Crypto Academy Season 5 Beginners' course - Task 6: Different types of Consensus Mechanisms

This is the Task 6of the Crypto Academy Beginners course I am thrilled to take part in this task by @sapwoodThis is where the fun is and with this lesson, we are learning more about the Consensus Mechanisms Let's get into it

What is the difference between PoW and PoS? Advantages and disadvantages? Which one is better stability capacity? Examples?

What is the difference between PoW and PoS?

A blockchain is based on a series of blocks formed on it however the formation of these blocks is protected via a technique called consensus mechanism. There are different consensus algorithms we now have however I will be talking about two popular most consensus mechanisms i.e. Pow and PoS

Proof-of-Work

PoW or proof-of-work is the first most consensus algorithm applied in the first most blockchain of Bitcoin by Santoshi Nakamoto. This type of consensus algorithm involves the “work” of many miners who verify the transaction by solving mathematical puzzles upon which they receive mining rewards. This includes many computers across the world which help in mining through solving mathematical questions and the computer with better efficiency can verify transactions quickly and that generates a block successfully.

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Proof-of-Stake

Staking is a concept similar to proof-of-work however differs from it in function. The proof-of-stake involves staking of coins for mining which can help in completing the transaction and the miners get a transaction fee as a reward. In this consensus algorithm miners who have more amount of coins staked validate the transaction and get their reward in form of a transaction fee.

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Let us study the difference between these two mechanisms

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PROOF OF WORK

• Requires high computation power

• Reward is earned after solving mathematical sums

• Miners start mining by purchasing computers with high computation power.

• Since it requires computation power hence consumers more electricity.

• Examples of blockchain having POW mechanism are bitcoin and ethereum blockchains.

PROOF OF STAKE

• Requires staking more amount of tokens.

• The reward in this type of consensus algorithm is given in the form of transaction fee.

• The miners or validators in this mechanism starts validating by staking coins the more they stake the more they matter.

• It doesn’t requires much of electricity power.

• Examples of blockchain having pos consensus algorithm are Cardano, Cosmos, etc.

Advantages and disadvantages?

PROS OF POW

• Users here can get a pretty amazing reward upon confirming a transaction.

• This shapes a decentralized atmosphere on a blockchain.

• Users don’t need to stake or hold tokens for mining hence users can initiate mining and gain initial tokens from this consensus algorithm.

• This mechanism ensures a high level of security hence it's nearly impossible for a hacker to make their way here on the decentralized apps.

• This mechanism prevents double spending of coins through its strict verification mechanism.

CONS OF POW

• It requires a computer with high computational power.

• There’s high electrical power consumption in this mechanism,

• The process of verifying a transaction or simply mining can is time taking

• It has a costly setup.

• Transactions are expensive and can cost more than other consensus algorithms.

PROS OF POS

• This type of mechanism doesn’t require excessive electrical consumption.

• Users can carry out more than one transaction at a time.

• Transaction speed is real quick.

• High security ensured which resists the attack of hackers.

• The scalability is higher than the proof of work mechanism.

• There are complex mathematical equations that validators solve.

CONS OF POS

• Transaction fees for users are more than what users pay on the proof of work algorithm.

• Coins staked in proof-of-stake cannot be used by owners and can take time getting these coins back.

• People who stake more coins are prioritized in this algorithm.

• Less secure than proof of work consensus mechanism.

Which one is better stability capacity? Examples?

Scalability can be defined as the ability of blockchain to carry out a massive number of transactions at a time. The one better consensus algorithm in case of scalability of blockchain is proof of stake as it allows many transactions at a time with a speed faster than proof of work mechanism where it takes way too long for verifying a transaction comparatively to proof of stake mechanism. We know the Ethereum blockchain was initially built on a proof of work mechanism is now shifting to a proof of stake mechanism to solve.

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EXAMPLES

We know the bitcoin blockchain carries out a transaction in 10 minutes as it uses a proof of work consensus algorithm.

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whereas the Solana blockchain which is the fastest blockchain carries out thousands of transactions in a second using a proof of stake consensus mechanism.

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Conclusion

The consensus mechanism is what describes the efficiency of blockchain however with what I researched so far the proof of stake consensus mechanism is what I prefer to see in blockchains. I have covered the difference between the POS and POW in this homework task along with their merits and demerit. Also, the assignment provided me the opportunity to give my take on which one of these two mechanisms is better for the scalability of blockchain.

Here comes the end of another homework task, like I always do I’ll do it again here i.e. appreciate the professor for his efforts in lecture and designing this task. Hope I meet your desired standard.

Thank you