Blockchains are the heartbeat of cryptocurrency. They consist of data blocks, encrypted and verified by processing nodes within each crypto network. Each block has a number that indicates its transaction order, and when the blocks are chained together, you can piece together every transaction since the network was launched.
There are a number of different types of blockchains.
Proof of Work
Proof of work chains require a certain complex calculation to be performed on the data in order to verify its contents. In a network, all of the processor nodes race to encrypt the data in such a way that the encryption results in a sequence of numbers – typically consecutive zeros. The first node to complete the necessary encryption earns a set amount of the cryptocurrency they are processing (mining), and then the rest of the nodes verify the calculation, and then move on to the next block.
Because of the mathematics involved, these calculations can take up to 10 minutes on the most advanced transistor-based processors – and as such, it’s nearly impossible for a single computer to win consecutive blocks, which ends up making the whole chain mostly protected against hijacking/false transaction attacks.
The downfall of proof of work is the energy needed for all the nodes competing to encrypt the same blocks. And because of the work required, also tends to need longer transaction times. Bitcoin for instance, is designed to operate in 10 minute blocks.
Proof Of Stake
Proof of stake is also a block-chaining system, but instead of each node racing to mine the same block, there are fewer nodes that split the work. To mitigate blockchain hijacking with fraudulent transactions, each node needs to be run by an entity that owns a certain percentage of the circulating coins on the network – hence, they need a stake in the value of the currency they are mining. The stake they own should keep nodes honest.
Most proof of stake chains employ a validator level to finalize and approve all transactions. The requirements of a validator are typically very stringent and require a large stake in the currency, as they are the last line of defense of block-chain hijacking.