With so many blockchain technologies out there nowadays it gets pretty confusing for people to understand fundamentally anything about how these cryptocurrencies work let alone understand the whitepaper of the several cryptocurrencies. Many people after reading a whitepaper are like what? I don’t get it. So in this post, I’ll try my level best to help you guys understand the different types of consensus mechanism of different cryptocurrencies.
So let’s begin, shall we?
What is a consensus mechanism
A blockchain is a decentralized peer-to-peer network that unlike major MNC’s has no central authority figure at its head in charge of all the nonsense happening in the organization. While this builds a system that is devoid of corruption from a particular source, it still creates a significant problem.
How do you make any decisions?
How do you get anything done from start to finish?
So to understand this think of a traditional centralized organization.
All the major decisions that may have a significant impact on the organization are made by the top level a.k.a. Board of directors. However, this luxury isn’t something that you get to see in a blockchain because of one fundamental reason, i.e., it has no “leader.” So if any decisions are going to make within a blockchain, you need to arrive at a consensus using “consensus mechanisms.”
In the words of Wikipedia “Consensus decision-making is a group decision-making process in which group members develop, and agree to support a decision in the best interest of the whole. Consensus may be defined professionally as an acceptable resolution, one that can be supported, even if not the “favorite” of each. The consensus is defined by Merriam-Webster as, first, general agreement, and second, group solidarity of belief or sentiment.”
Simply put, you need consensus for reaching agreement within a group. While voting, on the one hand, tends to settle the disputes of the majority helping people get what they want without any consideration for the feelings and well-being of the minority, a consensus, on the other hand, makes sure that an agreement arrives at that could benefit the entire group.
The method through which consensus decision-making is arrived at is called “consensus mechanism.”
So, now that we know what a consensus mechanism is, I think so it is time to proceed towards exploring the different types of consensus mechanism.
What is Proof of Work ( PoW)
This was the first distributed consensus mechanism that the anonymous creator of Bitcoin Satoshi Nakamoto had begun for operating his blockchain network. After that several cryptocurrencies like Ethereum joined the party. In PoW, all the computers in the system are allotted a specific function of keeping the blockchain secure. These people are known as Miners within the bitcoin network, and their job is to solve a bunch of puzzles that include a mathematical function known as a hash. This task is easy as eating a banana (for a computer) but incredibly repetitive, and as a result of that, it is computationally expensive or just costly to operate in the long-run. All the miners onboard battle it out to find a hash with certain properties. The person that wins this battle, i.e., proof of doing the required work is allowed to add a new block of transactions on to the blockchain along with being rewarded with a couple of bitcoin on the bitcoin blockchain.
As of now the current rate of reward is 12.5 BTC per block. Besides that, they also get rewarded with the small transaction fees users have paid to send coins.
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