1. What Is a Consensus Algorithm?
A consensus algorithm is the way participants in a blockchain network agree that a transaction is valid. It is the core technology that verifies transactions without a central administrator.
2. PoW: Proof of Work
💡 Proof of Work
Principle: The first miner to solve a complex mathematical puzzle gains the right to create a block.
Examples: Bitcoin and Litecoin.
Advantages: The most tested security, with no hacks for 15 years.
Drawbacks: Enormous electricity use and slow processing.
Bitcoin's annual electricity consumption is comparable to the whole of Finland. That energy use, however, creates Bitcoin's security.
3. PoS: Proof of Stake
💡 Proof of Stake
Principle: Validators that stake, or lock, more coins gain the right to create blocks.
Examples: Ethereum, Cardano, and Solana.
Advantages: 99.9% lower electricity consumption and faster processing.
Drawbacks: Wealthier holders have more authority, raising centralization concerns.
Ethereum switched from PoW to PoS through “The Merge” in 2022, reducing electricity use by 99.95%.
4. DPoS: Delegated Proof of Stake
- Principle: Token holders vote for delegates who create blocks.
- Examples: EOS, TRON, and BNB Chain.
- Advantages: Very high speed, with thousands of TPS.
- Drawbacks: Authority concentrates among a few delegates, weakening decentralization.
5. Comparison
6. AI Trading and Blockchain
Consensus algorithms are blockchain's foundation technology. AI analyzes and trades markets operating on top of it. Understanding the technology can improve investment judgment.
🃏 AI Trading on Technology
Understand blockchain technology, then see AI trading results.
Start in the bot