Consensus Mechanisms

What are Consensus Mechanisms?

Blockchains are run on "nodes," different computers which create a point of connection between each other, to send and confirm data. These nodes are referred to as validators, because they validate and record the transactions. When the validator nodes reach the same conclusion that the information is in fact valid, a consensus is reached, hence the term "Consensus Mechanism".

Types of Consensus Mechanisms:

Proof of Work

Proof of Work (PoW) consensus mechanisms require blockchain miners to add blocks to a blockchain by solving mathematical puzzles. The first miner to add the block is then validated by the other miners, who run an algorithm to confirm the work was indeed done without alteration of the block data. Because each miner is in competition to mine the next block on the blockchain, this mechanism is extremely energy intensive.

Proof of Stake

Proof of Stake (PoS) consensus mechanisms require the validators lock an amount of native blockchain assets as collateral to validate for the network. A certain amount is required in order to participate and a higher priority is granted to the validator with the highest amount of the asset locked.

Delegated Proof of Stake

Delegated Proof of Stake (dPoS) can be scaled by allowing other individuals to delegate tokens to the validator for a share of the block rewards. The delegators send their tokens to the validator to lock in the validator pool allowing for faster block confirmation and greater scalability. This also gives the validator a greater share of the staking pool and prioritizes the validator node. The delegators then receive a set share of the validator reward.

Proof of Authority

Proof of Authority (PoA) consensus mechanisms require the validators undergo a Know Your Customer (KYC) process in order to be granted permission to validate for the network. While this mechanism foregoes the tradition anonymity often preferred in DeFi spaces, it also holds the validator accountable to the network by connecting their name with their reputation.