Consensus mechanisms
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Consensus is the procedure by which the participants settle on the next block. Two families dominate. Proof of work requires a participant (a miner) to expend computation to earn the right to propose a block. Proof of stake requires a participant (a validator) to lock up tokens as a bond and selects proposers in proportion to the stake. Misbehaviour under proof of stake is punished by destroying part of the bond, which the protocols call slashing.
A lawyer meets consensus in four contexts. The first is the tax treatment of rewards. A miner receives new coins and fees for computational work, which both the Swiss Federal Tax Administration (FTA; ESTV) and Singapore's IRAS treat as income when the activity is a trade or business.1 The second is the regulatory treatment of staking services, examined below under custody and in Part E, Chapter VIII. The third is liability for the network's conduct, which Part D, Chapter VII and Part J, Chapter VI consider for validators. The fourth is sanctions and criminal law, because a validator who includes a transaction from a sanctioned address may be said to have processed it. None of these questions can be answered without knowing which mechanism the network uses.
| Feature | Proof of work (Bitcoin) | Proof of stake (Ethereum since 2022) | Permissioned (Hyperledger Fabric, Corda) |
|---|---|---|---|
| Who proposes blocks | Miners who solve a computational puzzle | Validators chosen by stake | Pre-approved nodes |
| Reward | Block subsidy plus fees | Issuance plus fees plus priority tips | Usually none |
| Penalty for misconduct | Wasted energy cost | Slashing of staked tokens | Contractual and governance sanctions |
| Reversal possible | Only by majority of hash power | Only by supermajority of stake | By the operator or consortium |
| Legal person identifiable | Rarely | Rarely for solo validators, often for staking providers | Always |
| Typical use in this book | Bitcoin custody, tracing | Staking, DeFi, tokenised assets | Bank consortia, SDX, Project Guardian pilots |
Notes
- FTA, Working paper on cryptocurrencies and initial coin/token offerings as subject of wealth, income and profit tax, withholding tax and stamp duties, version of 14 December 2021, section 3.3 (mining and staking as taxable income); IRAS, e-Tax Guide "Income Tax Treatment of Digital Tokens", first published 17 April 2020, section 7 on mining. See Parts G and M. ↩
For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.