The COMPLETE Guide to Every Type of Blockchain

Unlike traditional finance and banks, crypto works without middlemen. That means there's no single point of authority who can step in to dictate which transactions actually count.

To get around this, cryptocurrencies use their own blockchain consensus mechanisms. Essentially, each is just a list of rules designed to help a network automatically come to a verdict on which transactions are approved and which are struck down for being fraudulent.

But not every crypto tackles this problem the same way. Without knowing the difference, you can't make an informed choice on which coins you believe in.

We've got you covered. This guide breaks down every popular type of consensus mechanism. The easy way.

What Is a Blockchain Consensus Mechanism

Blockchains represent distributed databases that can store transactional records without needing a centralized authority to verify their accuracy.

To achieve this, the network participants follow a set of programmatically defined rules to validate transactions.

This set of rules is called a blockchain consensus mechanism.

It determines the state of the network by validating transactions, specifying the next block, and ensuring that all participants have the same set of records at hand. Additionally, it prevents conflicting records and double-spending.

Thus, the blockchain consensus keeps the entire system honest and synchronized, enabling users to exchange value directly with one another.

Cheat Sheet: Consensus Mechanisms Compared

PROOF OF WORK (POW)

Used by Bitcoin and previously by Ethereum, Proof of Work is one of the earliest mechanisms introduced in blockchain networks.

It requires nodes to solve complex cryptographic puzzles to guess the next block through a process called mining. The winner gets to record the next batch of transactions and earn a reward.

The method is considered highly secure since it has been proven resilient on large networks with a high number of participants.

However, this applies only to sufficiently large networks that contribute to increasing mining difficulty and making attacks prohibitively expensive.

History knows many small blockchains that have fallen victim to 51% attacks, with Ethereum Classic being one of the most well-known examples. Other cases include Bitcoin Gold, which was hit twice - first in May 2018 and then in January 2020 - and Vertcoin, which suffered several attacks between October and December 2018.

In addition, Proof of Work typically requires excessive electricity, and its block creation times are usually slower compared to other consensus mechanisms.

PROOF OF STAKE (POS)

Proof of Stake requires validators to lock the native asset of the network to ensure its security.

This process, known as staking, allows participants to earn rewards for contributing to network integrity. The more tokens one stakes, the higher the chance of being selected to validate the next block.

Invented as an alternative to PoW, PoS addresses many of its drawbacks by offering:

• Better security (very few PoS networks have experienced real 51% attacks)
• Lower electricity consumption
• Reduced hardware requirements
• Higher scalability

However, small PoS-based networks are vulnerable to centralization.

Users with large token holdings are more likely to validate transactions, thereby accumulating even more tokens. This especially applies to whale investors and large staking pools.

DELEGATED PROOF OF STAKE (DPOS)

Delegated Proof of Stake was invented by Daniel Larimer, the founder of BitShares, in 2014.

Token holders delegate their assets to a limited set of network validators, who secure the network and share a portion of their profits with their supporters. Users can remove a misbehaving validator via democratic voting.

Such an approach significantly increases scalability. Networks running on DPoS, such as EOS and TRON, can process thousands of transactions per second.

However, the level of decentralization is questionable. A small number of validators increases the chances of collusion and network manipulation.

PROOF OF AUTHORITY (POA)

Proof of Authority is somewhat similar to DPoS: a limited number of validators are responsible for creating new blocks.

What makes it different is that validators must stake not only assets but also their real-world identity and reputation, making misbehavior easily traceable.

Private or consortium blockchains favor PoA because it enables extremely fast block times and high throughput. However, the limited number of validators creates high centralization risks, making the network more vulnerable to censorship and control.

PROOF OF ACTIVITY (POA)

Proof of Activity is a hybrid model combining aspects of PoW and PoS.

Miners first compete to create an empty block template using PoW. Once found, the system switches to PoS, where a random group of stakeholders digitally signs and finalizes the block.

This method is considered highly secure, as an attacker would need to control both a majority of the hash power and a majority of staked tokens. It also reduces unnecessary computation, making it more energy efficient than pure PoW.

However, critics argue that PoA inherits drawbacks from both systems while adding complexity to implementation. As a result, only a few networks have adopted it, with Decred being the most notable.

PROOF OF BURN (POB)

Proof of Burn requires validators to “burn” coins by sending them to a verifiably unspendable address.

By sacrificing tokens, they demonstrate their long-term commitment to securing the network and gain the right to mine or validate new blocks.

This approach eliminates the need for high energy consumption. Burning tokens also creates scarcity, theoretically increasing the remaining token value.

However, destroying tokens is often viewed as economic waste and reduces liquidity, which limits adoption.

PROOF OF CAPACITY (POC) / PROOF OF SPACE (POSPACE)

Proof of Capacity relies on hard-drive storage rather than computational power for validation.

Participants commit free disk space to store precomputed data (“plots”). The more space one allocates, the higher the chance of validating the next block.

This mechanism is more energy-efficient than PoW and reduces entry barriers, contributing to decentralization.

However, miners with massive storage resources may gain disproportionate control. The algorithm is also vulnerable to grinding attacks and storage farming, where participants rewrite plots to gain unfair advantages.

PROOF OF STORAGE (POSTORAGE)

Proof of Storage is similar to PoC but focuses on actively storing real data rather than precomputed plots.

Decentralized storage networks like Filecoin and Sia use this approach, rewarding nodes for providing storage that remains verifiably available.

However, ensuring data availability requires robust verification mechanisms, making PoStorage more technically complex.

PROOF OF HISTORY (POH)

Invented by Solana developers, Proof of History is a cryptographic time-stamping method that orders events before they reach the PoS layer.

PoH generates a verifiable chain of computations proving that time has passed between events. This reduces coordination needs among validators, dramatically increasing throughput.

Yet, PoH requires highly optimized hardware and fast networking conditions, which raises concerns about centralization.

Other Consensus Mechanisms

Although most are niche, several additional consensus models are worth mentioning:

• Proof of Contribution (PoC/PoCo): Participants are rewarded for contributing computation, data, storage, or services. iExec is the primary network implementing this model.
• Proof of Importance (PoI): Introduced by NEM, PoI assigns validation rights based on stake, transaction frequency, and overall network engagement.
• Liquid Proof of Stake (LPoS): Similar to DPoS, LPoS comes with a much larger validator set and liquid delegation, allowing users to undelegate at any time. Tezos is the most notable network using it.
• Proof of Elapsed Time (PoET): Developed by Intel for Hyperledger Sawtooth, PoET selects block producers using a randomized wait time, providing PoW-like fairness without high energy consumption.
• Practical Byzantine Fault Tolerance (pBFT): Designed for networks with known validators who communicate directly with each other, pBFT reaches consensus through multiple rounds of message exchange. It offers high throughput and instant finality and is widely used in permissioned blockchains.

What Is the Best Blockchain Consensus Mechanism?

No existing consensus mechanism is a one-size-fits-all solution. Each offers trade-offs depending on the network’s needs.

Proof of Work provides exceptional security against 51% attacks but requires enormous amounts of energy, much of which is wasted. Scalability is also a significant limitation.

Proof of Stake is more energy efficient and scalable, but is prone to higher centralization, especially when the number of users is relatively small.

Other mechanisms attempt to address these issues in their own ways, but often introduce new complexities or require trusted environments.

Regardless of the underlying consensus, the maturity, decentralization, and economic design of a network play the most crucial roles in its overall stability and security.