In public blockchain networks, validating transactions and adding new blocks requires consensus among decentralized nodes. To participate in consensus and validation, nodes must hold the native crypto token whether it be BTC, ETH, or other coins.
The token provides “skin in the game” and aligns incentives. Different blockchains have varying mechanisms to validate genuine tokens and deter fraudulent tokens. Let’s explore some prominent token validation designs.
Bitcoin pioneered proof-of-work (PoW) mining where specialized hardware competes to solve cryptographic puzzles. The probability of solving puzzles and mining new blocks depends on computational work and hash rate. Successfully mining blocks rewards BTC tokens.
This elegant design ensures only participants expending real-world resources can mine new BTC. Fake or forked tokens are unable to manipulate PoW mining, providing strong validity. However, PoW is energy intensive.
Proof-of-stake (PoS) chains like Ethereum 2.0 allow token holders to become validators by staking coins to the network. The more tokens staked, the more blocks a validator will produce proportionally, earning staking rewards.
Staked tokens provide Sybil resistance and skin-in-the-game for validators. Malicious actors can’t fake stake without owning real ETH. The Ethereum Beacon Chain further enhances security by locking staked ETH into the protocol itself.
Delegated Proof-of-Stake Pools
Networks like EOS and Tron use a delegated PoS (DPoS) model where token holders vote to elect block-producing nodes. Token holders can also delegate staked tokens to “pools” of standby validators for additional security.
Voting power is weighted based on tokens held, ensuring fair decentralization. Forked tokens lack backing to manipulate voting or operate standby pools. DPoS enhances scalability over fully decentralized PoS.
Private and consortium blockchains like VeChain use proof-of-authority where established, KYC’ed entities run validation nodes. Their real-world identity provides credibility not easily forged. Permissioned nodes enable efficiency gains and legal compliance over public networks.
While centralized, PoA avoids token validation complexities by limiting participation to identified entities. Use cases like enterprise supply chains benefit from this approach.
Proof-of-burn (PoB) blockchains like Slimcoin destroy or «burn» coins by sending them to an unspendable address to prove commitment to the network. The more coins burned, the greater chance a node has of mining a new block and earning rewards.
Burning coins aligns incentives around long-term participation rather than short-term profits. It also bootstraps network security in a fair «spend resources to earn rewards» model without expensive hardware like PoW. However, some view coin burning as wasteful.
Blockchains like Filecoin and Storj utilize proof-of-storage (PoSt) where miners allocate disk storage space to earn block rewards and transaction fees. The more storage provided, the greater mining power a participant has.
Requiring real storage commits resources to the network while mining. Fake or forked tokens can’t manipulate consensus without actual hardware. Proof-of-storage secures decentralized file storage networks while utilizing hardware efficiently.
In summary, blockchain tokens provide the necessary economic machinery for decentralized consensus. Different validation designs harness tokens uniquely to reward honest participation and deter cheating. While still evolving, staking mechanisms appear especially promising to balance security with efficiency for scalable, sustainable blockchain networks.