As we talked about earlier, consensus mechanisms are used in different blockchain networks to ensure that transactions are authentic, valid, and secure. These protocols are pretty important to maintain trust and make the network a reliable place to transact.

We’ll cover two types of consensus mechanisms here that are used to facilitate trust in a decentralized network: proof-of-work (PoW) and proof-of-stake (PoS).

The PoW consensus algorithm requires miners (nodes) to solve complex cryptographic puzzles to validate a transaction.

In this model, miners compete with each other to find the answer to a mathematical puzzle, known as a hash. The first to solve the hash is rewarded with the blockchain’s native currency. Bitcoin is a good example of a blockchain that uses the PoW blockchain.

Computational power is king in a PoW consensus model. But the issue is that miners start pushing their computers to their limits in order to receive the reward. This competition increases energy consumption and generates a lot more heat.

However, in a PoS model, that power comes from holding more of the native currency of the blockchain. Users can ‘stake’ the native cryptocurrency of the blockchain to validate transactions. Staking involves “locking in” your digital assets for a defined period of time in return for rewards.

Staking incentivizes participants of a blockchain to behave honestly, since they have a financial stake in the network’s success. If they validate fraudulent transactions or try to manipulate the network in any way, their stake is at risk.

Indeed, miners are not needed which is why the PoS model is considered to be much more environmentally friendly than PoW. Ethereum was a PoW blockchain, and it moved to PoS in September 2022.