Mark Tencaten - Understanding terms related to cryptocurrency – II

 Proof of Work vs. Proof of Stake

Mark Tencaten says that the goal of the decentralization ecosystem from the beginning has been to prevent fraud and eliminate the need for outside intervention. The developers created a consensus method to aid in the legitimization of these transactions in order to achieve this aim. That said, this phrase has been used a lot this year alone due to what is perhaps the most significant technological event to have occurred in the cryptocurrency field.

5 Different Blockchain Consensus Mechanisms

According to Mark Tencaten, a consensus mechanism is employed in blockchain to verify transactions and ensure everyone in the network agrees on the ledger's current state. Blockchain utilizes a variety of consensus processes, like as

1. Proof of Work (POW): This is the initial consensus mechanism used in Bitcoin. Pow requires network nodes to solve challenging mathematical problems to authenticate transactions and add blocks to the blockchain. It is regarded as very secure but uses a lot of computational power, making it an energy-intensive consensus mechanism.

2. Proof of Stake (POS): It is a consensus technique that's been utilized in a number of more recent blockchain networks, including Ethereum 2.0. With Pos, nodes confirm transactions and add blocks to the blockchain depending on how much cryptocurrency they have on hand and are willing to invest in the network. This makes it less computationally demanding and energy-intensive than Pow.

3. Delegated Proof of Stake (DPoS): This consensus method is similar to POS. Still, only a small number of nodes (known as "delegates" or "witnesses") are in charge of authenticating transactions and adding blocks to the blockchain in this case. As a result, DPoS is both more centralized and speedier than POW and POS.

4. Proof of Authority (POA): While considered quick and efficient, POA is seen to be less safe than other consensus techniques. It is employed in private or consortium blockchains, where a set of authorized nodes authenticate transactions and add blocks to the blockchain.

5. Byzantine Fault Tolerance (BFT): This consensus technique is employed in permissioned blockchain networks, where a few nodes approve transactions and put new blocks on the blockchain. These nodes are referred to as validators. BFT ensures that the network can agree even if some nodes fail or are malicious.

These consensus techniques are some of the most often utilized in blockchain networks, as explained by Mark Tencaten, and each has advantages and disadvantages depending on the use case.

What is a Proof of Work?

The most crucial consensus technique, proof of work, was developed in 1993 to stop spam and other service misuses. In 1997, it was given the formal name Proof of Labour. Before Satoshi Nakamoto utilized it to create Bitcoin, it was mostly underused. In this process, the reward's likelihood is calculated by calculating the amount of labor produced. Bitcoin employed this consensus mechanism to build a network amongst peers that was later used to protect the Bitcoin blockchain. The likelihood of receiving a reward increases with increased labor productivity.

Crypto miners must solve cryptographic riddles. Despite being a little challenging to complete, this puzzle is simple to check. When a solution is discovered, it is broadcast around the network, where other nodes verify it, and then the miner is paid. The output must begin with a specific number of zeros at the starting point of the hash value called The Difficulty for the block to be considered authentic. The network's computational power modifies the output. The increased difficulty of the Bitcoin network slows down the production of new blocks.

What is Proof-of-Stake?

Instead of competing among miners to determine which block to add, validators—the equivalent of miners in Pow—in the proof of stake system are selected to identify a block based on the number of tokens they hold. The amount "staked" by the user substitutes the labor a miner would generally undertake in a PoW system. This staking structure protects the network since it requires prospective participants to buy and retain the cryptocurrency asset until he is selected to construct a block to get rewards.

Cryptocurrencies use Proof of Stake by allocating tokens based on their Coin Age. The amount of time the tokens have been kept is known as the Coin Age. This is analogous to putting money into bank accounts where interest is produced based on the length of the amount that's stored.

Why is Ethereum shifting to Proof of Stake in the Ethereum Merge?

According to Mark Tencaten, this change will significantly accelerate the processing of transactions on the chain, making the Ethereum interface more rapid and effective. Ethereum is the largest blockchain network in the cryptocurrency market that is capable of supporting smart contracts.

·       The Ethereum network's high energy consumption as the biggest PoW smart contract-based blockchain is one of the leading causes. Thus, switching to PoS would result in the largest decarbonization ever by reducing the Ethereum network's overall energy usage by 99.95%, or a total of 0.2%.

·       Although several newer and more effective blockchains are swiftly catching up to Ethereum, which is still the largest blockchain, this step would help Ethereum maintain its position as the market leader.