Proof-of-authority, or PoA for short, is one of many consensus mechanisms that are currently used within the cryptocurrency industry. It relies on validators who are willing to stake their own reputations for a chance to participate in the processing of cryptocurrency transactions. PoA has some advantages over other consensus mechanisms, but also some limitations.
In this AAG Academy guide, we’ll explain proof-of-authority and how it works in more detail, look at how it compares to proof-of-stake, and cover its pros and cons.
Proof-of-authority (PoA) is one of a number of consensus algorithms used within the cryptocurrency industry to ensure that all blockchain data is valid and genuine. It is somewhat similar to the proof-of-stake (PoS) system used by Ethereum and others, except instead of staking cryptocurrency tokens, network participants stake their own reputations.
Those who are willing to disclose their identities and gain approval from the network are seen as trustworthy entities who can responsibly carry out transaction validation. Any potential bad actors, or those who cannot be deemed trustworthy, are denied the opportunity to participate, which all but guarantees the integrity and security of the blockchain.
PoA was first proposed by Ethereum co-founder and former CTO Gavin Wood in 2017. One of its primary objectives when it was first designed was to be a much more efficient solution to existing consensus methods, particularly proof-of-work (PoW), which relies on incredibly powerful and costly hardware. But PoA does have its downsides, which we’ll look at later.
The process for the PoA system is actually rather simple, which is one of the reasons why it is more efficient than many other consensus mechanisms. It is important to note that the details may vary between different implementations, but in general, pre-approved validators organize transactions into blocks in much the same way they would in other consensus systems.
The process is automated, so validators don’t have to carry out this work manually, or even monitor their nodes while it takes place. However, they must ensure that their nodes are active and reliable, so some validators may operate multiple nodes under the same identity to bolster their robustness. There is no mining element, so nodes don’t have to be very powerful.
Once a new block has been filled with transactions, it is broadcast to the network for consensus, then added to the rest of the chain. Due to the speed and efficiency of PoA, some networks, such as VeChain, can generate new blocks in as little as 10 seconds. In comparison, Bitcoin’s PoW mechanism sees new blocks generated roughly every 10 minutes.
PoA and PoS are similar in that neither of them rely on mining, so they do not call for specialized hardware that is expensive to acquire and run — and not at all environmentally friendly. Instead, they both rely on staking. The big difference is that in PoS, it is cryptocurrency tokens that are used as collateral, whereas PoA relies on validator’s identities.
In PoS, participants put up as many tokens as they are willing and able to. There is usually a minimum number for hopeful validators, but not a maximum. Those who have staked the most tokens have a greater chance of being selected to process blocks and collect a reward for their efforts. If they do not act responsibly or as expected, their staked tokens may be slashed.
In PoA, validators must first undergo a stringent vetting process that aims to ensure only the most trustworthy and reliable candidates are approved, while potential bad actors and those who do not meet the network’s requirements are weeded out. Those who are approved are usually on an equal footing with other participants, which ensures equality for all.
Another big difference between these mechanisms is that most PoS blockchains are permissionless, which means that anyone who has the necessary funds is free to participate. They don’t have to prove who they are. However, PoS mechanisms call for a permissioned blockchain that only allows approved contributors who can be identified.
Again, the terms laid out by PoA networks to determine which candidates are approved can vary, but they typically include the following:
These terms may seem excessive, but they must be difficult to meet to ensure the integrity of the network. The more relaxed the criteria is, the easier it would be for attackers and other bad actors to behave dishonestly for their own gain. A PoA system can only work as intended if it is operated properly by reputable contributors.
The biggest advantages of proof-of-authority systems is that they tend to be reliable — participants usually behave as expected when their own identity is at stake — and they are considerably more efficient than other consensus mechanisms. Powerful computational resources are not required, and the process of validating transactions is relatively simple.
Furthermore, PoA systems ensure fairness and equality. Unlike PoW, which favors miners with the greatest computational power, and PoS, which favors validators who have staked the most tokens, PoA treats all participants equally. Every approved contributor has exactly the same chance of being chosen to process new blocks.
The biggest limitation or downside of proof-of-authority is that it is not an entirely decentralized system like many other consensus mechanisms. Because participants must be vetted and approved, there has to be a central entity that controls and executes this process. This brings other risks, like the possibility that those in control could act dishonorably themselves.
These checks also mean that PoA blockchains are more difficult to manage, especially in the beginning, when many hopeful validators must be approved before the network can even begin to operate. In addition, there are concerns around the security of PoA validators. The fact that they must prove their identity leaves them somewhat exposed to potential data breaches.
No, although the PoA consensus mechanism is somewhat similar to PoS, it is not the same. PoA relies on validators who are willing to stake their reputations, while PoS relies on validators who are willing to stake their cryptocurrency tokens.
Proof-of-authority or PoA is one of a number of consensus mechanisms that are currently used within the cryptocurrency industry to validate transactions.
PoA has some advantages over PoS, but also some disadvantages. With that being the case, it is difficult to say which is best. One may be ideal for certain types of projects, but not all.
In addition to VeChain, which we mentioned in the guide above, Bitgert, Palm Network, and Xodex all use PoA systems.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.
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