When comparing cryptocurrencies, price alone isn’t the only factor to consider. In today’s global market, government agencies and central banks have complete discretion over whether or not to honor dollar and other fiat currency transactions. Consensus ensures secure transactions by eliminating the need for centralized regulatory bodies.

Bitcoin and other cryptocurrencies take a different tack by doing away with the necessity for centralized regulatory bodies. To maintain fair administration, like a representative democracy, virtual currencies rely on consensus procedures in the lack of such government regulators.

Popular consensus techniques include PoW and PoS. To begin, it is important to comprehend the rationale for the need for these consensus processes in today’s cryptocurrencies.

Proof of Work

The great majority of digital currencies employ the original consensus mechanism, Proof of Work. PoW-based cryptos rely on a network of “miners” who validate payments in return for a payout. Consensus ensures secure transactions by validating and verifying each transaction within the network.

When a new block of activities is ready to be added to the blockchain, miners must execute challenging “tasks” to make that happen. This often entails a computationally intensive task, such as addressing a hard math puzzle or a strong cryptographic code.

When the network operates under this definition of “work,” it is better able to prevent attacks from criminals and fraudsters. To hack a cryptocurrency that relies on proof of work, an attacker would need to donate an enormous amount of computing power. Thousands of individual, trustworthy miners make this impossible in a network as vast and well-established as Bitcoin.

Once a miner solves the hash function for a given block, their solution may be independently verified. The network checks the miner’s work, and if everything checks out, it adds the block to the blockchain.

Proof of Stake

Although Bitcoin introduced the Proof of Work consensus mechanism in 2009, many people didn’t know about the Proof of Stake mechanism until recently. Now, Ethereum, the second-largest cryptocurrency, implements PoS. To verify transactions in blockchain networks, Proof of Stake takes a novel approach. PoS networks provide cryptocurrency holders voting power instead of depending on miners to supply computing power. Users “stake” their cryptocurrency holdings to cast votes on the veracity of pending transactions, as the term indicates.

To ensure the security of their assets, PoS-based cryptocurrency transaction validators are presumed trustworthy. After all, if they were successful in attacking the network, it would only hurt their interests.

For example, on Ethereum, you need to put down 32 ETH to join the ranks of the validators. Validators will freeze this 32 ETH for an indefinite amount of time. The system then prompts the user to verify a small number of blocks periodically.

However, other validators will take away their staked ETH for poor conduct if they judge the vote malicious. Meanwhile, reliable validators receive rewards for their efforts. Compared to Proof of Work (PoW), Proof of Stake drastically reduces the computing requirements, making it easier for validators to join the network.

Last But Not Least

Although Proof of Stake has several benefits, many cryptocurrencies are in no rush to switch. Bitcoin is the most prominent among them. Its core developers and user base see no compelling reason to abandon PoW.

Proof of Work is the most secure and resistant to attacks. However, it is a computationally costly process with a high environmental cost. With a decade of experience, Bitcoin is now secure enough to support a $1 trillion market valuation without the fear of hacks.

Inadvertently, this stability has prompted governments and investment banks to accept cryptocurrency as a means of storing wealth. If you trust in your luck and know how crypto trading is done you should try investing with a reputable platform like Crypto Boom.

However, Ethereum requires greater originality because developers designed it for an entirely new purpose. They conceived and developed Ethereum specifically to serve as Web 3.0 or cryptographic protocol infrastructure. Consensus ensures secure transactions in this context, as Ethereum will need to process hundreds of payments per second at very cheap fees.