Verification

Other nodes ( miners) on the network verify that the solution is correct and that the transactions are valid. If everything checks out, the new block is added to the blockchain.

Miners are rewarded with newly created cryptocurrency (like Bitcoin) and transaction fees for their efforts in solving the mathematical puzzles.

The most well-known example of PoW is the Bitcoin blockchain. Here, miners use specialized hardware to solve cryptographic puzzles and validate transactions.

Read also: Essential Blockchain, Cryptocurrency and Web3 Terms You Should Know

Advantages of Proof of Work (PoW)

1. Security:

PoW provides a high level of security. The computational work required to solve puzzles makes it extremely difficult and resource-intensive for malicious actors to alter past transactions or commit fraudulent activities.

2. Decentralization

PoW aims to distribute the authority to add new blocks across many participants, preventing any single entity from controlling the entire blockchain. This decentralization is seen as a key feature in maintaining trust and resilience.

3. Proven Track Record

PoW has been in use since the creation of Bitcoin in 2009 and has demonstrated its effectiveness in securing the longest-running and most valuable blockchain network.

4. Incentives for Participants:

Miners are rewarded with newly created cryptocurrency and transaction fees. This incentivizes participants to contribute computational power to secure the network and validate transactions.

Disadvantages of Proof of Work (PoW):

  • Energy Consumption: PoW is criticized for its high energy consumption. The process of solving complex mathematical problems requires powerful hardware and consumes a significant amount of electricity, leading to environmental concerns.
  • Centralization Risk: Over time, mining has become concentrated in large mining pools. This concentration raises concerns about the centralization of mining power, as a few major players could potentially control a significant portion of the network.
  • Scalability Challenges: As the network grows, the computational power required for PoW increases, leading to scalability challenges. This can result in longer transaction confirmation times and higher fees during periods of network congestion.
  • Potential for 51% Attacks: If a single entity or a coalition controls more than 50% of the total computational power in the network, it could potentially carry out a 51% attack, compromising the integrity of the blockchain.
  • Limited Environmental Sustainability: The environmental impact of PoW has sparked discussions about the need for more sustainable consensus mechanisms. The energy-intensive nature of mining has led to exploration of alternative, eco-friendly options.

In conclusion, while PoW has proven effective in securing blockchain networks, it comes with notable drawbacks, particularly in terms of energy consumption and potential centralization. These challenges have led to ongoing discussions and the exploration of alternative consensus mechanisms with lower environmental impact and improved scalability.

2. Proof of stake ( PoS ).

Proof of Stake is a consensus mechanism used in blockchain networks to validate and add new transactions to the blockchain. Instead of relying on computational work (as in Proof of Work), PoS selects validators to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral.

It quite similar to betting.

How PoS works

Step 1: Miners Stake ( Staking ).

Participants (validators) lock up a certain amount of cryptocurrency as collateral. This is known as “staking.” The more cryptocurrency staked, the higher the chance a validator has to be chosen to create a new block.

Step 2: Block Creation

Validators take turns proposing and validating new blocks. The chances of being chosen are often proportional to the amount of cryptocurrency staked.

Step 3: Consensus Verification

Other nodes on the network verify the validity of the proposed block. If it’s accepted, the new block is added to the blockchain. And he wins the coins.

Unlike PoW, PoS doesn’t involve traditional mining. Validators are chosen based on their stake and the willingness to lock up their cryptocurrency.

Validators are rewarded with transaction fees and, in some cases, newly created cryptocurrency. The rewards serve as an incentive for participants to act honestly.

Examples of coins that uses PoS are:

  • Cardano (ADA):

Cardano is a blockchain that uses a Proof of Stake consensus mechanism. Participants can stake ADA (Cardano’s native cryptocurrency) to become validators.

  • Polkadot (DOT):

Polkadot employs a variation of PoS called Nominated Proof-of-Stake (NPoS), where token holders can nominate validators.

Advantages of Proof of Stake (PoS)

  • Energy Efficiency: PoS doesn’t require the massive computational power seen in Proof of Work (PoW), making it more environmentally friendly and energy-efficient.
  • Decentralization Incentives: PoS encourages decentralization by giving more influence to participants with a higher stake in the network. This is seen as a positive feature for maintaining a distributed and resilient system.
  • No Mining Hardware Needed: Unlike PoW, PoS doesn’t involve traditional mining with specialized hardware. Participants can become validators by staking cryptocurrency, making it more accessible.
  • Reduced Risk of 51% Attacks: PoS reduces the risk of a 51% attack (where a single entity or coalition controls more than 50% of the network’s computational power), as it would require acquiring a significant portion of the cryptocurrency in circulation.

Disadvantages of Proof of Stake (PoS)

  • Wealth Concentration: PoS introduces the risk of wealth concentration, where participants with more cryptocurrency have more influence. This can potentially lead to centralization and reduce the democratic nature of the network.
  • Nothing-at-Stake Problem: Validators might be tempted to validate multiple conflicting blocks, known as the “nothing-at-stake” problem. This undermines the security of the network, as there’s no cost associated with validating multiple versions of the truth.
  • Challenges in Bootstrapping: Starting a PoS network can be challenging, as the initial distribution of cryptocurrency is critical. If a small number of entities control a large portion of the total supply, it can lead to centralization.
  • Dependency on Token Value: The influence of participants in PoS is directly tied to the amount of cryptocurrency they hold. This means the wealth and influence of participants can be highly sensitive to market fluctuations.

Proof of Stake offers energy efficiency, reduced hardware dependence, and incentives for decentralization. However, challenges like wealth concentration and the “nothing-at-stake” problem need careful consideration. Examples like Cardano and Polkadot showcase the application of PoS in real-world blockchain networks.

Bonus: here is our Free Blockchain Online Course ( Fee Diploma in Blockchain Technology compete course from Beginners to Advanced level )

In Conclusion, As blockchain technology continues to advance, the choice between PoW and PoS remains a critical decision for developers and stakeholders. Each consensus mechanism comes with its own set of trade-offs, and the optimal choice depends on the specific goals and priorities of a given blockchain project. The ongoing exploration and development of alternative consensus mechanisms highlight the dynamic nature of the blockchain space, where innovation and adaptability are key to success.

NEXT READING: Types of Blockchains Compared: Public vs. Private Blockchains – Understanding the Differences

SIMILAR CATEGORIES

Leave a Comment

Your email address will not be published. Required fields are marked *

60 thoughts on “What Is Consensus In Blockchain?: Understanding Differences between Proof-of-Work vs. Proof-of-Stake”

  5. WilliamTal

    Скачать свежие новинки песен https://muzfo.net 2024 года ежедневно. Наслаждайтесь комфортным прослушиванием, скачивайте музыку за пару кликов на сайте.

    Reply
  16. EddieIcoma

    Mohamed Salah https://mohamedsalah.prostoprosport-ar.com is an Egyptian footballer who plays as a forward for the English club Liverpool and the Egyptian national team. Considered one of the best football players in the world. Three-time winner of the English Premier League Golden Boot: in 2018 (alone), 2019 (along with Sadio Mane and Pierre-Emerick Aubameyang) and 2022 (along with Son Heung-min).

    Reply
  19. PhilipInike

    Pedro Gonzalez Lopez https://pedri.prostoprosport-ar.com better known as Pedri, is a Spanish footballer who plays as an attacking midfielder for Barcelona and the Spanish national team. Bronze medalist of the 2020 European Championship, as well as the best young player of this tournament. Silver medalist at the 2020 Olympic Games in Tokyo. At the age of 18, he was included in the list of 30 football players nominated for the 2021 Ballon d’Or.

    Reply
  23. FloydMiB

    Neymar da Silva Santos Junior https://neymar.prostoprosport-ar.com is a Brazilian footballer who plays as a striker, winger and attacking midfielder for the Saudi Arabian club Al-Hilal and the Brazilian national team. Considered one of the best players in the world. The best scorer in the history of the Brazilian national team.

    Reply
  26. BobbyFex

    Luka Modric https://lukamodric.prostoprosport-ar.com is a Croatian footballer, central midfielder and captain of the Spanish club Real Madrid, captain of the Croatian national team. Recognized as one of the best midfielders of our time. Knight of the Order of Prince Branimir. Record holder of the Croatian national team for the number of matches played.

    Reply
  28. JustinGaild

    Взять займ или кредит
    https://moidomiks.ru/testy/chto-takoe-protsenty-po-zajmu-i-kak-oni-rabotayut под проценты, подав заявку на денежный микрозайм для физических лиц. Выбирайте среди 570 лучших предложений займа онлайн. Возьмите микрозайм онлайн или наличными в день обращения. Быстрый поиск и удобное сравнение условий по займам и микрокредитам в МФО.

    Reply
  31. JamesGaw

    Kobe Bean Bryant https://kobebryant.prostoprosport-ar.com is an American basketball player who played in the National Basketball Association for twenty seasons for one team, the Los Angeles Lakers. He played as an attacking defender. He was selected in the first round, 13th overall, by the Charlotte Hornets in the 1996 NBA Draft. He won Olympic gold twice as a member of the US national team.

    Reply
  32. Nolangauck

    Купити ліхтарики https://bailong-police.com.ua оптом та в роздріб, каталог та прайс-лист, характеристики, відгуки, акції та знижки. Купити ліхтарик онлайн з доставкою. Відмінний вибір ліхтарів: налобні, ручні, тактичні, ультрафіолетові, кемпінгові, карманні за вигідними цінами.

    Reply
  33. RobertCaday

    Lebron Ramone James https://lebronjames.prostoprosport-ar.com American basketball player who plays the positions of small and power forward. He plays for the NBA team Los Angeles Lakers. Experts recognize him as one of the best basketball players in history, and a number of experts put James in first place. One of the highest paid athletes in the world.

    Reply
  35. Michaelshawn

    Luis Fernando Diaz Marulanda https://luis-diaz.prostoprosport-ar.com Colombian footballer, winger for Liverpool and the Colombian national team . Diaz is a graduate of the Barranquilla club. On April 26, 2016, in a match against Deportivo Pereira, he made his Primera B debut. On January 30, 2022, he signed a contract with the English Liverpool for five years, the transfer amount was 40 million euros.

    Reply
  39. Gustavopon

    Экспертиза ремонта в квартире https://remnovostroi.ru проводится для оценки качества выполненных работ, соответствия требованиям безопасности и стандартам строительства. Специалисты проверяют используемые материалы, исполнение работ, конструктивные особенности, безопасность, внешний вид и эстетику ремонта. По результатам экспертизы составляется экспертное заключение с оценкой качества и рекомендациями по устранению недостатков.

    Reply
  40. ShawnUtich

    Larry Joe Bird https://larry-bird.prostoprosport-br.com American basketball player who spent his entire professional career in the NBA ” Boston Celtics.” Olympic champion (1992), champion of the 1977 Universiade, 3-time NBA champion (1981, 1984, 1986), three times recognized as MVP of the season in the NBA (1984, 1985, 1986), 10 times included in the symbolic teams of the season (1980-88 – first team, 1990 – second team).

    Reply
  49. DanielVem

    Sweet Bonanza https://sweet-bonanza.prostoprosport-fr.com is an exciting slot from Pragmatic Play that has quickly gained popularity among players thanks to its unique gameplay, colorful graphics and the opportunity to win big prizes. In this article, we’ll take a closer look at all aspects of this game, from mechanics and bonus features to strategies for successful play and answers to frequently asked questions.

    Reply
  50. DavidCot

    Philip Walter Foden https://phil-foden.prostoprosport-fr.com better known as Phil Foden English footballer, midfielder of the Premier club -League Manchester City and the England national team. On December 19, 2023, he made his debut at the Club World Championship in a match against the Japanese club Urawa Red Diamonds, starting in the starting lineup and being replaced by Julian Alvarez in the 65th minute.

    Reply
  53. RobertLef

    Declan Rice https://declan-rice.prostoprosport-fr.com Footballeur anglais, milieu defensif du club d’Arsenal et de l’equipe nationale equipe d’Angleterre. Originaire de Kingston upon Thames, Declan Rice s’est entraine a l’academie de football de Chelsea des l’age de sept ans. En 2014, il devient joueur de l’academie de football de West Ham United.

    Reply
  56. DennisScalo

    Jamal Musiala https://jamal-musiala.prostoprosport-fr.com footballeur allemand, milieu offensif du club allemand du Bayern et du equipe nationale d’Allemagne. Il a joue pour les equipes anglaises des moins de 15 ans, des moins de 16 ans et des moins de 17 ans. En octobre 2018, il a dispute deux matchs avec l’equipe nationale d’Allemagne U16. En novembre 2020, il a fait ses debuts avec l’equipe d’Angleterre U21.

    Reply
  58. WilliePhalo

    Mohamed Salah https://mohamedsalah.prostoprosport-br.com e um futebolista egipcio que joga como atacante do clube ingles Liverpool e do Selecao egipcia. Considerado um dos melhores jogadores de futebol do mundo. Tricampeao da Chuteira de Ouro da Premier League inglesa: em 2018 (sozinho), 2019 (junto com Sadio Mane e Pierre-Emerick Aubameyang) e 2022 (junto com Son Heung-min).

    Reply
Scroll to Top