Blockchain is a disruptive technology which is primarily associated with cryptocurrency. However, its applications extend beyond digital currency. It is making headway in healthcare, supply chain, and more.
An important feature that makes it lucrative for many industries to use blockchain technology is the consensus mechanisms. So, what are some different types of consensus mechanisms, and how do they perform against each other?
Also Read: Harnessing Blockchain Technology Beyond Cryptocurrency
Discover the detailed comparison of two consensus mechanisms: Proof of Work (PoW) vs. Proof of Stake (PoS).
Consensus mechanisms are in place to ensure all stakeholders in the network unanimously agree on the validity of the transactions. There are two main types: PoW and PoS.
Explanation of PoW Consensus Mechanism
Proof of Work was the first consensus mechanism. Updating a transaction was competition based. The miners (network participants) had to compete against others to solve a code which then let them insert new blocks in the chain.
Naturally, in order to beat other competitors, a system with strong computational power was required to guess multiple combinations of numbers with speed.
Benefits of PoW System
These are the advantages of the mechanism:
- More Decentralized: It is a critical feature of blockchain technology, and PoW makes it possible by letting anyone with solid computational power participate. This ensures that no single entity or group is able to control the network.
- Better Security: Cryptographic puzzles are the key factor in ensuring robust security. Bitcoin has been operational on PoW since its launch in 2009 and has not yet faced any manipulations or attacks.
However, there are some disadvantages as well.
Drawbacks of PoW System
These are the disadvantages of the mechanism:
- Low on Sustainability: High computational power demands high energy consumption. Now, multiply that by every person trying to update the transaction. It has severe environmental ramifications.
- Slower Block Creation: Compared to PoS, block creation is at a much slower pace.
Thus, there are some major benefits and drawbacks to this mechanism.
Explanation of PoS Consensus Mechanism
Proof of Stake is the newer consensus mechanism adopted by the likes of newer currencies like Ethereum. Its objective is to choose updaters based on a randomized selection if they have decided to deposit or “stake” their coins. Hence, it operates like a lottery.
Benefits of PoS System
These are the advantages of the mechanism:
- Better Processing: Since they do not require the solution to the puzzles, transactions can be processed and updated at a much speedier pace.
- Reduces Centralization: No individual with large enough computational power can display dominance and control. This is ensured by the randomized selection process.
However, there are some disadvantages as well.
Drawbacks of PoS System
This is the main disadvantage of the mechanism
- Higher Security Risks: Having been launched in 2012, it is not as battle tested as PoW. Additionally, since the only requirement is to buy and hold coins, manipulation becomes easier.
Thus, there are some major benefits and drawbacks to this mechanism.
Closing Thoughts
In a nutshell, both consensus mechanisms have their own set of benefits and drawbacks. Making a selection depends upon the objectives and end goals. Either way, with the evolution of blockchain technology, there will be improvements, or perhaps new mechanisms might be created.
