This is the method by which a blockchain decides on a single state of the network as well as which transactions and blocks to add to the chain. Because blockchains are operated by a large number of distributed anonymous nodes, there must be a way to guarantee that all nodes agree on the same information. There are many different consensus mechanisms but most require that participants risk something in return for the ability to add blocks to the chain and receive rewards. They are rewarded for keep the network operational and punished for adding false or inaccurate information. The most popular consensus mechanisms are Proof of Work and Proof of Stake. In proof of work, miners risk time and electricity to try to mine the next block. In proof of stake, validators risk capital by staking their coins. If they contribute to the efficient running of the network they are rewarded, if they do not they are “slashed” and their capital is reduced.
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