Blockchain algorithms. Part 3. Proof of Authority, Proof-of-burn
Proof of Authority
The Proof of Authority consensus algorithm was proposed by Ethereum platform developer Gavin Wood in 2017. The programmer solved the problem of the popular Proof of Stake algorithm, which is associated with the monopolization of the forging process by “rich” nodes.
Therefore, the more tokens a user has, the more likely it is to form a new block. Also, the mechanism of operation of the PoA algorithm is completely different from PoW, which is used on Bitcoin and cryptocurrencies that support mining.
The proof-of-authority mechanism has been successfully applied to the VeChain cryptocurrency project.
The PoA consensus algorithm uses an identity value, which means that block validators do not stake coins, but instead have a reputation of their own.
Hence, PoA blockchains are protected by verifier nodes that are arbitrarily chosen as trusted entities.
The PoA model relies on a limited number of block validators and this makes the system highly scalable. Blocks and transactions are verified by pre-approved participants who act as moderators of the system.
The Proof of Authority model allows companies to maintain privacy by taking advantage of blockchain technology.
Conditions for validation
In PoA networks, transactions and blocks are verified by approved accounts known as “validators”.
Validators run software that allows transactions to be placed in blocks. The process is automated and does not require validators to constantly monitor their computers. However, requires keeping the computer (admin site) in good working order.
In order to be elected as a validator, three main conditions must be met:
- Identity must be formally verified online with the ability to cross-check information in the public domain
- Getting eligible to be elected as a validator who is empowered to validate earned and validated blocks should not be easy. For example, potential validators are required to obtain a state notary license
- There should be full consistency in the checks and procedures for establishing credentials.
PoA advantages and disadvantages
1) Efficiency in terms of energy consumption
2) High speed
1) Degree of centralization. Can be used on public blockchains, but is typically used on private, permissioned networks
2) Possible manipulation by validators
Proof-of-burn (PoB) is a method used by cryptocurrencies for distributed consensus as an alternative to Proof of Work and Proof of Stake.
The concept of proof of combustion is that the miners prove that they burned the coins (that is, that they sent the coins to a verified unspent address). Although expensive from a human perspective, PoB does not consume any resources other than burnt coins, unlike proof of work.
Features of PoB
There are several versions of PoB, but the concept of Proof-of-Burn, idealized by Iain Stewart, is the most recognized in the cryptocurrency space.
This has been proposed as a more robust alternative to the PoW consensus algorithm. In fact, Proof of Burn looks like a Proof of Work algorithm, but with a lower rate of energy consumption.
In this case, in order to get coins of a certain currency or the right to mine them, you need to destroy a certain number of coins of the alternative cryptocurrency received in the system with a proof of work.
Proof of burning lies in the fact that miners send coins to a special address that “eats” them — they cannot be returned or spent from there — this transaction is recorded in the blockchain, being the proof of burning coins, after which the user is rewarded.
The idea of Proof-of-Burn is that by burning a cryptocurrency, the user demonstrates a readiness for short-term losses for the sake of long-term investments.
The reward consists in obtaining a lifetime mining right, and the more coins a user burns, the more likely he is to mine the next block.
How PoB works
In a few words, the process of burning coins is to send them to a public verified address, where they become inaccessible and useless. Typically, these addresses are randomly generated, with no public key associated with them.
PoB systems will provide rewards to miners and, over a period of time, the profits are expected to cover the initial investment of the burnt coins.
As mentioned earlier, there are various ways to implement the Proof of Burn algorithm. While some projects perform PoB mining by burning Bitcoins, others reach consensus by burning their own coins.
PoB advantages and disadvantages
1) More sustainable. Reduced power consumption
2) Doesn’t need hardware mining. The burnt coins are virtual manning equipment
3) Burnt coins reduce their general circulation
4) Long-term commitments on the part of miners are encouraged
5) Coin distribution is usually less centralized
1) There is an opinion that PoB is not very environmentally friendly, since the bitcoins that are burned are generated using PoW development, which requires a lot of resources
2) It has not been proven to work on a large scale.
3) Verification of work performed by miners is usually postponed
4) The average lifespan of a coin is not always transparent
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