Proof of Authority: Everything You Need To Know

Proof of Work (PoW) and Proof of Stake (PoS) are used in many current Blockchains. However, these algorithms all have pros and cons. With the ability to execute transactions every second faster, the Proof of Authority (PoA) mechanism has become the alternative in many cases. This article, Tokenize Xchange – Digital Currency Trading Platform will explain Proof of Authority and its benefit to the blockchain network. 

What is Proof of Authority (PoA)?

Invented in 2017 by Gavin Wood, a co-founder of the Ethereum network, Proof of Authority (PoA) is a consensus mechanism that provides a solution for blockchains, particularly private ones. Proof of Authority is a variation of the Proof of Stake consensus mechanism, in which the algorithm values ​​the identity and reputation of the participants, not the value of their holdings.

In proof-of-authority, participants must undergo a vetting procedure to be empowered to create new blocks. Therefore, those reliable validators will act as system moderators to check and transact blocks, and protect the PoA Blockchain. We will go deep into this process in the next section: How it works. 

This mechanism is scalable since it is based on a limited number of approved validators. A well-known platform that makes use of a PoA algorithm is VeChain (VET).

How does it work?

So, here is the process of the Proof of Authority mechanism:

The preapproved validators take responsibility for organizing financial transactions into blocks. Since the procedure is automated, the validators don’t need to keep an eye on their computers all the time. However, it means that validators must maintain the functionality of their computers (admin sites).

Contrary to the Proof-of-Work, sometimes known as “mining,” there is no technical competition between validators in this case. Nearly no computer power and hence nearly no electricity is needed for the operation of this consensus mechanism.

The network may update the blockchain more often by shortening the time between each block (Block time) and processing more transactions (Blocksize) for processing costs that are nearly free because the PoA only needs a small number of players (Transaction fees)

Terms for proof-of-authority consensus

Conditions may vary from system to system, though, a user must satisfy these three fundamental criteria in order to be selected as a validator:

• Trustworthiness: A validator must have good moral standards and no criminal record.
• Confirmed identity: The identity of a validator needs to be explicitly verified on the network with the capacity to cross-check the data available in the public domain.
• Reputation: A validator must have a good reputation and long-term commitment.

What is the purpose of Proof of Authority?

In the context of Proof of Work being too costly, Proof of Stake algorithms emerged as one of the popular alternatives to PoW. However, PoS still contains a significant drawback. 

In the Proof-of-Stake algorithm, three different pieces of software, including an execution client, a consensus client, and a validator, are required to participate in the Ethereum staking process. The PoA algorithm, on the contrary, does not require puzzle-solving to guarantee the ongoing connection between nodes. Therefore, the validators don’t require specialized hardware to maintain the network. 

This is what Proof of Authority aims to improve. The idea behind the PoA algorithm is that network participants determine the identity of validators instead of focusing on the economic value of the token.

Validators in the PoA system are known entities, they stake their “reputation” on top to have the right to validate blocks. This modification to the PoS model eliminates the need to consider currency differences between validators and ensures that all network participants are equally motivated to work for the network’s success.

Pros and Cons of POA

Pros

Eliminate the possibility of a cyber-attack 

An individual need to be verified and build reputation on the network to become the validator. Hence, this eliminates bad nodes that sabotage the system and slow transactions. This mechanism also helps to ensure that the validation results are valid, fair, and not subject to anyone’s control.

Energy-efficiency 

PoA is the best solution regarding security and energy usage, as PoS has security issues and PoW uses a lot of energy.

Fast transaction 

When a new block is formed, the system will randomly select a node to participate in transaction validation and add this block to the network based on the consensus of other nodes. PoA works on a limited number of validators. Therefore, PoA becomes a model with very fast transaction speed and great scalability.

Provide more financial incentives for validators 

Unlike the PoS model, PoA does not need to consider the staked tokens difference among validators. This helps ensure that all participants in validating the network are equally motivated to work for the success of the network. Moreover, after validating a transaction, the validator will receive tokens of the blockchain as a reward. Therefore, they are more motivated to participate.

Cons

Less decentralization 

The identity verification requirement makes PoA impractical for public blockchains like Bitcoin and Ethereum, which have hundreds or even thousands of validator nodes. That’s why PoA networks often have fewer validator nodes, which makes them less decentralized. Hence, the PoA consensus is more effective as a private network solution rather than a public blockchain solution. 

Validator is vulnerable to manipulation

The validator’s identity is public on the network. Therefore, the possibility of some validators being exploited and manipulated by third parties is possible. For example, if it wants to disrupt the network, an adversary can take advantage of this weakness of the PoA algorithm to try to convince public validators to commit fraudulent acts. This may cause the system to be destroyed from the inside.

Bottom line

To sum up, the PoA algorithm is the optimal choice for entrepreneurs that want to ensure their security while taking advantage of the benefits of blockchain technology such as supply chain, logistics, etc. However, PoA is not a suitable solution for public blockchains dedicated to DeFi and GamFi.