What is Proof of Authority?
Proof of Work and Proof of Stake are the earliest and the most popular consensus algorithms in the crypto space. But they also have drawbacks, including limited performance in terms of transactions per second, which reduces the potential for their use on a wider scale.
The Proof of Authority algorithm, on the other hand, acts as the most efficient alternative to most consensus mechanisms, as it can perform many more transactions per second.
What is Proof of Authority?
Proof of Authority (PoA) is a reputation-based consensus mechanism that provides a practical and efficient solution for blockchain (especially private). PoA is not based on crypto assets or computing power, but on the identity and reputation of the validator. Consequently, PoA blockchains do not require mining — nodes select the validator that is most trustworthy.
Proof of Authority has a limited number of validators, and this is what makes it scalable. Blocks and transactions are verified by authorised and approved participants.
The PoA algorithm is used in many areas. For example, it is highly valued in logistics — PoA is considered the most effective solution in supply chains. Proof of Authority is also used in systems that do not require their own currency, but need confidentiality.
Proof of Authority vs Proof of Stake
There is a perception that Proof of Authority is a modification of Proof of Stake which uses reputation instead of coins. But because of the decentralised character of most blockchain networks, PoS is not always suitable for some business purposes. PoA, on the other hand, is the best solution for private blockchains because its performance is significantly better.
Conditions for Proof of Authority Consensus
Although conditions vary from system to system, the PoA algorithm usually depends on:
- verified and trustworthy individuals: validators should identify themselves;
- the difficulty of becoming a validator: the candidate must be ready to invest money and put his or her own reputation on the line. A strict selection process reduces the risk of unreliable validators and encourages long-term commitment;
- validator approval standard: the method of validator selection is the same for all candidates.
The basis of the mechanism is confidence in the identity of the validator. This involves a challenging selection process and going through the procedure to ensure the integrity and reliability of the system.
Restrictions
The feature of the PoA mechanism is that it excludes decentralization, being a way to make centralised systems more efficient. While this makes Proof of Authority an appropriate solution in many industries, it can be questionable in the cryptocurrency area. PoA systems have high throughput, but the immutability aspect of the blockchain is unreliable because of the potential for censorship and blacklisting of validators.
Another problem with PoA is that the identity of the validator is widely known, as only verified users will seek to maintain their reputation. However, disclosure of the identity could lead to manipulations by third parties. For example, if an attacker wants to disrupt the PoA network, they may try to influence publicly known validators to compromise the system from within.
Each consensus algorithm has its own unique advantages and disadvantages. It is well known that decentralisation is highly valued in the cryptocurrency area, and Proof of Authority sacrifices it to achieve high throughput and scalability. At the same time, PoA stands in stark contrast to other consensus mechanisms, presenting an ideal solution for private blockchains.
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