After exploring the basics of blockchain technology, its applications along with advantages and disadvantages and blockchain trilemma, let us dig deeper, let us understand the fundamental mechanisms of blockchain functioning.
A public blockchain functions through consensus mechanisms: the process for validating transactions without a third party like a bank. Proof of Work or PoW and Proof of Stake or PoS are two such mechanisms used by cryptocurrencies to verify new transactions, add them to the blockchain, and create new tokens.
While their goal—to reach a consensus that a transaction is valid—remains the same, how they get there is a little different.
What Is PoW?
PoW, the technical term for mining, is the original consensus mechanism and is still used by Bitcoin. PoW is based on cryptography, which uses mathematical equations only computers can solve.
The two big problems with PoW are that it uses a lot of electricity because the network requires a huge amount of processing power and can only process a limited number of transactions simultaneously (seven for Bitcoin).
Transactions typically take at least ten minutes to complete, with this delay increasing when the network is congested. Though compared to the days-long wait required to wire money across the globe, or even to clear a check, Bitcoin’s ten-minute delay is quite remarkable.
The reason why Ethereum migrated from PoW to PoS in 2022 is because it is more secure, less energy-intensive, and better for implementing new scaling solutions compared to the older PoW mechanism.
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