What is Proof-of-Work and Proof-of-Stake and why are they important?

Proof-of-work (PoW) is the consensus algorithm made up of a cryptographic function called a hash. Miners need to find the solution to these mathematical operations to gain the right to verify upcoming transactions. For this process, miners receive a reward in the native currency of the network. Miners are chosen randomly and the probability of solving each hash depends on their computing power, hence decentralization is achieved. Malicious actions can happen only when one party can gather 51% of the computing power in the network, which with large developed networks, such as Bitcoin, is nearly impossible.

Proof-of-Stake (PoS) is a consensus algorithm that allows for transactions in a blockchain to be validated quickly and in a trustful manner. Trustfulness is enabled as each blockchain has a pool of node operators (validators) who are selected based on the amount of stake that they hold in their wallets. Given the fact that no computational power is needed, PoS is more sustainable because less energy is required and it is more immune to centralization as there are low barriers to entry. Malicious action can happen only when one user gathers 51% of the network's funds, which with today’s networks is very expensive.

Consensus mechanisms are vital for blockchains as they keep the network alive. Through these mechanisms new blocks are created and verified by everyone in the network, hence creating a unified and decentralized structure for each blockchain.