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Proof of Work and Proof of Stake

06.22.21 04:09 PM By Bindya

Blockchain types, Consensum Mechanism: PoW, PoS, DPoS

Any Blockchain can be seen as a single digital ledger where all the transactions within a cryptocurrency ecosystem are recorded. The system so built, adds the new records in chronological order and is open for public to see live.

       This system is decentralized and the nodes available, are at different locations and is administered by different individuals/ systems. If these individuals are part of the same organization, this blockchain so conceived is called "private" else "public". And when multiple parties are involved but the blockchain is not public, these type of blockchains are called "Consortium blockchains".


    Private Blockchain: In exact words, a private blockchain, is developed and maintained by a private organization who has the authority over its mining process and consensus algorithm. The organization that owns the Private blockchain, has the decisive power to allow who can join their network and have access to download the nodes. In this type of blockchain, no one other than the organization itself has the authority to read, write or audit or can override the blockchain commands or amend whatever within the blockchain anytime. This can been identified as a distributive ledger, shared between chosen individuals rather than a public ledger but as the ledger is encrypted and no one can really extract the information or keep an eye on the money so it serves the basic purpose of a blockchain.


    Public Blockchain: Unlike Private, Public blockchain has no restrictions and anyone with internet connection can become a part of the network and start validating the transactions and receive incentive for validating the block. The public blockchain protocol could be downloaded and no permission is needed from anyone. Thus is completely decentralized and surpasses the need of a third party. To add a little more, in Public blockchain, Each node can read and write on the ledger, anyone can add and download the nodes and no one can track back the transactions.


    Consortium Blockchain: A consortium blockchain is a private network but is managed by multiple entities, where each party has special privileges. These Controlling entities participate in the consensus process as a transaction validator and have permissions to view certain types of data. Consortium blockchains are not fully decentralized digital ledger technology and maintains some benefits of distributed systems for use cases like enterprise and government.

Private and consortium blockchains are typically used by enterprises that aim to employ blockchain architecture, but want to ensure specific information remains private either for regulatory or competitive reasons.

    Consensus Mechanism: Each blockchain uses a consensus mechanism to reach an agreement about information on the network E.g. if the transactions are valid and the sequence in which they occurred and thus helps keeping the blockchain secure.


There are two major consensus mechanisms available:


    Proof of Work (or PoW): PoW is the most widely used consensus mechanism, where, miners solve the complex puzzles and validate the block. The one who does it first, confirms the most recent block of transactions on the blockchain and broadcasts the new block to all other nodes, which than confirms its accuracy and adds the recently verified block to their copy of the blockchain, thus, building a verifiable record of data for the whole network. This verification process represents consensus and the miner who proved the work earns some cryptocurrency as an incentive. Proof-of-Work blockchains produces blocks at consistent intervals and most popular amongst them is Bitcoin that add a block every 10 minutes. PoW networks are so energy intensive as these needs solving the most complex puzzles this limits in terms of speed and scalability.


    Proof of Stake ( or PoS): As mentioned in PoW, there is problem of faster validation or speed, scalability and intensive energy consumption. There are many blockchains that are using PoS like PolkaDot, EOSIO, Cardano. Ethereum was designed and is working on PoW but has transitioned to PoS blockchain with Ethereum 2.0 through Beacon chain. In PoS miners are not validating the transactions and in these blockchains, validators are network node operators that validate data but there is no energy-intensive computational process to earn the right to validate. In this blockchain, the validators put some native tokens on stake as collateral to become eligible for selection as a validator node. When the data validation time happened on a PoS blockchain, system randomly selects the validator to confirm the data or validate the transaction but tokens at stake are one of the parameter of selection. When the block is confirmed, that validator is rewarded with network transaction fees, and the lock is added to the chain and the process for new block starts. With PoS, if the validator tries tp play maliciously or couldn't finish the transaction, the validator lose the stake and access to the network, this process is called slashing. With PoS, the validators need not to invest in high-end hardwares and energy consumption is comparatively low and so is the barrier to entry. As the selection of validator depends on number of tokens at stake as one of the parameters so more are the token, more is the influence validator has on the network.

    Delegated Proof of Stake (or DPoS): It is an evolution of the Proof of Stake, where users of the network elect delegates to validate the next block, also called as witnesses or block producers. In this, the users pool their tokens into a staking pool and link those tokens to a particular delegate. Experts advocating says this is more decentralized and more classless mechanism for achieving consensus than PoS alone.

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