Cryptocurrency’s Consensus Mechanisms with Pros and Cons

 Cryptocurrencies have been the talk of the town since their evolution. People have started to show greater interest in it for various purposes, such as investment. The cryptocurrencies work on their specific rules and regulations, which go hand in hand and validate the transactions that take place in the network of computers. The article aims to throw light on the consensus mechanisms and their pros and cons. If you want to start bitcoin trading, check how you can make profits from bitcoin.

What is a consensus mechanism?

The working functionalities of digital currencies are based on a bunch of complex systems. The consensus mechanism is one of those intricate working structures. It is associated with the consent of participants of a particular network regarding any change in the entire linkage. After the validation from all the node operators, a piece of data is added in the form of a block in the distributed ledger system. These blocks constitute a blockchain network.

A consensus mechanism involves four significant steps:

  1. Agreement of the participants on the same point.
  2. The tolerance to faulty nodes, if there are any.
  3. The proposed value should be the same for all node operators.
  4. The closure of entry after accurate validation.

Various currencies have adopted their consensus mechanisms, some of which are explained below.

Proof of Work (PoW)

Proof of work refers to showing the mining procedure carried out by solving complex mathematical equations and getting it confirmed by other operators. It includes the agreement of at last 51 percent of the entire network. Since it is used for major platforms whose percentage is equal to trillions of dollars, it is nearly impossible to commit any fraudulent activity.

It is helpful as it saves from illegal events but uses so much time and energy and leads to high scalability.

Proof of Stake (PoS)

Unlike proof of work mechanism, this system uses a single person who verifies the transactions. The single validator is selected based on the number of coins he has locked up in his digital wallet. The greater the number of stacked coins, the greater will be the chance of becoming the next validator.

Since it does not involve many people for verification, a considerable amount of time and energy is saved.

Delegated Proof of Stake (DPoS)

This mechanism is much similar to PoS with a slight difference. The difference lies in being a validator yourself or voting for someone to be a validator. If you have not staked enough coins to verify the transactions, you can vote for someone. In this way, you can earn a few rewards for choosing a good validator. It is being operated at famous sources, such as Binance.

Because of similarity with proof of stake consensus methods, it provides identical benefits. It saves energy and reduces scalability to a great extent.

Proof of Space and Time

As the name depicts, it uses the capacity of storage with time as its consensus mechanism. For instance, it checks the data that has been stored on a drive after long intervals. The random check enables the users to have proof of their data that helps to choose the validator. Certain platforms provide storage capacity for data and get paid with the native coin of consumers. One such platform is Filecoin. It is also known as proof of capacity.

It just needs space, not high electricity supplies or a lot of time, so that it can benefit the user.

Proof of weight

Proof of weight includes various things other than a mere number of coins. It also includes factors such as the length of time for which the coins have been staked, the amount of data stored and for how long, and other things that determine the reputation of a stakeholder. It is widely used in Algorand.

The bottom line

The ways mentioned above are a few generally used consensus mechanisms. Apart from these, many other mechanisms are used to validate a new entry in the blockchain network. Proof of work and proof of stake are the two most reliable and commonly used mechanisms.

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