- Understanding the consensus mechanisms is the first step to apprehend the working of blockchains.
- Proof-of-work and proof-of-stake are the two most basic mechanisms that crypto enthusiasts must get hold of.
- Today, some other consensus mechanisms have been introduced. However, they all emerge from these two.
People who’ve tried to understand blockchain have certainly come across two terms. Proof-of-Stake and Proof-of-Work. These are consensus mechanisms that validate entries into the distributed ledger, that is blockchain. The miners create new digital assets only by creating new blockchains in these structures.
Proof-of-Work: In a Nutshell
PoW is a consensus mechanism that involves comprehensive computing efforts. In this environment, the network members (miners) solve encrypted hexadecimal numbers. Upon solving the equation, miners receive a reward which is usually some portion of the crypto itself. It deploys peer-to-peer architecture and doesn’t require a trusted third party. This particular mechanism requires a vast amount of energy too.
The very first and only cryptocurrency which is mined is Bitcoin. It runs on a Proof-of-Work consensus and includes various other components. But before digging deeper into it, one must know a few things about blockchain.
It’s a distributed ledger that contains multiple blocks and each of them holds information. It could be time, date, amount, or anything else. After recording the data, the network encrypts them using a hashing function.
Process of PoW
The step-by-step procedure for storing information in blockchain. It’s an important part of understanding Proof-of-Work vs. Proof-of-Stake.
Hash
Upon closing the block, the hash, a 64-digit encrypted hexadecimal number is created. It only takes a few milliseconds to generate a hash that secures reams of data. However, it may take a very long time for the miners to guess it.
Nonce
The numbers that a hash contains are called the nonce, an abbreviated version of “number used once.” In the process of mining, miners solve equations and convert the nonces into zeroes.
Hash Solving
Miners solve the hash by bringing the current network target lower than the hash. The network target is a mathematical representation of the mining difficulty.
Proof-of-Stake: In a Nutshell
In this consensus mechanism, miners don’t need to solve cryptographic puzzles. Instead, they need validators to hold and stake tokens to create new ones. It gives the chance of earning a transaction fee rather than a reward. Unlike PoW, the PoS ecosystem is energy-efficient and considered less risky as well. In this environment, the validators are picked based on the volume of the tokens they have.
For example, if someone wants to become a validator on Ethereum, they need to have at least 32 ETH. The process of validation on PoS is easy. Multiple validators assess every single block. When they approve them, the blocks are finalized and closed. It should be noted that one needs 32 ETH only to activate their validator. They can participate in the validation process without owning any staked tokens.
Understanding The Nuances Between PoS and PoW
Both mechanisms work with the same motto of processing transactions, synchronizing data, and validating information. They both have been useful for maintaining the efficacy and performance of their respective blockchains. It is the approach that makes one so different from the other.
To become a validator in PoS, one must have a certain number of staked coins. To mine assets in PoW, they must get mining rigs which are purpose-built gadgets used for solving hashes. In addition, they need to be ready to incur lofty electrical bills.
The equipment required for PoW is expensive, so a sizable capital is required. On the other hand, PoS reduces the amount of processing power. It also curtails network congestion but eliminates the rewards.
With PoW mining, one can acquire Bitcoin which is the most expensive crypto. The potential users must also consider that none of these mechanisms is invulnerable to cyber-attacks. They both have their fair share of hacking incidents.
Despite all that, the crypto sphere is evolving and so are consensus mechanisms. So, in the future, they will be safer, more efficient, and more adaptable too.
