Cryptocurrency is a very popular digital currency. People like this payment system due to its string encryption and impossible-to-manipulate nature. The transactions are encrypted between the sender and receiver. There is a huge network of crypto to verify these transitions. So, in this article, let’s uncover the truth about the crypto network and learn, ‘How is a transaction verified on a cryptocurrency network?’. Remember this is not financial advice, consult with a financial advisor before investing in crypto.
How Is A Transaction Verified On A Cryptocurrency Network?
Now the question is, ‘How is a transaction verified on a cryptocurrency network?’ The transactions on a crypto network are verified through several processes. The transaction verification process for cryptocurrencies is called consensus. This process helps to ensure that the transaction is valid and steady for the network.
The process of transaction verification varies depending on the consensus mechanism integrated into the crypto network. However, there are two most common consensus mechanisms used to verify crypto transactions.
1. Proof Of Work (PoW)
The Proof of Work consensus mechanism is designed to verify crypto miners. The miners solve complex mathematical puzzles/problems to mine cryptocurrency. Crypto miners use powerful computational machines and software to solve the mathematical puzzle. Whoever first finds the solution attaches a new block of transactions to the blockchain/crypto network.
This puzzle-solving process and the solved puzzle act as proof for the miners. Later, the mechanism verifies and checks whether a miner has done the work or not. This Proof of Work helps other nodes in the network verify the transaction. However, Proof of Work verification in crypto is a very energy-intensive process. But it is a highly secure process.
2. Proof of Stake (PoS)
Proof of Stake is another consensus mechanism. In this process, transactions are verified by the stakeholders (validators who hold a certain amount of cryptocurrency). Based on their stake in the crypto network they create a new block. The chances of being chosen as a validator have a direct connection with the staked cryptocurrency amount a validator holds.
Unlike Proof of Work, validators just have to validate the transaction and add a new block. They don’t need to solve complex puzzles using computational power like PoW. The PoS process of verification is more energy-efficient than the PoW.
In both consensus mechanisms, when a new block is created on the network, the new block will be circulated to all participating nodes in the network. After that, the node examines the transactions in the block.
Then it validates the transaction to ensure it follows the protocol rules, including sufficient balance, proper signatures, etc. If the node finds any issue or suspects anything invalid, then it will reject the request to add a new block to the blockchain network and transaction. This
What Are Nodes In Cryptocurrency?
The node is one of the most important parts of the Blockchain network. Each node is a single computer that contains the information on the blockchain. Now this is where things are getting interesting. Since each node contains the same copy of block information, they can audit each other seamlessly.
This ability of the node allows them to verify new transactions without the help of a central body. There are four types of Crypto Nodes,
1. Full Node
A full node contains a copy of all the information in the network’s digital ledger. A full node is often called the foundation of blockchain. They also provide a copy of the information to new nodes. These are the backbones of a crypto network.
2. Miner Node
The work of a miner node is to verify the transactions and add them to the network on a PoW (Proof of Work) blockchain. These types of nodes are not energy-efficient, they need heavy computational power to solve complex mathematical puzzles. The only plus point with this node is, that they get rewarded with cryptocurrency.
3. Validator Node
The validator node is similar to the miner node. But they don’t need to solve complex puzzles. The main work of a validator node is to examine the transaction and add a new block. They also receive crypto rewards in return for their work.
4. Light Node
The SVP clients or the Light Node is a different type of node. Unlike other nodes, light nodes don’t contain entire blockchain information. They just install ‘block headers’ The work of Light Nodes is to verify transactions using the SPV (Simplified Payment Verification) method. The popular cryptocurrencies Bitcoin and Ethereum use these SVP nodes.
Why Do Cryptocurrency Transaction Confirmations Take So Long?
The block size of each block is 1 MB, and each block can only store a limited number of transactions. This limited storage creates opportunities for miners. Miners do the work of verifying transactions and adding new blocks, but they only collect those blocks that have a high fee.
Thus, higher fees mean high priority for miners. However, the community keeps their blocks as small as possible to make them simpler to operate. If your block is small, which means it has a small fee reward, that’s why miners give less attention to these transactions.
Can A Crypto Miner Cheat?
Crypto miners solve complex mathematical puzzles and get crypto fees as a reward in return for their work. So, for a miner to earn crypto, they need to verify cryptocurrency transactions and add new blocks by solving complex puzzles. This means it is impossible to hack the mining and get unlimited crypto without solving complex problems.
Mainly there are two types of puzzles:-
1. Cryptograms
This is a type of puzzle where a phrase has been encoded using a cryptogram. There is only one solution to decode the phrase. Each letter is represented by a different letter, number, or symbol and the letters cannot decode to themselves.
2. Hashes
Hashes is a mathematically complex puzzle. Miners have to solve these puzzles by using computational power on Proof of Work blockchains. If they can solve the problem, then they can add their block to the chain. The first miner who generates the hash is rewarded crypto as a fee.
Conclusion
In the end, you get your answer to ‘How is a transaction verified on a cryptocurrency network?’ through this article. The consensus mechanism’s main aim is to ensure that all participating nodes concur that the transaction is valid. These nodes maintain the verification process, including the integrity and security of the cryptocurrency network. If you have any other questions regarding this topic, If you want to know more about cryptocurrencies, then read these articles below…
Also Read:
About Author
