Solving a complex cryptographic puzzle. Uses cryptographic algorithms. A fundamental property of cryptographic algorithms is that they should be extremely hard to reverse engineer to find the input, but extremely easy to verify the output. Introducing changes to the actual blocks of data would require more than 50% of processing power that the whole network has. This is the major security advantage of blockchain. The miners are rewarded with Bitcoin for participating in creating the consensus.
When you interact with multiple parties, you need some sort of consensus mechanism to ensure everyone has got the right records.
The consensus is the backbone of the Blockchain and any other decentralized and distributed technology.
Proof of work
• Uses mining to try out millions computations per second to determine if the Blockchain can be updated or not
• Bitcoin uses this mechanism
Proof of stake
• The more a miner has, the more they can get, and the more they can decide
• This disadvantages other miners in the network
• Doesn’t require mining
• Growing in popularity in some banking and insurance segments
• Certain nodes are required to put up a security deposit in order to participate in updating the Blockchain
These transactions are then validated by arbitrators
Blockchains are decentralized. So, no need to pay mediatories for a contract
Smart contracts helps you exchange money, property, shares or anything
Provides a transparent, conflict-free way without using services of a middleman
• Defines rules and penalties around an agreement in a same way that a traditional contract does
• Also, automatically enforces those obligations
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