What is a Blockchain?

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A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralised record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

What are Blockchain Consensus Mechanisms?

To process transactions without trusting middlemen, nodes need to reach a consensus themselves. They do this through 2 popular methods:

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Proof of work: Nodes called miners compete to solve a math problem using brute force (e.g., rolling a dice thousands of times to get the right number). The first miner that solves the problem gets to create a block. Other nodes check if the block is valid. If it is, the miner is rewarded cryptocurrency. If it’s not, the miner wasted their time and energy. Proof of work uses energy because miners compete to solve math problems by building powerful machines that run 24/7.

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Proof of stake: Nodes called validators stake some cryptocurrency. A stake is like saying: “I’ll commit this amount of cryptocurrency to win the right to do this transaction.” Validators with more stake are more likely (but not guaranteed) to be selected to process the transaction and create a block. Other validators check if the block is valid. If it is, all participating validators earn a transaction fee. If it’s not, the validator that created the block might lose its stake.

Proof of stake is still in its infancy but uses less energy than proof of work. Bitcoin uses proof of work, and Ethereum is currently transitioning from proof of work to proof of stake.

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