Blockchain technology is constantly evolving, and one of the areas that have observed drastic changes over the years is consensus mechanisms. It refers to the process through which nodes in a network agree on a transaction and add it to the blockchain.
Bitcoin uses Proof of Work (PoW) as its consensus mechanism. But it had some limitations when it came to scalability, and thus Proof of Stake (PoS) came into the picture. Ethereum used PoW initially but has now transitioned to PoS to increase efficiency. Proof of Authority (PoA) is an even more advanced consensus mechanism that aims to solve the issues pertaining to PoS.
In this article, we will dive deep into what Proof of Authority is, the difference between PoA and PoS, and the key advantages of using PoA consensus.
What Is Proof of Authority?
Proof of Authority is a consensus mechanism where the protocol chooses validators to add blocks to the blockchain based on the value of their identities or reputation. They do not stake coins (as done for PoS). Instead, validators leverage their reputation, which makes PoA a reputation-based algorithm. In other words, on PoA, reputed computer nodes, chosen as validators (having trustworthiness), validate and add blocks to the blockchain system.
Because PoA is a reputation-based consensus mechanism, there are a limited number of validators, which provides credibility to this mechanism. The validators are already pre-approved to verify the transaction and add blocks. A popular example of PoA is the Microsoft Azure platform and VeChain (VET).
The Microsoft Azure platform implements PoA as a consortium blockchain network. This means that a select group of organizations has the authority to validate transactions and maintain the network. The use of PoA in this context provides a high level of scalability and security, as it is easy to manage and control the number of validators.
VeChain (VET) is a blockchain platform that uses PoA as its consensus algorithm. VeChain is focused on providing solutions for supply chain management, and the use of PoA helps to ensure the security and efficiency of its supply chain management solutions. Here, PoA helps to prevent centralization and ensure that the network remains secure and decentralized.
How Does Proof-of-Authority Function?
As we mentioned earlier, using PoA consensus, pre-approved validators validate blocks. To participate in the proof of authority blockchain consensus, a validator must satisfy the conditions below.
What are the conditions for proof of authority consensus?
- Trustworthiness: A validator has to be reputed and trustworthy. He/she needs to ensure that there are no criminal charges reported under his/her name.
- Validating the Identity: To use the PoA network, a validator has to get his/her identity verified with publicly available information.
- Process of Validation: There should be equality in adding validators to avoid biases.
- Commitment to Invest and Stake: A validator should be onboard to give a commitment to investing money and staking his/her reputation. This ensures that the validator has an interest in the blockchain algorithm and will commit for a long period.
Following these conditions ensures that PoA has only valid participants. We can take the example of Amazon to understand PoA in a better manner.
There are numerous sellers on Amazon which are rated based on the feedback given by consumers. The feedback given to sellers not only enhances their trustworthiness and reputation but also of Amazon. As a result, compared to lower-rated sellers, they enjoy better privileges, and the platform ultimately removes sellers with low ratings. This leaves Amazon with the best possible sellers that have a higher consumer satisfaction ratio. This helps Amazon establish itself as a credible platform.
PoA consensus works in a similar way. The chosen validators are responsible for maintaining their higher ratings in order to sustain their reputation, as it directly affects the blockchain network they are validating transactions for. Failing to maintain the reputation can lead to lower ratings and ultimately losing the position as a validator.
Proof of Authority vs. Proof of Stake: What Is the Difference?
This is one of the most-asked questions. Proof of Stake, in recent years, has become a popular consensus mechanism with the benefits that it offers, such as i) uses lower computation power and effort ii) higher financial incentives iii) no need to have high-tech computers iv) allows sharding to increase the scalability.
While there are a bunch of benefits of PoS, it also has some shortfalls, which Proof of Authority resolved, and that’s what sets PoA apart from PoS.
For PoS to work, the assumption is that users that stake their tokens to get selected as validators will act in the sole interest of the network, or they might lose their staked tokens. So the higher the stake, the higher the motivation to make the network successful.
However, the assumption fails to weigh the fact that while staked tokens may have equal value for the network, for the user, it can be different. Let us explain it better. Suppose two users have staked their tokens, and both stakes have equal monetary weight for the network. But it is possible that user one has staked 30% of the total tokens owned and has a higher interest in the network than the second user, who has staked only 2% of their total tokens.
Thus, the second user’s interest would not be at par with the first user even though both of them have staked tokens of equal monetary value. Thus, if the second user is chosen as a validator, he may or may not act in the best interest of the network.
What’s different with proof of authority?
This is where Proof of Authority helps. In this mechanism, users are supposed to stake their reputation and not tokens. This ensures that the chosen validators are verified for their identity and that there are no bad or weak validators that can alter the network negatively.
These validators stake their identity in order to get PoA rights and validate blocks. Thus, resolving the shortfall of PoS where there are chances of discrepancies in the stakes’ value and interest and motivation of users can lack to make the network efficient.
Pros and Cons of Proof of Authority (PoA)
While Proof of Authority provides some benefits, it also comes with certain limitations. Let’s have a look at them below.
Pros of PoA
- PoA is quite sustainable as it works on lower computation energy compared to other consensus mechanisms like Proof of Work and Proof of Stake.
- It is secure and has a better risk tolerance level till 51% of the computer nodes are working in line with the interest of the Proof of Authority blockchain network.
- PoA adds predictability and reliability to the time it takes to add new blocks since the no. of validators is fixed. This is not the case with other consensus mechanisms.
- The transaction per second is higher using PoA. However, it depends on the size of the network and computer processing power. For example, for VeChain, it is 50 TPS, while for Microsoft Azure, it is 2000 TPS.
Cons of PoA
- The number of validators on the PoA consensus is less due to its high vetting parameter. This makes PoA centralized.
- Almost every user has the identity information of a validator which can lead to system manipulation by third-party by influencing the validator.
- PoA poses a question of immutability as the instances of blacklisting and censorship are quite evident for this consensus.
What Lies Ahead for Proof of Authority?
Proof of Authority provides efficient solutions for the underlying limitations of Proof of Stake. Thus, it is often called Proof of Staked Authority (PoSA). PoA ensures the interest of the blockchain system by having reputed and pre-verified validators. This results in higher TPS and lower energy consumption, which could be a reason for its increased popularity in the coming years.
In the future, we can witness PoA consensus being applied to many industries, especially the supply chain, as it gives a dual benefit of maintaining privacy (due to limited validators and a centralized approach) while providing the experience of blockchain tech to businesses. It will help companies to leverage blockchain, increase efficiency in storing and sharing data, and maintain the utmost privacy of data in a cost and energy-efficient manner.
PoA is another revolutionary invention in the blockchain space. While there are many advantages that Proof of Authority offers, it has a few limitations, such as sacrificing the decentralization aspect of blockchain. That said, in the near future, we can definitely expect this consensus mechanism to rule in the private network domain with its wider adoption by large organizations. This is just the beginning!
1. Is Proof-of-Authority secure?
Yes, Proof of Authority is secure. PoA works on the concept of staking identity instead of tokens. The users chosen as validators go through several checks to ensure that they are credible. They also invest their money and stake their reputation to get selected as pre-approved validators. Because of this, they are motivated to secure the network and make it successful.
2. Is PoA better than PoS?
PoA and PoS both have their own pros and cons. In PoS, people stake their tokens to help secure the blockchain. However, it increases the likelihood of whales controlling the network. This can impact the efficiency of the system. PoA solves this problem by having people stake their reputation instead of their tokens. However, for a public network, PoS is a better choice than PoA since PoA is centralized compared to PoS.
3. Is PoA decentralized?
Proof of Authority is a more centralized approach to achieving consensus on the blockchain network because validators are pre-approved based on the set parameters to verify their identity. Also, the number of validators is also less. PoA is suitable for private networks compared to public networks.