About Blokchain Consensus
Understanding Blockchain Consensus Mechanisms
Proof of Authority (PoA) networks like dPOA RT offer a more secure and efficient alternative to traditional blockchain consensus mechanisms, particularly in mitigating risks like the 51% attack, which are more prevalent in Proof of Work (PoW) and Proof of Stake (PoS) systems. In PoA networks, transaction processing is more efficient due to a streamlined block validation process managed by a limited number of trusted validators.
Bitcoin's Proof of Work (PoW):
roof-of-work is the most commonly used consensus mechanism. So far, it has proven to be fairly secure and reliable, though not infallible. Proof of work is fundamental to how bitcoin mining operates.
Miners are the people who run computers that maintain the network by solving complex mathematical problems. The miner that first solves the problem gets to add the next block of transactions to the blockchain and also earns the new coins minted along with that block. This process creates a verifiable history of transactions on the blockchain.
PoW has shown to be a strong and secure consensus mechanism. It would be so difficult to overtake a large PoW network that any potential bad actors would be incentivized to become honest participants in the network instead. In other words, itโs easier and more rewarding to just become a miner than it is to attack the network.
Some of the main criticisms of the PoW mechanism of achieving consensus are that the process can be energy-intensive, it has difficulty scaling, and it can trend toward centralization due to the high costs of entry.
Ethereum's Transition to Proof of Stake (PoS):
With PoS, validators are the network participants who run nodes. They do this by staking crypto on the network, which involves locking up a certain amount of coins for a set period of time, making them unusable. Validators who do this become eligible to be randomly selected to find the next block.
Other validators then โattestโ that they also believe the block to be valid. Once enough validators have done this, the block will be added to the blockchain. All validators involved in the process are rewarded with new coins. Validators that propose blocks or go offline for a time get punished by having some of their staked crypto slashed by the protocol.
One of the main differences between PoS and PoW is that PoW requires network participants to expend energy in the form of electricity to mine blocks. PoS requires network participants to stake their own crypto on the network, or in other words, to deposit money. For this reason, proof-of-stake is praised for using less energy than proof-of-work.
While some argue in favor of proof-of-stakeโs potential decentralization, others criticize it. For example, when Ethereum upgrades to Ethereum 2.0 and a proof-of-stake model, it will require a minimum of 32 ETH (about $67,200 at the time of writing) to become a validator. The average individual cannot afford this.
So, centralized exchanges will deposit the crypto necessary to become validators (using the crypto they have on deposit from users) and distribute some of the rewards to their account holders. This could wind up making the entire system even more centralized than proof-of-work, with a few large exchanges being the only validators.
Delegated Proof of Stake (DPOS) :
DPoS is a popular evolution of the PoS concept, whereby users of the network vote and elect delegates to validate the next block. Delegates are also called witnesses or block producers. Using DPoS, you can vote on delegates by pooling your tokens into a staking pool and linking those to a particular delegate. You do not physically transfer your tokens to another wallet but instead utilize a staking service provider to stake your tokens in a staking pool.
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