A blockchain is a shared record that thousands of computers, called nodes, can agree on without a central gatekeeper. This system for keeping everyone in sync is called consensus. The three most common ways to reach consensus are:
Proof of Work (PoW) — In this model, “miners” spend computing power—meaning they use energy-intensive computers to solve puzzles and confirm transactions. The miner who successfully adds a new block earns newly minted coins plus transaction fees. Competing to add the next block keeps the network secure because it would cost a considerable amount of real-world energy and money to attack or rewrite it. Bitcoin uses PoW.
Proof of Stake (PoS) — Here, “validators” lock up coins as a security deposit—meaning participants set aside some of their crypto as collateral to help confirm transactions. If they follow the network’s rules, they earn rewards; if they make mistakes or stay offline too long, they can lose part of that deposit (a penalty called slashing). ETH uses PoS.
Federated Consensus — The XRP Ledger reaches consensus without proof of work or staking by having independent validators agree on transactions. Each validator checks transactions and compares its view with a trusted set of other validators; when a strong majority agree, the transaction closes. This process typically takes 3–5 seconds and provides immediate finality, meaning confirmed transactions cannot be reversed. Because there are no miners or stakers to pay, transactions are fast, inexpensive, and energy-efficient.
PoW, PoS, and Federated Consensus use different methods but share the same goal: ensuring only valid transactions are added to the ledger. Think of it like a sports game—the refs (validators or miners) make sure the plays are fair, and the scoreboard (the blockchain) shows the official record. But instead of one ref, everyone participating in the blockchain governance are relied on to confirm that the rules are being followed.
In any case, they don’t own or “back” your funds—they just enforce the network’s rules so the ledger stays accurate. Even when you stake, you assign your tokens to help a validator operate while retaining full ownership. Only your private keys can move your crypto.
Let's look at how each system works under the hood.
Proof-of-Work: why miners solve “puzzles”
Miners group recent transactions into a candidate block and repeatedly run a math puzzle called a hash function, changing a number (the nonce) until the result meets the network’s target. Miners don’t do this manually—it’s handled automatically by mining software that runs on high-powered computers, often ASICs (Application-Specific Integrated Circuits).
ASICs are custom-built machines designed to do one thing extremely fast: compute these hash puzzles. The “puzzle” itself is a test of work—the software keeps trying random nonce values until the hash output starts with a required number of zeros, known as the network’s difficulty target. This target adjusts over time to keep new blocks appearing at a steady pace. When a miner’s machine finally finds a valid hash, that miner earns the right to add the block to the blockchain and collects rewards in newly created coins plus transaction fees.
Why does this system work?
It makes attacks expensive. Creating a valid block uses real electricity and special hardware. In theory, someone could try to rewrite past data, but because every block links to all the ones before it, they’d have to redo all that work—using an enormous, visible amount of power and money. On large networks, this would be nearly impossible, which is what keeps the record secure.
It rewards participation and reliability. When a miner successfully adds a valid block, they earn a block reward—a set amount of newly created coins (which can be a fraction of a coin) plus the transaction fees from that block. On large networks, these rewards are often shared among mining pools, so each participant earns a proportional share. These incentives encourage miners to continue contributing computing power and to follow the protocol’s rules, which keep the network secure and running smoothly.
Who mines today? On large Proof-of-Work networks like Bitcoin, mining has become mostly industrial-scale—data-center rooms full of specialized hardware running nonstop. These operations are often organized into mining pools, which are groups of miners that combine their computing power and share rewards among members. Pooling helps even out earnings so everyone gets small, steady payouts instead of waiting on a rare solo win.
Smaller Proof-of-Work networks still attract hobbyist miners. They usually join mining pools too, since mining alone is like buying a single lottery ticket: you might win the full reward, but it’s rare. Pooling makes the process more predictable with smaller, steadier payouts instead of waiting (and probably never hitting) a big jackpot on your own.
Proof-of-Stake: what validators actually do
On Proof-of-Stake (PoS) chains, participants can lock up their coins on the blockchain to help secure the network. Some run their own validator nodes, but most people simply delegate their tokens to an existing validator—earning rewards while keeping ownership and control of their crypto.
The protocol selects validators through a process that's randomized but the more you stake the more likely you will be selected. Think of it like a raffle. I may win if I have one raffle ticket, but I have a better chane of winning if I have a thousand raffle tickets. The selection process is transparent so everyone can verify the selection was fair.
Assemble and check blocks. By collecting transactions, verifying signatures and rules, and broadcasting proposals.
Vote on others’ blocks. These votes, or attestations, are sent automatically by validator software when it’s online and functioning, helping the network finalize the next block.
Stay reliable. Validators earn rewards—like new tokens and transaction fees—for staying online and running up-to-date software that correctly processes blocks. If a validator goes offline for too long, signs two blocks at once (called double-signing), or breaks network rules, it can face a penalty called slashing, where part of its staked coins are permanently lost. These penalties usually apply to the validator’s own stake, not to regular users who delegate tokens to it. However, some networks may share a small portion of the penalty with delegators.
Federated Consensus - a trusted voting system
Federated consensus is a validator-based agreement model in which each node maintains a unique set of trusted and reliable validators (often called a Unique Node List, or UNL). Consensus is reached through voting: once a supermajority of trusted validators agree that a transaction is valid it is recorded on the blockchain, meaning the agreed state is final and cannot be reorganized. Validation does not depend on mining power or token ownership, but on sufficient overlap among trusted validators across the network; so that no single actor or small group can force an outcome. This approach prioritizes fast settlement, low fees, and predictable finality while allowing decentralization through independently operated validators rather than economic competition.
This raises a question beginners often ask: Do miners or validators control crypto?
Nope, no one controls crypto. Miners and validators keep the record up to date by checking transactions and adding new blocks. They can’t alter the data or access your money.
Your wallet’s private keys—the passcodes that let you move your crypto—are visible only to you during setup and in your wallet's settings. The people or computers helping run the blockchain never see them. Only you, with your private key or recovery phrase, can access your crypto.
Key Takeaways
These three systems serve the same purpose: keeping the blockchain accurate and tamper-resistant. Operators keep score while your keys keep control. If you want to participate, delegating a small stake is the simplest way to start. If you choose to run a validator, research thoroughly, secure your keys, and monitor continuously.