What are Consensus Mechanisms?

Discover the implications of Consensus Mechanisms for payments and the scalability trade-offs.

Written by Mustafa Bedawala. Acknowledgement to Catherine Gu, Aaron Salot and Mert Özbay.

A blockchain stack. See image description for details.
The infographic shows the technology stack required to create an application blockchain. It starts with the Network Layer/P2P Protocol on the bottom that publishes the next block in the permissionless blockchain network. There must be a consensus layer built on top to achieve consensus through coordination. The incentive distribution layer encourages coordination in exchange for rewards. The layer on top of the incentive distribution layer includes the smart contract that ensures programmability of the underlying blockchain, followed by the application layer for the end-user.
Proof of work procedure. See image description for details.
The infographic depicts the Proof of Work (PoW) procedure through which transactions are processed by the miners. This shows the miners solving the difficulty problem and competing to produce a block. Once verified, this block is then "hashed" and is required to satisfy a complex math equation. If the result satisfies this, the proposed block can then be added to the blockchain.
Proof of Stake. See image description for details.
The infographic demonstrates Proof of Stake and how it’s used to validate transactions within a block. There is a group of participating validators that take on the role of the miner and are required to stake a certain amount of a given token. These participants are randomly selected and required to validate the specific transactions within a block at that given point in time. Once approved, that block is then added to the blockchain.
A table outlines the basic distinctions/similarities between Proof of Work (PoW) and Proof of Stake (PoS). First column distinctions. Second column PoW. Third column PoW.