What is a consensus mechanism?
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When a transaction is made, all nodes on the network verify that it is valid on the blockchain, and if so, they have a consensus. Block rewards are used as incentive for active network participants (miners or stakers) who solve complex mathematical problems for creating the next block and validating any transactions occurring in the new block.
There are different types of consensus mechanisms that are used to secure the blockchain and reach consensus, some of them are:
- Proof of Work (PoW) “mining”
- Proof of Stake (PoS) “staking”
- Hybrid (Pow/PoS) “mining & staking”
Proof of Work (PoW)
Proof of Work is a consensus mechanism where “miners” attempt to solve complex mathematical equations to hash a block successfully. To receive a reward for mining a cryptocurrency, miners must show that their computers contributed effort to solve the equation and approve a transaction. Having a hashed block proves the miner did work and deserves a reward – hence proof of work.
Proof of Stake (PoS)
Designed as an alternative to Proof of Work, Proof of Stake is a consensus mechanism where block validators are selected based on the number of coins they stake. These block validators commit funds for the right to take part in block creation by betting on which block they feel will be added to the chain next. When a block is added to the chain, the validator receives a reward in proportion to their staked amount.
A consensus mechanism that uses a combination of both Proof of Work and Proof of Stake.