What is Cryptocurrency Consensus Mechanism?
The cryptocurrency transaction in the blockchain needs to be verified and validated. Moreover, it should be secured to avoid theft and fraud.
The mechanism used to verify the transaction and secure the blockchain is called the consensus mechanism.
A consensus mechanism is an algorithm that verifies transactions and ensures the security of the Blockchain.
The term consensus denotes a “general agreement.” The consensus mechanism ensures a blockchain network reaches a general agreement about the present state of data in the network.
The ultimate aim of a consensus mechanism is to create faith in users in the network by verifying and validating transactions and keeping the network’s security without fail.
There are ten types of consensus mechanisms in blockchain technology. They all share the same purpose but differ based on blockchain, energy usage scalability, and transaction speed.
Proof of work (PoW) and Proof of stake (PoS) are the two most common types of consensus mechanisms.
Proof of Work is the oldest and safest algorithm with high protection against hacking.
High energy consumption and low transaction speed are the main drawbacks of PoW.
Proof of Stake is energy efficient and does not require expensive hardware. It has got a high transaction speed.
Validators must deposit a certain minimum amount of crypto to participate in the validation process, which is considered a drawback of PoS.
Bitcoin works on Proof of Work Consensus and requires tremendous computational energy.
Cardano works on Proof of Stake with low energy consumption and increased transaction speed.
Ethereum is in the transition stage from Proof of Work to Proof of Stake to enhance the transaction speed and reduce energy consumption.
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