Blockchain systems differ in their conception of the consensus mechanism used to carry out the essential task of verifying network data. Most public blockchain networks today use a process known as Proof of Work (PoW) or Proof of Stake (PoS) to build consensus, while private, approved blockchains and Distributed Ledger Technologies (DLT) are structured in different ways to prioritize speed, security, and scalability. Not all blockchains are created the same and their multiple consensus mechanisms have unique implications for accessibility, security, and sustainability.
PoW is a consensus mechanism used as a method for blockchains popularized by Bitcoin (BTC). Bitcoin’s legacy proof-of-work (PoW) mechanism is considered the safest and most efficient algorithm for building consensus on a blockchain network. However, the 2020 Ethereum hack has shown that PoW is permeable and nefarious actors can exploit networks that use it.
Proof-of-stake (PoS) is an alternative consensus mechanism that delegates control over the network to token owners. A key highlight is that Bitcoin’s proof of work mechanism (PoW) is used to regulate the creation of blocks and the status of the blockchain. PoS is a consensus mechanism that allows network validates to agree on a single true record of the data history. Proof of Stake (PoS) does not require miners to solve complex mathematical puzzles to secure transactions, but rather provides economic incentives to ensure network security, unlike proof of work (PoW). Unlike PoW where miners use computers and heavy machinery to mint new blocks, PoS validators use pile coins to confirm the existence of a block.
Proof of Work (PoW), the most widely used consensus mechanism, uses computing power as its scarce resource and requires potential attackers to obtain a large portion of computing power from validators on the network. PoW is a mechanism for validating and recording transactions on a blockchain that consists of computer nodes competing with each other to generate cryptographic hashes that meet the specified level of network complexity. This theory uses economics and game theory to find a better and more efficient way to maintain network consensus.
Evidence of the work offers members of the Bitcoin network an objective opportunity to agree on the state of the blockchain and its transactions. The network complexity is designed to maintain security to deter attacks on the network, as it requires a significant amount of computing power and the operation of the necessary hardware is expensive. For example, proof of work is required for fraud prevention, security, and confidence-building in the network.
Proof of Work requires miners to perform trillions of number puzzles to produce a valid block and thanks to difficulty adjustments, miners can find a block on average every 10 minutes. Evidence of the work is random and fair because of the strong randomness of the SHA-256 Hash function that underlies its mechanism. Validators are randomly selected to create blocks and are responsible for verifying and validating blocks they have not created. Each sliver of the chain is separated from the blockchain and requires a validator to process transactions and create new blocks. Miners perform the entire validation of transactions in a POS blockchain without a validator.
PoS represents a decentralized approach to higher network and transaction speeds and is used in projects such as Cardano and ADA. A new block containing a transaction to be added to the blockchain is created by a PoS miner who decides whether or not to confirm the block. PoS offers new ways of saving energy to validate blocks that are proportional to the percentage of coins owned by miners. Competition for the POS network is based on the energy consumption of the proposed new units. PoS miners need to keep their computers and internet connection constantly active, which consumes energy. PoS blockchains require less energy compared to PoW, so it is cheaper to run the network.
In 2011 the Bitcointalk Forum proposed a new approach to address the inefficiencies of the PoW consensus mechanism by reducing the number of computing resources needed to operate a blockchain network. In recent years, blockchains have tried to switch systems like Ethereum from PoW to PoS. Ethereum plans to move to proof-of-stake in 2022 to improve the scalability of the network. To do tangible work, the new approach is based on the existence of a demonstrable share of the ecosystem. In other words, to validate a transaction on the blockchain network, a user must prove that he has a certain amount of cryptocurrency tokens that reside on the network. Once a blockchain transaction is detected, it is appended to the blockchain.
Blockchain consensus mechanism plays a key role in maintaining the security and legitimacy of block content. Blockchain networks have different methods of validating transactions in a decentralized manner, of which one is Proof of Work (PoW) and the other is Proof of Stake (PoS). Now that we understand the concept of the consensus mechanism, we should start discussing the PoW Consensus.
In a blockchain, hundreds or thousands of participants can authenticate and verify transactions in real-time. The status of the register may change to be fair in real-time, and a mechanism will be used to ensure that all participants reach a consensus on the status of this register. In centralized systems, the task of updating the blockchain is done by administrators, while cryptocurrency blockchains use a consensus mechanism in decentralized systems such as Bitcoin and Ethereum to keep an accurate record.
Blockchain companies are using blockchain technology to generate new revenue streams and transform the way they offer products and services to consumers. Blockchains build trust in corporate networks through building blocks such as shared ledgers, transparency, consensus mechanisms, and cryptography. A blockchain is a consensus mechanism that provides an agreement between different parties over the current state of the blockchain and determines when a new block of transactions should be added.
Miners can control the Bitcoin network based on the Hashcash PoW system. In Proof of Work, miners compete for the primary completion of a complex mathematical puzzle to generate a new block, meaning they are ready to cash in on a new Bitcoin reward. The Genesis block, the initial block of the PoS blockchain, is firmly coded by miners (C). Proof-of-stake is a consensus algorithm that decides who validates the next block based on the number of coins they hold (miners crack cryptographic puzzles and use computing power to verify transactions just like they do with traditional proofs of work). The probability of validating a new block is determined by the amount of effort a person makes.