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Consensus mechanisms are fundamental to any blockchain. They set the rules and guidelines the nodes have to abide by to agree on a state of blockchain. Though Proof of Work (PoW) and Proof of Stake (PoS) are commonly referred to as consensus mechanisms, they are not. To be precise, PoW and PoS are just a component of it primarily used to ward off sybil attacks.
Although PoW was popularly used as a sybil resistant mechanism by Bitcoin (BTC) and others, it had a major drawback. PoW is energy intensive incurring hardware and electricity costs whereas PoS cuts energy consumption by 99% compared to PoW. And this is why the Ethereum community decided to transition. After extensive research and development by core developers for 7 years, ETH did a phenomenal job in moving to PoS under the radar while everyone was minding their business. There are significant differences in how PoS works. Let’s briefly look at how PoS resists sybil attack and facilitates Ethereum’s consensus mechanism.
Validators are the users that are responsible for voting on which block to add next. Anyone can become a validator by depositing 32 ETH into the "deposit contract" (which is a special contract designated to collect and track validators) and then running two separate pieces of software: an execution client and a consensus client. Basically, validators create blocks and this block production is rewarded in ETH. In rare cases when multiple possible blocks exist for a single slot, or nodes hear about blocks at different times, the fork choice algorithm picks the block that forms the chain with the greatest weight of attestations (where weight is the number of validators attesting scaled by their ETH balance).
A PoS system is economically secure because an attacker attempting to take control of the chain must destroy a massive amount of ETH. A system of rewards incentivizes individual stakers to behave honestly, and penalties disincentivize stakers from acting maliciously.
Sybil attacks are when one user or group pretends to be many users. Resistance to this type of attack is a must for any decentralized blockchain and enables miners and validators to be rewarded equally based on resources put in. PoW and PoS protect against this by making users expend a lot of energy or put up a lot of collateral. These protections are an economic barrier to Sybil attacks.
A chain selection rule is used to decide which chain is the correct chain. Bitcoin uses the longest chain rule, which means that whichever blockchain is the longest will be the one other nodes accept as valid. For PoW chains, the longest chain is determined by the chain's total cumulative proof-of-work difficulty. Ethereum used to use the longest chain rule too; however, now that Ethereum runs on PoS it uses a fork-choice algorithm that measures the weight of the chain. The weight is the accumulated sum of validator votes, weighted by validator staked-ether balances.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.