Everything you need to know about consensus mechanisms like proof-of-work (PoW) and proof-of-stake (PoS).

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For a blockchain to function reliably and securely, participants on the blockchain require a way to agree on which changes are valid. This shared agreement across the network is called consensus. With consensus, transactions can be processed securely, and issues like double-spending can be prevented.

Reaching a consensus is a problem all blockchains must solve in a decentralized network without a central authority or trusted middleman.

Consensus mechanisms are blockchain's answer to this problem. A consensus mechanism is a protocol that allows participants on the network to agree on valid changes, such as processing transactions or adding new blocks.

Over time, blockchains have developed various consensus mechanisms with strengths and trade-offs. These mechanisms affect how the blockchain operates regarding the cost of processing transactions, decentralization, security, scalability, speed, and environmental impact.

Below, we will look at the three most well-known consensus mechanisms: proof-of-work (PoW), proof-of-stake (PoS), and delegated proof-of-stake (DPoS).
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Proof-of-work was the first blockchain consensus mechanism, introduced in 2008 with Satoshi Nakamoto's release of the Bitcoin Whitepaper. It relies on the computational power of network participants called miners.

Miners compete with each other to solve a complex mathematical problem. The first miner to solve it gets the right to add a new block to the blockchain and receives a block reward as compensation.

Bitcoin mining uses a cryptographic function called SHA-256 to create a hash, a fixed-length string of numbers and letters, for each new block. The goal of the is to find a hash that is lower than a specific target value, which is what makes the puzzle difficult.

The difficulty of this puzzle is adjusted every 2,016 blocks to ensure that new blocks are created approximately every 10 minutes. If the previous 2,016 blocks were mined too quickly, the difficulty increases; if they took longer than expected, the difficulty decreases.

Bitcoin (BTC), Dogecoin (DOGE), Litecoin (LTC), and Bitcoin Cash (BCH) are popular proof-of-work coins in Exodus.

In a proof-of-stake blockchain, consensus is reached through staking. For this, participants lock up their tokens to become validators.

Validators, similar to miners in proof-of-work, are responsible for producing new blocks. However, instead of competing with computing power, validators are selected based on the amount of tokens they stake. Those with the largest stakes have the most to lose, incentivizing them to act in the network's best interest.

As proof-of-stake does not require energy-intensive competition for validating transactions, it allows for faster transaction speeds, lower gas fees, and a lower barrier to entry for those looking to earn rewards for helping to secure the network.

These benefits led to Ethereum’s migration from proof-of-work to proof-of-stake in 2022.

Ethereum (ETH), Solana (SOL), Cardano (ADA), Cosmos (ATOM), Polygon (POL), and Kava (KAVA) are popular proof-of-stake coins in Exodus.

Delegated proof-of-stake relies on elected delegates to generate new blocks. Delegates are also sometimes referred to as block producers.

Users vote for a delegate by locking their assets in a staking pool linked to a particular delegate. Multiple delegates validate each block on a DPoS network to ensure no invalid transactions, and new delegates are chosen for each ensuing block.

Like proof-of-work and proof-of-stake, DPoS offers rewards for validating blocks of transactions. However, rewards are shared among all users who staked tokens in the successful delegate pool. This distribution is proportional to each stakeholder's share of the pool's balance. For example, if your share of the staking pool is 1%, you'll receive 1% of the block reward.

TRON (TRX) and Tezos (XTZ) are popular delegated proof-of-stake coins in Exodus.

Here are examples of some other consensus mechanisms:

Federated Byzantine Agreement allows a blockchain to reach consensus by trusted nodes forming quorums to decide on the validity of transactions collaboratively.

Instead of linking blocks together like proof-of-work blockchains, DAGs stack transactions, known as vertices, and link them in specific directions.

Proof-of-authority is similar to proof-of-stake; however, instead of staking the monetary value, a validator’s identity performs the role of stake.

Proof-of-capacity leverages space on the participant's hard drive to mine a crypto-asset native to the network. Working with any hard drive, including mobile devices, the consensus mechanism is recognized as energy-efficient and accessible.

Proof-of-burn allows miners to burn virtual currency tokens as they are granted the right to create blocks relative to the burnt coins.

Proof-of-elapsed Time is similar to proof-of-work but removes the need for an energy-intensive process, replacing it with a randomized timer system for network participants.