What is a consensus algorithm? In blockchain, a consensus algorithm is explained as the mechanism where a network reaches an agreement. Today we will be sharing about 2 consensus mechanism algorithms – Proof of Work (PoW) and Proof of Stake (PoS) and why they matter.
Before we dive into that, lets go a bit further into the term “consensus algorithm”.
In a centralized system, a central administrator holds the authority to validate, update and maintain a database of values or information. Being centralized also means that any changes, updates or lack of is controlled by one party that is not cross-checked or challenged.
A decentralized system, on the contrary, is built on a network of validators (nodes) where there is distributed authority to authenticate and verify values and information on the blockchain, and therefore achieves a self-regulating system.
With that in mind, have you wondered how this is carried out? The whole process of having a secure mechanism ensuring that all the information passing through, known as transactions, are validated in real-time efficiency and authentic, and all the nodes come to an agreement, is performed by the consensus mechanism algorithm. The consensus mechanism algorithm carries out a set of rules according to the differrent principles it is set up for.
Proof of Work (PoW)
Proof of Work is commonly known as the original consensus mechanism algorithm in a blockchain network. In this mechanism, miners compete with each other to change the number in the block header as fast as possible to find the correct hash value. Miners earn rewards when they complete transactions on the network.
Proof of Stake (PoS)
Proof of Stake is another common consensus mechanism algorithm which has similar goals as Proof of Work but is executed based on different principles in the validation of new blocks.
It was first introduced in 2012 by Sunny King and Scott Nadal with the intention to solve the high energy consumption problem that arose from the Proof of Work mechanism, such as in the case of mining for Bitcoin.
In this mechanism, the distribution of responsibility is in proportion to the the number of tokens a node holds.
Proof of Capacity (PoC)
Proof of Capacity mechanism allows miners in the network to mine for tokens with the available space they have on their hard drive. The more empty space the node has, the more rights it will earn to maintain on the ledger. Read more here.
Why They Matter
To sum up, consensus mechanism algorithms are key in carrying out the transactions and validation in the blockchain network, according to the rules and principles they are set up for. This helps to ensure integrity and authenticity of a blockchain network, which are important factors to achieve mainstream adoption and scalability.
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