Proof of Work versus Proof of Stake

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6 Jun 2022
11

A blockchain is a decentralized digital ledger updated by many different computers to refresh your memory. These nodes handle the authentication of network transactions.

A bank or government cannot verify transactions on a decentralized blockchain since there is no central authority. As a result, blockchain transactions are more trustworthy.

Given that anybody can contribute data to the blockchain, safeguards must be put in place to ensure that the distributed ledger only includes correct data.

A distributed ledger's consensus procedures are rules that nodes must follow to ensure that they agree on the correct version of the ledger. Since these rules protect the network, its transactions can be inspected. 

It is possible that the word "consensus mechanism" might apply to many different things. Because of how a blockchain chooses to settle disputes, NFTs implemented on that blockchain can have a major environmental impact.

Ethereum's consensus mechanism goes under "Proof of work" (PoW). Although PoW is famously inefficient and heavily reliant on electricity utilization, it is the consensus paradigm that Bitcoin uses. 

Proof of Work forces miners to tackle complex mathematical problems using equipment that uses a lot of power to verify transactions.

Every time one of these mathematical puzzles is successfully solved, a new block of verified transactions can be added to the blockchain by miners. The network then compensates the miner in some way. It takes a large amount of computer power to answer difficult math problems, resulting in increased emissions and energy use.

In a decentralized fashion, proof-of-stake (PoS) blockchains authenticate transactions, yet they do not need resource-intensive processing. Rather than using miners to mine for cryptocurrencies, PoS networks utilize validators who stake digital assets to get rewards. 

For the chance to confirm a portion of the blockchain's transactions and gain associated network fees, validators put money on the line or lock it away.

When malicious activity by validators is found, the validators are penalized by having a portion of their staked tokens taken away. 

Emissions are lowered greatly since this technique reduces the need for a large amount of computer processing.

References (Example)

[1] <name>, '<title>' (online, <year>) <link>.
[2] BULB, 'Write to Earn. Read to Earn' (online, 2022) <https://www.bulbapp.io/>

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