Courtroom Insights on Consensus Mechanisms and Blockchain-Powered Transactions by@secagainsttheworld
Courtroom Insights on Consensus Mechanisms and Blockchain-Powered Transactions
by SEC vs. the WorldSeptember 14th, 2023
Too Long; Didn't Read
This section explores the vital role of consensus mechanisms in blockchain technology. Consensus mechanisms help blockchains agree on transaction validity and ledger updates. Two major mechanisms, "proof of work" and "proof of stake," are explained. "Proof of work," used by Bitcoin, involves solving complex math problems to mine blocks and earn crypto rewards. "Proof of stake," used by Ethereum, selects validators based on staked crypto assets. Understanding these mechanisms is key to comprehending how blockchain networks validate transactions.
SEC v. Binance Court Filing, retrieved on June 5, 2023 is part of HackerNoon’s Legal PDF Series. You can jump to any part in this filing here. This is part 12 of 69.
BACKGROUND
II. BACKGROUND ON CRYPTO ASSETS AND CRYPTO TRADING PLATFORMS
B. Consensus Mechanisms and Validation of Transactions on a Blockchain
66. Blockchains typically employ a “consensus” mechanism that, among other things, aims to achieve agreement among users to a data value or on the state of the ledger.
67. A consensus mechanism describes the particular protocol used by a blockchain to agree on, among other things, which ledger transactions are valid, when and how to update the blockchain, and potentially to compensate certain participants for validating transactions and adding new blocks. There can be multiple sources for compensation under the terms of the blockchain protocol, including from fees charged to those transacting on the blockchain, or through the creation or “minting” of additional amounts of the blockchain’s native crypto asset.
68. “Proof of work” and “proof of stake” are the two major consensus mechanisms used by blockchains. Proof of work, the mechanism used by the Bitcoin blockchain, involves computers, known as “validator nodes,” attempting to “mine” a “block” of transactions, in part by solving a complex mathematical problem. The first miner to successfully solve the problem earns the right to update the blockchain and is rewarded with the blockchain’s native crypto asset. Proof of stake, the consensus mechanism currently used by the Ethereum blockchain, involves the blockchain protocol selecting block validators from crypto asset holders who have committed or “staked” a minimum number of crypto assets as part of the validation process.
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This court case 1:23-cv-01599 retrieved on September 6, 2023, from docdroid.net is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.
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