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How blockchain validates transactions

3 Mins read

Proof of Work vs. Proof of Stake

Trust plays a big role in the Blockchain. But how do we build trust? We build trust by having an agreed set of consistent behaviors. Eg. if I say “I love my girlfriend”, she expects a certain behavior from me. To be faithful, avoid lying, be friendly

These behaviors act as a consensus. My girlfriend starts to trust me when I say “I love you”. Other people start to trust me when I say “I love her”. So, a “consensus” is a set of behaviors/mechanisms/norms people agree on to build trust.

Click here to read: Blockchain: Types, Pros, and cons and All you have to know about Blockchain

What does consensus have to do with Blockchain?

Everything IF consensus is what lies between two people agreeing on something AND Blockchain validates those agreements THEN we need consensus to trust in Blockchain’s validations.

How?

Consensus mechanisms Like in a relationship, we need to set the behaviors/norms/mechanisms of how “trust” is built.

In the Blockchain we mostly use 2 norms/mechanisms to build trust:

  • Proof of Work and
  • Proof of stake
  1. Proof of Work: This is one way of verifying transactions on the blockchain, which means miners must solve hashing problems to do their job.

Proof of Work (POW) uses a competitive validation method to confirm transactions and add new blocks to the blockchain.

Relatable example

Imagine the following: in high school, we get grades right? Studying is the “work” and by putting in the work- studying – we get a grade. “Proof of Work” stands for the same here. We put in the work and we get a result. That result proves our work…

Who puts in the work and what type of work it is?

In Blockchain, those who put in the work are called Miners

Miners are people who use computing power to “work”.

“Work” = solving mathematical puzzles.

The 1st miner to solve the puzzle gets rewarded. How? With Bitcoins, on Bitcoin blockchain. Thereby “mining Bitcoin”

  1. Proof of Stake: this is another way transactions are verified on the blockchain, which means users are rewarded with tokens if they participate and help validate (transaction) entries in a blockchain.

Proof of stake requires participants to put cryptocurrency as collateral for the opportunity to successfully approve transactions

Proof of Stake (POS) uses randomly selected miners to validate transactions.

Relatable example

So, at the end of our high school, we get a certificate, right? That certificate serves as “proof” of our work. And why do we need a certificate? To serve as “proof” for what we’ve put at “stake”. And what was that? Our money, time, and studying hours

Users who participate and help validate transaction entries in a blockchain are known as validators.

In reality, We believe in certificates because they’re validated. And who validates them? Teachers right?

In the blockchain, Validators are people who validate blocks in the “chain” The 1st validator to validate a block gets rewarded with cryptocurrency used in the blockchain.

Difference between Miners (Proof of work) and Validators (proof of stake)

What are the differences between Miners and Validators?

  1. Miners spend tons of energy on computing power – multiple people competing to solve the same puzzle, Validators don’t.
  2. Miners only exist in Bitcoin.
  3. Miners solve puzzles while validators validate blocks.

Miners use a competitive validation method to confirm transactions and add new blocks to the blockchain. Validators use randomly selected miners to validate transactions.

It is important to note that:

Proof of work (Miners) and Proof of stake (validators) are all validators in their blockchain; the difference is how they validate transactions.

The ones behind the validations are:

  • Miners solve puzzles • Validators valid blocks.

Conclusion

As mentioned before, the Blockchain is a “chain” of registered transactions saved in “blocks”. These “blocks” have to be validated for us to trust them. Only then they’re added to the “chain”. These validations occur based on consensus mechanisms

These mechanisms are:

  • Proof of Work and Proof of stake

Sources and further readings:

Bernie’s Twitter page

Investopedia: Proof-of-Stake (PoS)

Business insider: Proof of stake vs. proof of work: key differences between these methods of verifying cryptocurrency transactions

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