Mining and Staking – Readers! These are two terms that you may have never heard before today. Don’t worry! To understand them, you will have to shift your mind toward the Blocks for a short time.
Now, what are blocks? This is a new question. In simple words, a block is like a human brain. As we all know, the brain stores and processes information and controls the overall functions of the human body.
Similarly, a block in the blockchain stores and manages the transaction data, including its details( Amount transferred and Transaction ID), ensuring the integrity of a blockchain network.
However, when the question of how blocks are added to the blockchain arises, many users get confused and become speechless. To answer this question, Mining and Staking ( Two different consensus mechanisms to create and add new blocks) step into the field of blockchain.
After this interesting discussion, your heart will be jumping to know more details about them. Right? To learn these two methods, you have to read our blog post comprehensively.
What is Block? A Comprehensive Overview
After reading the intro, you would have gotten a little idea about the blocks. However, that’s not enough. Before learning How blocks are added, it is important to know about them and their key components in detail. So, once again…….
Blocks are fundamental units of blockchain technology that are used to store transaction data and their details, including sender and recipient addresses, the amount transferred, timestamps, etc.
These blocks ensure the integrity, transparency, as well as security of the entire network, as they store information in such a way that it cannot be altered or deleted.
Readers! The reason this system is called Blockchain is that all blocks combine together in a sequential order and form long chains. Each block consists of several key components. Let’s discuss them one after one.
Block Header
A header is considered the main portion of any block that contains information about the block itself. Each block header consists of three sets of block metadata, a timestamp( The time the block was created), and some other individual components.
Block Hash
Each block generates its own cryptographic hash. It is a six-digit number that serves as a digital fingerprint and ensures that the entire content within a block is safe. This fingerprint also saves a block from being altered or deleted.
A Nonce
A nonce is a 32-bit encrypted number used in the mining process to generate a valid hash for a new block. It plays a crucial role in verifying and adding blocks to the blockchain once specific criteria or conditions are fulfilled.
Block Size
In simple terms, block size is the amount of data that a block can easily hold. Below, we have listed the block size of the 5 major cryptocurrencies.
- Bitcoin: 1 MB
- Bitcoin cash: 32 MBs
- Litecoin: 1 MB
- Ethereum: No specific size.
- Cordano: 80KB
Transactions
Till we have only mentioned the word “Transaction”, but haven’t explained what it actually is. In simple words, a transaction is like a packed box in which the data or all key information of any blockchain network is securely stored. From sender & receiver addresses to executed smart contracts, each type of information is securely stored, building the trust of a blockchain network.
Once you have understood blocks well, we will move on to learning how to create and add new blocks to the chain. The next sections are waiting for you.
What Is a Consensus Mechanism: Overview & Types
Dear readers! How blocks are added to the blockchain the answer to this question lies in the consensus mechanism. Let’s understand this mechanism from A to Z.
Consensus mechanism is a method used to achieve agreement and trust among all nodes in a blockchain network. It is a type of automated system that governs some specific rules for adding, changing, and even deleting information.
This mechanism is responsible for creating and adding new blocks to an existing chain. When new blocks are added, all participants are updated regarding of new blocks. Additionally, it ensures that all transactions are verified and all blocks are valid.
There are two main consensus mechanisms: Mining( Proof-of-work) and Staking( Proof-of-stake) mechanisms, about which we have already given a hint in the intro. In the next section, we will discover how blocks are created through these two unique consensus mechanisms.
How Blocks Are Added: Mining( Proof-of-work)
Mining, also known as Proof-of-work, is a consensus mechanism that is associated with Bitcoin and some other cryptocurrencies.
Crypto users! This mechanism is considered the most complex method of adding a new block. This reason is that in this mechanism, miners have to solve very complex or tricky mathematical puzzles by using computational power.
It’s time to explore this mechanism in detail. Below, we will discuss this mechanism step-by-step. So, pay your full attention…..
Step 1: Collecting Transactions
This process begins when miners who are responsible for adding new blocks gather the unconfirmed transactions. The place where these miners or nodes gather these transactions is called the Mempool.
Step 2: Transaction Validation
Before creating a new block, the miners check these transactions in different ways, such as;
- The same Bitcoin is not being sent.
- If the miner has sufficient balance.
- Whether transactions are signed with valid cryptographic signatures.
- Are digital signatures correct or not?
Step 3: Constructing a Block
After the validation, the miner builds a new block that consists of some main components, including;
Header: We have already told you that this component consists of metadata, timestamp, hash of the previous block, etc.
Markle root: It is a hash that ensures data integrity by summarizing all transactions.
A nonce: A nonce is a foundational number that miners use, change, and adjust to find a valid hash for a new block.
Step 4: Proof-of-Work
Now, let’s talk about the most difficult step, in which miners solve very complex mathematical puzzles by using computational power and add new blocks. At this stage;
- Miners hash the block data with different nonce values till the required value is found.
- They use computational power, solve these tricky puzzles, and broadcast a new block to the network.
Step 5: Network Verification & Consensus
Once a new block is added, it is time for consensus or network verification. Here, nodes perform multiple checks. For example;
- Whether all transactions are valid or not.
- Does the block correctly reference the previous block?
- Is the hash correct?
And so on….
After solving such complex puzzles and adding a new block to the chain, miners get a reward in the form of a new Bitcoin and a transaction fee.
How Blocks Are Added: Staking( Proof-of-stake)
Another consensus mechanism that is used to verify transactions and add new blocks is staking(proof-of-stake). This type of mechanism is used by cryptocurrencies, including Ethereum 2.0, Cardano, and Polkadot. This method of adding blocks is completely different from mining.
Wanna know how? Well! Unlike the previous section, we will again discuss how blocks are created through this method.
Step 1. Selection of Staking Method
The staking process starts when a user who wants to be a validator selects the right method of staking coins. There are three different staking methods, such as;
- Direct Staking: Where a staker directly participates in the network’s consensus process.
- Staking pools: The staker joins a pool of other stakers and stakes smaller amounts.
- Liquid Staking: This method refers to using tokens like stETH, which represent staked ETH and can be traded.
Step 2. Validator Selection
After selecting the right staking method, a participant stakes a specific number of coins that are locked by the network. After this, the blockchain network selects a validator who has to add new blocks. However, who should be a validator? This decision is made based on the number of coins they stake. The more coins they have staked, the higher the chance of being selected to add new blocks.
For example, if the first participant has staked 5 coins and the second one has staked 10 coins. The second one will be selected as a validator.
Step 3: Block Creation
In this step, the selected validators verify transactions and package them into a new block. This block consists of some important elements, such as;
- The new block includes the previous block’s hash.
- This block contains a timestamp, validator ID, and other essential metadata fields.
Step 4: Consensus Achievements
Other validators also have to attest to the validity of the proposed block. For the block that is to be added, at least 2/3 of the validators must agree on its validity. Additionally, they perform multiple checks, such as;
- Whether the hash is correct or not.
- Does the block correctly reference the previous block?
And others…
Step 5: Finalization
Once this consensus is achieved, the block is finalized and added to the chain. Here, validators are rewarded with a transaction fee. Other attesting validators are also provided with awards for their participation.
How Blocks Are Added: Let’s Conclude
In the blockchain, blocks play a vital role by storing the transaction data securely, ensuring the trust and integrity of a blockchain network. However, when it comes to expanding the chain by adding new blocks, many users get confused. In this scenario, a consensus mechanism steps into this field of blockchain.
There are two main types of this mechanism: Mining( proof-of-work) and Staking( proof-of-stake). In our guide, we have discussed these two mechanisms in detail, highlighting how they play a role in the decentralized addition of new blocks to a network.
