Bet you thought "blockchain" was just one technology? Not really. In fact, the top 10 cryptocurrencies are built on entirely different blockchains. They use different consensus mechanisms, have their own networks, and serve different purposes. But what do all these words actually mean? And how are these cryptocurrencies technically different from Bitcoin?
Defining the terms
To understand how a cryptocurrency is created, let's consider these three concepts: the blockchain, the consensus mechanism, and the network.
- The blockchain is a chain of blocks with all transactions. Most cryptocurrencies are named after the blockchain they run on: Bitcoin, Ethereum, Solana, Tron, TON, Avalanche, and Polkadot.
- The consensus mechanism is how people agree on what transactions get added (like PoW, PoS, DPoS, PBFT, PoA, Proof of History).
- The network is a group of connected computers (nodes) that run the blockchain. These networks also typically share the name of the blockchain, such as Ethereum Mainnet, BNB Chain, Polygon Network, Tron Network, or Solana Network.
(Who?) network creates (what?) blockchain (how?) using consensus mechanisms
For example, Bitcoin is a blockchain that uses a Proof of Work to validate transactions. This blockchain runs on the Bitcoin network.
Let's now look at the top 5 cryptocurrencies by market capitalization using this framework.
Note. When you transfer crypto on exchanges, you need to make sure it's sent through the same network on both sides. Otherwise, your funds could get lost or not show up. It's because tokens can run not only on their native blockchain but also on different blockchains, and each version belongs to a different network. For example, USDT exists on Ethereum (ERC-20 network), Tron (TRC-20 network), and BNB Smart Chain (BEP-20 network).
Types of Consensus Mechanisms
Here is our HOW – how the new blocks are being added to the chain. Consensus aims to prevent problems like double-spending or conflicting chains.
Different consensus mechanisms represent varying approaches to the "blockchain trilemma" – requirements of security, decentralization, and scalability simultaneously. This concept was first articulated by Ethereum co-founder Vitalik Buterin.
Some are slow but secure (like Bitcoin), others are fast but centralized (like Tron). Today, Ethereum leads in smart contracts, Solana pushes for speed, and TON grows through Telegram.
There are such types of blockchains:
- Proof-based (Proof-of-X): Nodes prove they have done some work or own some resource to create/validate blocks. This includes PoW, PoS, DPoS, PoH, and PoC.
- Voting-based (Byzantine-fault-tolerant): Validators (often a known set of nodes) vote to agree on each block. It's PBFT or Tendermint.
- Hybrid/Novel: Some blockchains combine methods or introduce new models. For example, EOS's consensus is essentially Delegated PoS with an added Byzantine vote. Solana introduces Proof-of-History (PoH), which encodes timestamps into its PoS protocol.
Let's consider the most well-known and basic ones.
Proof of Work
In 2009, Bitcoin introduced the world to blockchain, a decentralized way to store and transfer value without banks or intermediaries. At the heart of Bitcoin was Proof of Work (PoW).
It relies on mining, where powerful computers solve complex mathematical puzzles to validate transactions and create new blocks. While effective, it demands high-cost technology, particular knowledge, and much energy.
Proof of Stake (PoS)
Ethereum appeared in 2015. It introduced not just a blockchain for money, but a platform for smart contracts – pieces of code that could run automatically when conditions are met. At first, it still used PoW, but decided to switch to a more efficient system. This is when the real need for new consensus mechanisms began.
PoS involves two main participants: validators and delegators. Validators lock up their coins in a smart contract, create new blocks, and validate transactions. In return, they earn rewards through new coins and transaction fees from delegators.
Delegators choose validators to whom they delegate their coins for staking. They share both the risks and the profits with the validators. So, it's a kind of teamwork: validators handle the technical responsibilities while delegators supply funds.
However, critics argue that this approach risks centralization.
Delegated Proof of Stake (DPoS)
To fix this, projects like EOS and TRON introduced Delegated Proof of Stake (DPoS) in 2014. It was an evolution of PoS. Here, all token holders vote for a fixed number of delegates (or "witnesses") who will create blocks. Their quantity can range from 21 to 101.
Note. In PoS and DPoS systems, people can stake their crypto – it's somewhat similar to a bank deposit, but with higher risks and rewards.
Proof of History
Solana introduced Proof of History (PoH) in 2020, when its mainnet beta was launched. It was the first blockchain to implement this mechanism – a way to timestamp transactions without needing all nodes to agree on time, which greatly boosts speed.
After that, it combined PoH with Proof of Stake (PoS) to select validators and finalize blocks. This hybrid approach makes Solana incredibly scalable, processing up to 60,000 transactions per second.
Main Features of Blockchain Mechanics: Forks, Block Processing, and Finality
Since different blockchains use different consensus mechanisms, they behave in distinct ways under the hood. Further, we'll break down three fundamental aspects: block processing, forks, and finality.
Understanding these mechanics helps explain why some blockchains are faster or more secure, how upgrades happen, and what makes specific networks more reliable than others.
Block Processing
Block processing is how transactions are selected, validated, and written to the blockchain. It determines how fast the blockchain operates and how many transactions it can handle per second.
In Proof of Work (PoW), validation is slow and energy-consuming. Solana network processes blocks in parallel using Proof of History. In private networks, it can be much faster because trust already exists between participants.
Forks
In decentralized networks, multiple nodes can create new blocks almost simultaneously. The network has not yet determined which is the "correct" one, so some nodes see one chain, and some see the other.
There are two main types of forks:
- A hard fork, a radical change in a cryptocurrency protocol that is incompatible with the previous blockchain versions. Hard forks create an entirely new blockchain that diverges from the original. It's, for example, Bitcoin Cash, a peer-to-peer electronic cash system.
- A soft fork, a change in a cryptocurrency protocol that keeps it backward compatible with previous versions of the protocol. Ethereum's move from PoW to PoS was coordinated as a kind of soft fork (called the "Merge").
Finality
Finality is the guarantee that a block will no longer change. If a transaction is in a finalized block, it can't be altered or undone. The faster the finality, the smoother transfers, integrations, and user experience become.
There are two types of finality:
- Probabilistic finality – the more time passes, the less likely a fork will occur. However, there is no 100% guarantee like in Bitcoin.
- Deterministic finality – once a block is added, it is instantly final.
Cosmos (Tendermint), Avalanche, and private networks (Raft, IBFT) achieve finality in about 1 second, with no chance of change. Ethereum PoS (with Casper) finalizes after a few blocks (~12–15 seconds), but then the block becomes immutable.
Types of Blockchain
As different projects kept trying to solve the "blockchain trilemma", we eventually ended up with many blockchains.
They can be divided into two groups: public and private (permissioned). Public blockchains are open to everyone. Anyone can join, see the data, and help run the network. Private blockchains are closed and controlled by specific organizations. Only selected people can access or add data.
Major Public Blockchains
Ethereum remains the most popular platform for smart contracts, and thus, hosts the largest number of tokens. Solana and TON have the maximum speed but sacrifice some decentralization. Polkadot and Cosmos build technologies that let blockchains connect and share data or tokens with each other directly. They called this idea the "Internet of Blockchains," trying to make the crypto world borderless.
Private Blockchains
Businesses often use these for things like supply chains or finance. Among them are Hyperledger Fabric and Quorum. Their blockchains don't have forks because all network participants are pre-selected and all transactions are agreed upon in advance.
Summary
Blockchain is a chain of transactions. The network is the entire system of participants and infrastructure that realizes it. Each blockchain gets its features from the consensus mechanism it uses.
Depending on your goals, you will need a different blockchain. If you just want to send money quickly and cheaply, choose Solana. Bitcoin is the best option for storing value. If you're building something like a game, NFT, or DeFi app, choose Ethereum. And if you want your app or token to work across many blockchains, you'll need solutions like Cosmos or Polkadot.
HODL Team
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