The Proof Consensus Mechanisms

The proof consensus mechanisms arose out of the need to solve the problem of double spending or transactions which is unique to digital currencies. Unlike conventional currencies where there exists a central record or ledger of all transactions, crypto currencies are designed to work independently of a central record hence they are termed as being decentralised.

These consensus mechanisms play a critical role in the decentralised system of crypto currencies as they are required for the confirmation of transactions on the block chain. They are algorithms which ensure that the block chain is secure and its integrity isn't compromised.

Proof of Work (POW)
The POW consensus mechanism was the algorithm  the creator of Bitcoin chose (Satoshi Nakamoto) chose to address the challenge of the absence of a centralised ledger for recording or verifying transactions. It is based on cryptography. Several powerful computers termed as miners have to compete to make guessess at providing the answer to a complex mathematical problem. The first miner that is able to make the correct guess gets the reward of earning a block reward of a new Bitcoin. Hence the reward received is proof for the work done of being the first to provide the correct guess or in more technical terms Hash. The miners with higher hash rate have a higher chance of providing the correct hash or guess.

Notable cryto currencies which utilize POW include:

BTC
ETH
BCH
LTC

Although the Proof of Work consensus mechanism remains the dominant model as it was the model adopted for the pioneer crypto currency i.e. Bitcoin; other models are beginning to emerge which aim to be free of the flaws that have been identified in the POW model, the most prominent of which is the Proof of Stake.

Proof of Stake (POS)
In this model 'rewards' are distributed on the basis on how much 'stake' the competitors have in the pool. The stake in question is an investment or deposit in the respective cryptocurrency. Hence the chances of 'winning' or earning rewards increases with the quantity of crypto that has been staked. This is different from Proof of work where the chances of winning increases with the amount of computer processing power a miner has.

In simple terms

POW=Higher chances of earning reward=Higher computing power
POS=Higher chances of earning reward=Higher stake

Some key differences between POW and POS are summarised in the infographic below by block geeks

While in Proof of work, miners are responsible for creating new blocks, validators carry out the same function in proof of stake. The POS algorithm randomly chooses the winner based on their stake in the pool and rewards the winner with transaction fees. The failsafe in the POS is that if any staker (forger is the appropriate technical) term attempts to compromise the system, they lose their entire stake and there is usually a minimum stake requirement to be a forger.

Currencies that use POS include:

NEO
DASH

Challenges of POW and POS
The proof of work mechanism has some fundamental challenges especially with regards to costs of running the system. This is due to the high energy consumption which a result of the large computing power required by miners . There have also been fears of the emergence of 'ruling' mining pools or groups which exert some unwarranted authority on the running of the block chain. There also exists the challenge of scalability of transactions with POW as only a limited number of transactions can be executed at a time.

For Proof of Stake there exists a potential for the concept of decentralization to be undermined as it is only natural that the party or individual who has a larger stake in the pool is likely to exert more control over the system. Similarly POS allows verification of transactions on multiple chains which could be exploited to execute a double spend attack.

Although POW and POS are the consensus mechanisms that are in the spotlight, other proof models have emerged in recent times. They include:

Proof of Wealth (POWL)
Proof of Author (POA)
Proof of Value (POV)
Proof of Reputation (POR)

For further reading see the reference link from Bitdegree

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