Consensus mechanisms are central to blockchain technology, allowing distributed networks to agree on the state of the ledger in a trustless environment. More than 20 different mechanisms exist, but only the most widely used ones will be examined here—specifically, those that determine how transactions are verified and how new blocks are added to the blockchain.

Proof of Work (PoW)

Proof of work is the original consensus mechanism introduced by Bitcoin. To recap: PoW requires miners to solve complex cryptographic puzzles, and the first miner to solve the puzzle earns the right to add the next block to the blockchain along with a reward in cryptocurrency. The mechanism provides network security by making attacks extremely costly due to the computational effort required. Its energy-intensive nature, however, has prompted the development of more sustainable alternatives.

Proof of Stake (PoS)

Proof of stake emerged as an energy-efficient alternative to PoW and is used in major blockchains such as Ethereum. Instead of mining, validators are selected to create new blocks based on the amount of cryptocurrency they hold and are willing to stake as collateral. This mechanism significantly reduces energy consumption because network security no longer depends on performing intensive computations.

PoS also encourages participants to hold the cryptocurrency, which may help support its value. However, it raises concerns about centralization, since individuals with larger stakes have a higher probability of being chosen as validators.

The following illustration compares PoW (left) and PoS (right):

Delegated Proof of Stake (DPoS)

Delegated proof of stake (DPoS) is an evolution of the proof of stake consensus model. In DPoS, cryptocurrency holders vote to elect a fixed number of witnesses (delegates, validators) responsible for validating transactions and creating blocks.

This system is designed to enhance efficiency and scalability by delegating the task of block production to trusted nodes, thus reducing the number of nodes required to achieve consensus. DPoS aims to strike a balance between decentralization and efficiency, offering a more energy-efficient alternative to Proof of Work without requiring every node to participate in the consensus process directly.

Here is an illustration of selecting witnesses:

Leased Proof of Stake (LPoS)

Leased proof of stake (LPoS) is a variation of Proof of Stake that allows coin holders to lease their staking power to validators without transferring ownership of their coins. As in PoS, validators in LPoS systems are selected based on the total stake they control, which includes tokens leased to them by other holders. This increases their effective staking power and improves their chances of being chosen as validators. As a result, more participants can contribute to network security and the consensus process by supporting validators with their staked coins.

The following illustration helps clarify how LPoS operates:

Other Mechanisms

The remaining four consensus mechanisms discussed in this chapter are summarized in the table below. This information is optional and can be reviewed as needed: