“A consensus mechanism is an algorithm that provides for agreement on a specific status within a network.”
Behind this technical-looking definition is basically a very simple idea. As we have already described in the article “Transparent, secure, anonymous – How does the blockchain work?”, transactions are processed via a central account book. This does not only exist on one server, but is mirrored on a multitude of servers at the same time. If a single “account book” is manipulated, the fraud is quickly noticed when compared with the others and is banned from the system.
“In mid-2020, the central account book was operated on around 10,000 Bitcoin Core Nodes”
All transactions on a blockchain are stored in individual blocks and added to the existing “chain”. Consensus mechanisms are used to ensure the validity of these transactions and the integrity of the blockchain as a whole. In simple terms, these mechanisms allow the network to “agree” on an identical version of the blockchain. In this way, any manipulation of the blockchain can be prevented. Established mechanisms are the Proof of Work (PoS) and the Proof of Stake (PoS).
Proof of Work (PoW)
The proof of work is a consensus mechanism used within large blockchain networks such as Bitcoin or Ethereum to “agree” on a unique version of the blockchain. In the course of the Proof of Works cryptographic tasks are set. The network participant who can solve this task first, is allowed to add the new block to the blockchain and is rewarded accordingly. More established in this context is the term “mining”.
Proof of Stake (PoS)
In contrast to the Proof of Work, the Proof of Stake does not focus on the computing power, but on the number of tokens held. In principle, every network participant is entitled to validate the blockchain and to collect the associated reward. The network participant is selected by a weighted random mechanism. The more tokens a user holds, the more likely he or she is to be selected for validation.