In blockchain-based systems, participants can be malicious. Therefore, this work first characterizes several properties expected in systems where the honest behaviour of involved parties plays significant role in the success. Considering these properties, a new consensus mechanism, Proof of Karma (PoK), is proposed based on karma (actions) of nodes. PoK incorporates a self-stabilizing leader election algorithm based on karma score to ensure consistency in the system. In PoK, both new and existing nodes get a fair chance to earn profit by becoming a leader and adding a valid block to the blockchain. PoK gives incentives and imposes penalties to encourage and discourage the nodes’ honest and malicious actions, respectively. PoK is analyzed with respect to the CAP theorem. The work provides security analysis to demonstrate the resistance of PoK against various blockchain specific attacks and karma specific attacks. Several experiments are also performed to assess the performance of PoK and compare it with the baseline model. The results show the feasibility, effectiveness, usability and scalability of PoK. PoK is also compared based on the characterized properties with various existing consensus mechanisms that consider malicious actions of nodes. PoK achieves consensus finality, decentralization and fairness, outperforming existing works.