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Web3 Encyclopedia
  • Welcome aboard!
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  • 😀Evolution from Web 1.0 to Web 3.0
    • Web 1.0 Web 2.0 Web 3.0
    • Key Features
    • Current Limitations
    • Future of Web 3.0
    • Learn: What Is Web3?
    • Learn: Will Every Brand Have a Web3 Strategy?
    • Learn: Big Ideas in 2023
    • Learn: The Web3 Paradox: Why Scaling Usage Alone Won't Lead to Mass Adoption?
    • Learn: Is Web3 A Marketing Buzz or Tech Revolution?
    • Learn: What is the relationship between blockchain and Web3?
    • Learn:Empowering Women in Web 3.0: The Role and Contributions of Women in Blockchain, DeFi, and dApp
    • Learn: Web 3.0 and the Future of E-Commerce
    • Learn: 12 ways ecosystem projects can attract more developers
    • Learn: How Web3 is Impacting Education?
    • Learn: Web3 And The Future Of Digital Advertising
    • Learn: Web3’s impact on personalization, trust and engagement
    • Learn: Web3-Powered Identity Management -- Unlocking the Benefits of Decentralization
    • Learn: Why Web2 companies fail in Web3 while others made it?
    • Learn: To Identify or Not in a Web3 World?
    • 🤫[Insider Series] McKinsey x Web3
    • TL;DR 👀
  • 💲Blockchain Fundamentals
    • Why is Blockchain So Popular?
    • Introduction to Blockchain
    • Blockchain Misconceptions
    • Blockchain vs Bitcoin, Database, Cloud
    • Consensus Mechanism
    • Public and Private Keys
    • Hash Functions and Cryptography
    • Sharding
    • Types of Blockchains: PoW, PoS and Private
    • Understanding Cryptocurrency
    • Coins vs Tokens
    • Blockchain Trilemma
    • Legality
    • Learn : Google’s Cloud Based Blockchain Node Service
    • Learn: How Blockchain, Digital assets, and Web3 Unlock Financial Inclusion Globally
    • Learn: Will Chinese-Made Crypto Soar Higher?
    • Learn: What Does MiCA Mean for Crypto in Europe?
    • Learn: Unraveling the Intricacies of Blockchain Forensics and Asset Tracking
    • Learn: Promising blockchain use cases in healthcare industry
    • Learn: The Role of Blockchain in Authenticating and Provenance Art
    • Learn: Blockchain-Based Digital Identity: Benefits, Risks, and Implementation Challenges
    • Learn: The Future of Energy Supply Chains
    • Learn: Revolutionizing smart contracts and cryptocurrency
    • Learn: Nigeria goes blockchain
    • Learn: A Game Changer for Online Gaming?
    • Learn: Is blockchain technology ready for high-storage applications?
    • Learn: Will Blockchain Technology Mark a Turning Point in Fraud Prevention?
    • Learn: Why ZK-rollups need data availability?
    • Learn: How will generative AI disrupt blockchain?
    • Learn: A New Blockchain for Generative AI?
    • TL;DR 👀
  • 🏟️Web3 Utilities
    • Decentralized Applications (dApps)
    • Cross-chain Bridges
    • DAO
    • Artificial Intelligence
    • Learn: Is Community-building Essential for Web3 Startups?
    • Learn: ‘Decentralization Theater’
    • Learn: Crypto and AI- A yay or nay combination?
    • Learn: Dissecting the DAO
    • Learn: What is motivating Lido DAO to rise?
    • Learn: How to Turn Your Community Into a DAO?
    • Learn: The Key to Decentralized Decision Making
    • Learn: How Web 3.0 can disrupt the supply chain industry?
    • TL;DR 👀
  • 🪙Bitcoin
    • What is Bitcoin
    • Bitcoin's Blockchain Technology
    • UTXO Model and Transaction Fees
    • Bitcoin Mining and Mempool
    • Learn: What is bitcoin mining?
    • What are Hard Forks and Soft Forks
    • What is SegWit and the Lightning Network
    • Bitcoin Ecosystem
    • Can Bitcoin be Destroyed? Game Theory and Network Attacks
    • Learn: Crypto token supplies explained
    • Learn: What is crypto tax-loss harvesting, and how does it work?
    • Learn: Can Crypto Go Green? How to Invest in Eco-Friendly Cryptocurrencies
    • Learn: Why Did FTX Collapse? Here’s What to Know.
    • Learn: How Sam Bankman-Fried swindled $8 billion in customer money?
    • Learn: How much is Bitcoin worth today?
    • Learn: The Costs of Running a Bitcoin Node In Nigeria
    • Learn: Has 2022 Left Any Crypto Positives?
    • Learn: How Crypto Exchanges Can Be Free of Risk?
    • Learn: Greed, Lies and FTX: Is Crypto a Force for Good or Evil?
    • Learn: Is Crypto a Cultural Movement?
    • Learn: What are the consequences of crypto’s ongoing regulatory process?
    • Learn: Beyond the Crash and Embracing NFTs?
    • Learn: Understanding crypto bag holders and their mindset
    • Learn: Inscriptions: Just A Fad, Or A Real Threat To Bitcoin Becoming Decentralized Money?
    • Learn: How Bitcoin Ordinals Can Change the Future Of Mining?
    • Learn: What is a supernet?
    • Learn: Bitcoin Miners Celebrate 10 Years Since First ASIC, What Changed Since Then?
    • Learn: Bill Vs. CBDC – Why This US Congressman Wants To Block The Fed From Issuing A Digital Dollar?
    • Learn: Why Bitcoin Will Blow People’s Minds In 2025?
    • Learn: How the Howey Test Sheds Light on Cryptocurrency's Regulatory Gray Area
    • Learn: Cryptocurrency vs AI: A Complex Debate
    • Learn: Where the U.S. Government Went Wrong in Regulating Crypto?
    • Learn: The Nostr Privacy Paradox
    • Learn: Do algorithmic stablecoins have a future as centralized coins are under scrutiny?
    • Learn: Is Bitcoin Set To Revolutionize The Financial World With Its Superior Purchasing Power?
    • Learn: What is Shibarium, and what does it mean for Shiba Inu?
    • Learn: What is a crypto dusting attack?
    • Learn: Is the Adoption of Central Bank Digital Currencies (CBDCs) the Future?
    • Learn: How Artificial Intelligence Could Revolutionize Crypto?
    • Learn: What’s next for EU’s crypto industry as European Parliament passes MiCA?
    • Learn: Why the EU Has MiCA and the U.S. Has Securities Law Confusion?
    • Learn: Six New Projects Looking to Mitigate Bitcoin Mining’s Energy Footprint
    • Learn: Who on Crypto Twitter chose not to pay for a blue checkmark?
    • Learn: What is the wash-sale rule in Crypto?
    • Learn: What is Pepecoin and can it flip memecoins Dogecoin and Shiba Inu?
    • Learn: Can you recover stolen Bitcoin from crypto scams?
    • Learn: What the ‘anti-mining bill’ means for the crypto industry in Texas?
    • Learn: Does the US have a crypto ‘tax loophole’ problem?
    • Learn: How users can stay protected?
    • Learn: How Crypto Revolutionize Cheaper and Faster Transactions?
    • Learn: Can NFTs and CFDs be BFFs?
    • Learn: A PR expert’s tips for memecoin projects
    • Learn: Why politicians aren't convinced about the Digital Euro?
    • Learn: How A 90-Year Old TA Theory Predicted The Sudden Bitcoin Boom?
    • Learn: Social Trading Platforms and CFDs: A New Paradigm in Investment
    • Learn: How could the Chinese economic crisis impact Bitcoin and crypto?
    • Learn: How do they compare: Bitcoin IRA vs. traditional IRA?
    • Learn: Why Tokenized Assets Are Safer During a Banking Crisis?
    • TL;DR 👀
  • 🛢️Ethereum
    • Bitcoin vs Ethereum
    • What can Ethereum do?
    • What is Ether (ETH)?
    • What's Unique About ETH?
    • What are Smart Contracts?
    • Energy Consumption?
    • Ethereum Virtual Machine (EVM)
    • Pros & Cons of Smart Contracts
    • Decentralized Applications (dApps)
    • Ethereum Token Standards (ERC-20, ERC-721 and ERC-1155)
    • Evolution of Ethereum
    • How to Get Your First Ethereum
    • Learn: Next Ethereum Upgrade — Shanghai Upgrade
    • Learn: Tipping Scale for Crypto Adoption: Usability vs. Accessibility
    • Learn: Major Publicly Traded U.S. Bitcoin Miner Files For Chapter 11 – Impact On The Market?
    • Learn: 5 altcoin projects that made a real difference in 2022
    • Learn: How Tether Can Be a More Stable Stablecoin?
    • Learn: Are the Ethereum Killers Still Deadly?
    • Learn: What Ethereum Tech Trends Are Weathering the Bear Market?
    • Learn: How Ethereum’s token burns are making it a deflationary cryptocurrency?
    • Learn: A few things to know about Ethereum's Shanghai Upgrade
    • Learn: The Role of Enterprise Ethereum
    • Learn: Understanding Layer 2 Scaling Solutions for the Ethereum Network
    • Learn: The Battle of Giants: Bitcoin vs Ethereum
    • Learn: Cryptography, Smart Contracts and Distributed Networks
    • Learn: The Memecoin Grift and How It Threatens Ethereum Culture
    • Learn: What Is Ethereum’s ‘Data Availability' Problem, and Why Does It Matter?
    • TL;DR 👀
  • 👛Wallet
    • What is a Blockchain Wallet?
    • Hardware / Software Wallet
    • How to Get Your First Cryptocurrency
    • Setting up Metamask Wallet
    • Learn: How to connect the Avalanche network to MetaMask?
    • Learn: How to pass on your crypto when you die?
    • Learn: What are hierarchical deterministic (HD) crypto wallets?
    • Learn: Pros and Cons of Digital Wallets
    • Learn : How Web 3.0 Wallets Are Redefining Digital Asset Security?
    • Learn: Open source: Buzzword or real security for crypto wallets?
    • TL;DR 👀
  • 🌕New & Rising Protocols
    • Binance
    • NEAR
    • Solana
    • Fantom
    • Polygon
    • Cardano
    • Polkadot
    • Cosmos
    • Harmony
    • Cronos
    • Optimism
    • Terra
    • Who Will Win the L1 Wars?
    • Learn: New Layer 1 Blockchains Are Expanding the DeFi Ecosystem But No Eth Killers Yet
    • Learn: Is an Increased Focus on Layer-2 Scaling and ZK Technology Justified?
    • Learn: What Are the Stakes in the SEC vs. Ripple Case?
    • Learn: What is The Graph, and how does it work?
    • TL;DR 👀
  • 📈Decentralized Finance (DeFi)
    • CEX vs DEX
    • CeFi vs DeFi
    • Algorithmic Stablecoins
    • Airdrop
    • Liquidity Pool
    • Impermanent Loss
    • Swapping
    • Wrapped Token
    • Arbitrage Opportunities
    • Staking
    • Yield Farming
    • Total Value Locked (TVL)
    • Gas Fees
    • Lending & Borrowing
    • Useful Tools
    • Activity: Uniswap & Pancake Swap
    • Learn: Automated Market Makers (AMMs) in DeFi
    • Learn: Crypto Moving towards ESG: What Is Regenerative Finance (ReFi)
    • Learn: What Is dYdX? Understanding the Decentralized Crypto Exchange
    • Learn: It's A Wrap - DeFi in 2022
    • Learn: Why DeFi should expect more hacks this year?
    • Learn: The Security Challenges of DeFi
    • Learn: The Promising Future of Decentralized Social Media on Web 3.0
    • Learn: Can CBDCs, Tokenized Deposits, Stablecoins and DeFi Coexist?
    • Learn: The Increasing Popularity of DeFi and Its Potential to Disrupt Traditional Finance
    • Learn: The future of DeFi is ReFi
    • Learn: DeFi aggregation
    • TL;DR 👀
  • 🙈Non-Fungible Token (NFT)
    • What are NFTs?
    • Case Study
    • Storage
    • Who are the Players?
    • NFT Marketplace
    • NFT Useful Resources
    • Activity: Mint Your Own NFT
    • Learn: How You Can Prevent Hackers From Stealing Your NFTs?
    • Learn: What Is an NFT Floor Price?
    • Learn: Should Bored Ape buyers be legally entitled to refunds?
    • Learn: China’s view of NFTs different from rest of the world’s
    • Learn: NFTs IRL: How Digital Collectibles Are Forging Offline Experiences
    • Learn: How NFT Brands Can Cut Through The Noise
    • Learn: How Web3 disrupts the music sector?
    • Learn: Unlockable content in NFTs
    • Learn: Why Meta Matters in NFTs?
    • Learn: Should NFT Marketplaces Become Centralized?
    • Learn: Hermès vs. MetaBirkins: The NFT Case That Could Have Major Trademark and Artistic Consequence
    • Learn: What are phygital NFTs, and how do they work?
    • Learn: What is NFT ticketing and how does it work?
    • Learn: Why Solana NFT marketplace is seeing less active users?
    • Learn: NFTs and Intellectual Property
    • Learn: How AI Is Changing Artistic Creation and Challenging IP Laws?
    • Learn: The Future of NFTs: Exploring Dynamic NFTs and Their Versatile Use Cases
    • Learn: NFTs in the event and ticketing industry
    • Learn: What is NFT rarity, and how to calculate it?
    • Learn: What happens to your NFTs when you die?
    • Learn: Dogecoin-Like Spike in Milady NFTs After Elon Musk’s Tweet, But Will It Last?
    • Learn: What are NFT royalties, and how do they work?
    • Learn: How developers aim to store crypto inside NFTs?
    • Learn: Generative Art NFTs: What Are They & Why Are They So Popular?
    • TL;DR 👀
  • 💗Metaverse
    • What is the Metaverse?
    • Metaverse Economy
    • Metaverse Companies
    • GameFi
    • Learn: Are We in the Metaverse Yet?
    • Learn: Can the Metaverse exist without blockchain?
    • Learn: Can the Metaverse Facilitate Sustainable Growth of Defi Systems?
    • Learn: What is the role of biometrics in the metaverse?
    • Learn: Can metaverse be the future court?
    • Learn: Metaverse Fashion Is on the Rise, but for Whom?
    • Learn: Sustainability in the Metaverse: Challenges and Opportunities
    • Learn: How To Build A Responsible Metaverse?
    • Learn: What is a VTuber, and how do you become one?
    • Learn: How proof-of-identity provides human experiences?
    • Learn: The “Metaverse” Next Frontier for Business: Impact And Challenges
    • Learn: The 5 Biggest Misconceptions About The Metaverse
    • Learn: Why culture and ownership are critical to the metaverse?
    • TL;DR 👀
  • 👾Career in Web3 (coming soon)
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    • Industry Effort
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On this page
  • Blockchain types
  • Private blockchain networks
  • Permissioned blockchain networks
  • Consortium blockchains
  • Blockchain security
  1. Blockchain Fundamentals

Types of Blockchains: PoW, PoS and Private

PreviousShardingNextUnderstanding Cryptocurrency

Last updated 2 years ago

Blockchain types

While might appear to many as a monolithic technology, there is a great deal of variation between how different blockchain networks function. One foundational differentiator is the type of that each blockchain uses. A consensus mechanism is the process through which a distributed network reaches an agreement about information on the network — for example, whether transactions are valid and in what order they occur. The consensus mechanism also plays a key role in securing the blockchain network from malicious actors like hackers.

Most public blockchain networks today use processes referred to as or to provide consensus, while private — or 'permissioned' — blockchains and can be structured in various ways to prioritize speed, security and scalability.

Let's take a look at the most common blockchain consensus mechanisms to get a better overall understanding of the different implementations:

Proof-of-work blockchains

The PoW consensus mechanism is among the most widely utilized methods in blockchain and was popularized first by . The defining components of PoW systems are and the electricity they expend to make the calculations that verify transactions.

Miners operate computer hardware to run network that employ computational power to algorithmically solve mathematical puzzles called 'proofs of work'. The miner who solves the puzzle first confirms the most recent block of transactions on the blockchain. The successful miner then broadcasts the new block to all other nodes, which in turn confirms its accuracy and adds that block to their copy of the blockchain, building a verifiable record of data for the whole network.

This verification process represents consensus. Only once this data is confirmed can a new block be added to the network. Miners receive newly minted cryptocurrency, the , (in the case of Bitcoin, they receive BTC) for being the first to validate a new block of data and add it to the PoW blockchain.

Proof-of-work blockchains aim to produce blocks at consistent intervals — Bitcoin, for example, generates one block about every ten minutes. PoW networks are limited in terms of their speed and scale because the process for proving work is so energy intensive. Moreover, PoW networks are coded to be more or less difficult relative to the amount of computational power on the network. You may think of computational power as simply competition — more computational power equals more competition, which equals harder proofs of work. But despite their limitations of speed and , PoW blockchains have historically provided better security, while maintaining meaningful decentralization. Because PoW systems are distributed, it is extremely expensive for a malicious actor to take over the blockchain by controlling the majority of computing power on the network. The hardware, electricity and computational costs are typically too high to surmount.

However, the same features that make PoW blockchains secure also make the barriers to participating in the network as a node high. Operating a and paying for the associated hardware and electricity costs is too expensive for the average user, and mining on many major networks has been monopolized by that have amassed influence in .

Another drawback of PoW networks is that they are energy intensive and thus environmentally damaging. The computational power needed to solve proofs of work requires an immense amount of electricity. For example, in 2021 the Bitcoin network had the same annual carbon footprint as the nation of New Zealand and used as much electricity as Chile. Tech development in the blockchain industry has focused significantly on remediating the environmental drawbacks of crypto mining, and a number of alternative solutions have emerged.

Proof-of-stake blockchains

Proof of Stake is the second most popular consensus mechanism and solves many of the disadvantages found on Proof-of-work blockchains like lack of speed, poor scalability, inefficient energy consumption and high barrier to entry.

Examples of current industry-leading PoS blockchains include , and . , which was originally designed as a PoW blockchain, is in the process of transitioning to a PoS blockchain called .

Instead of miners validating transactions, PoS blockchains simply have . Validators are network node operators that validate data, similarly to PoW systems, but there is no energy-intensive computational process to earn the right to validate. Instead of working to solve proofs of work, validators '' some of the blockchain’s native tokens to become eligible for selection as a validator node. The prospective validator will essentially stake crypto tokens native to the blockchain to serve as . When it comes time to validate the data held in a transaction block on a PoS blockchain, the system randomly selects a validator to confirm the data. While random to an extent, certain variables can make it more likely for a validator to be chosen, including the number of tokens a validator has staked. When the , that validator is rewarded with network transaction fees, and the process begins again with a new block.

Proof-of-stake blockchains keep the network secure and validators honest by requiring validators to stake their tokens. If validators act maliciously or incompetently, they lose their stake and access to the network through a process called ''. This incentive structure ensures that validators have more to gain through lawful operation than by breaking the rules.

Since validators on PoS blockchains do not have to invest in expensive hardware and high electricity costs, the barrier to entry to PoS blockchains for validators is arguably lower. However, if you wish to become a validator, you still must have a sufficient amount of crypto to stake. This amount varies between blockchains, but can reach into the thousands of dollars worth of tokens. PoS blockchains have also been criticized as plutocratic, because the amount of influence validators have over the network is often proportional to the size of their stake.

In terms of sustainability, PoS blockchains are arguably better for the environment than PoW networks because they consume significantly less electricity. Proponents therefore argue that there should be a focus on employing PoS consensus mechanisms in future blockchain projects.

Private and consortium blockchains

Private and consortium blockchains are typically used by enterprises that aim to employ blockchain architecture, but want to ensure specific information remains private, for either regulatory or competitive reasons.

Not all blockchains are made equal, and the various consensus mechanisms have different implications for accessibility, security, and sustainability. Likewise, not all blockchain types are equally well suited for every use case. Though public blockchains are secure and censorship-resistant, for example, they are not well-suited for enterprises due to their transparency. While PoW has been the standard consensus mechanism since the launch of Bitcoin in 2009, PoS, DPoS, and DLT are rapidly gaining traction in the world of blockchain.

Private blockchain networks

A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, execute a consensus protocol and maintain the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on-site.

Permissioned blockchain networks

Businesses who set up a private blockchain will generally set up a permissioned blockchain network. It is important to note that public blockchain networks can also be permissioned. This places restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.

Consortium blockchains

Multiple organizations can share the responsibilities of maintaining a blockchain. These pre-selected organizations determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the blockchain.

Blockchain security

Risk management systems for blockchain networks

When building an enterprise blockchain application, it’s important to have a comprehensive security strategy that uses cybersecurity frameworks, assurance services and best practices to reduce risks against attacks and fraud.

Source

is a popular evolution of the proof-of-stake concept, whereby users of the network elect delegates to validate the next block. Delegates can also be called witnesses or . Using DPoS, you vote for delegates by pooling your tokens into a and linking those to a particular delegate. Proponents say DPoS is a more decentralized and egalitarian process for achieving consensus than Proof of Stake alone.

Blockchain types that use PoW and PoS consensus mechanisms are typically public and decentralized. However, two other categories of blockchain exist — and private blockchains. A private blockchain is a blockchain controlled by a centralized entity that determines who can interact with the blockchain, verify transactions and who can view the information recorded on the blockchain. A consortium blockchain is a distributed ledger controlled by several entities, each of which operates a network node, participates in consensus and has permissions to view certain types of data.

Public blockchains like Bitcoin and Ethereum are and offer broad ecosystems for the development of apps and platforms. Consortium blockchains, however, may offer faster transaction processing times and are easier to modify, but are walled gardens with limited usage outside of the private consortium.

ConsenSys’ Quorum (which was formerly owned by JPMorgan Chase) is a private, of the Ethereum network designed to facilitate interbank information sharing. Consortium blockchains are currently under development in a variety of industries including the insurance industry, the food distribution industry, the financial services industry, and are even being used to prototype around the globe.

Source:

💲
blockchain
consensus mechanism
Proof of Work (PoW)
Proof of Stake (PoS)
distributed ledger technologies (DLTs)
Bitcoin
miners
Bitcoin (BTC)
nodes
block reward
scalability
mining rig
large-scale mining operators
network governance
Polkadot
Avalanche
Cardano
Ethereum
Ethereum 2.0
validators
stake
collateral
block is confirmed
slashing
Delegated Proof of Stake (or DPoS)
block producers
staking pool
consortium blockchains
censorship-resistant
permissioned version
central bank digital currencies (CBDCs)
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