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.