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Lesson 3: How do transactions work on a blockchain?
Estimated reading time:

10 minutes



Concepts covered:
  • Consensus
  • Decentralized Exchange
  • Proof-of-stake
  • Proof-of-work

Key takeaway:

Proof of work, proof of stake, and XRPL’s consensus algorithm are ways of deciding on one chain of events, but have different trade-offs on scalability, security, and speed.

Lesson 3

How do transactions work on a blockchain?

Deciding on one chain of events

Just like any community, nothing is perfect. Before we dive into the ways that transactions work on different blockchains, let’s summarize the downside of some of the most common:

proof of work requires computing power to propose new transactions. This slows down the transaction process and consumes a lot of energy, but makes it very difficult to counterfeit.

proof of stake requires pledging cryptocurrency to propose new transactions, which gives advantage to wealthy participants.

XRPL consensus mechanism requires that the majority of nodes (80%) be honest as they collaboratively add new transactions, which is why the reputation of these nodes matter.

In a decentralized ledger, there is no one central figure that confirms transactions. Instead, the entire network must work together to decide which transactions should be accepted and allowed to flow through the ledger. This process is called consensus. Think of the ledger as a book and consensus as a pre-established agreement on how to write new pages.

consensus can be achieved through various mechanisms, with the most common being proof-of-work (PoW) and proof-of-stake (PoS). The XRP Ledger uses a unique consensus mechanism, now known as the XRPL Consensus Mechanism.


Now that we've gone over the basics of how transactions work on a blockchain, let's test your knowledge with a quick quiz.

How does a transaction on a blockchain happen?
What is proof-of-work?
What is proof-of-stake?
What's one key reason why the XRPL uses a unique consensus algorithm?
Why doesn't XRPL use PoW?