Proof-of-Authority (PoA)

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What Is Proof-of-Authority (PoA)?

Proof-of-authority (PoA) is a form of blockchain consensus mechanism that enables relatively fast transactions using identity as well as money as stakes at the cost of decentralization.

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It relies on a small number of pre-selected, reputable validators who are responsible for generating new blocks and maintaining the overall integrity of the network.

PoA is particularly suitable for private or enterprise blockchains where the validators can be trusted entities and where the openness and decentralization of public blockchains are less important.

This consensus algorithm stands out because it doesn’t require “mining,” making it a more energy-efficient choice compared to others like proof-of-work (PoW).

Validators in a PoA network have to meet stringent criteria to qualify, they must have a formal identification on the chain, meet eligibility standards that can include a good reputation, a lack of a criminal record, or an association with the host organization, and they must adhere to all procedures required for validating and producing blocks on the network.

Finally, like in proof-of-stake (PoS) consensus mechanisms, they also have to invest money that would be put at risk if they break the rules.

How Does Proof-of-Authority Work?

  • PoA-based networks are automated once validators are vetted; it is not mandatory for the validator to constantly monitor their computers/validating nodes. However, the software is required to run to put transactions in the blocks.
  • The validator nodes are selected randomly, similar to proof-of-stake’s random selection mechanism, except more than one validator is chosen. Out of the selected nodes, one validator node is the leader node that validates the transactions and creates a new block. A leader node can only sign one block in the round in its validation time.
  • Other selected validator nodes confirm the validity of the signed block, and then the block is added to the blockchain.
  • At each time interval, the leader role is passed to the next validating node from the list of validating nodes. PoA allows every selected validator node to have an equal opportunity to be assigned to produce blocks.
  • If the leader node misses generating a new block in the round, it will be marked ‘inactive’ by other honest nodes. An inactive node will be considered “active” once it creates a new block again.
  • If the validating node processes a malicious or fraudulent transaction, it can be banned or excluded from the list of validating nodes, thus causing reputational harm to its operating validator. It may also lose some or all of the funds it invested to become a validator.
  • The validators have an incentive to maintain the position that they received. To avoid spoiling their reputation and losing their investment, validators are motivated to maintain an honest transaction process. Thus, most are extremely careful to not break the rules.

History Behind Proof-of-Authority

The term proof-of-authority was first coined by Gavin Wood, one of the co-founders of Ethereum, in 2017. PoA was introduced as an energy-efficient and scalable alternative to the more resource-intensive consensus mechanisms like PoW or PoS. PoS is about as energy efficient, but its use of tremendously more validators makes it less scalable.

The concept of PoA gained significant traction with the advent of private and enterprise blockchains, where the focus shifted from decentralization to efficiency, speed, and control.

Notable platforms that adopted PoA as their consensus mechanism include VeChain, Bitgert, Palm Network, and Xodex.

Advantages and Disadvantages of Proof-of-Authority

Advantages:

  • Speed and Efficiency: PoA can process transactions faster than PoW or PoS, making it suitable for applications that require high-speed data processing.
  • Energy Efficiency: PoA is more energy-efficient as it does not require mining or high computational resources.
  • Trust and Security: Given that validators are known entities with their reputation at stake, they are incentivized to act honestly and maintain the network’s integrity.

Disadvantages:

  • Centralization: Unlike PoW or PoS, PoA is more centralized since only pre-selected validators can generate new blocks. This may lead to power concentration within a small number of validators and a lack of transparency.
  • Potential for Manipulation: With the identities of validators being publicly known, there’s a risk of third-party influence or manipulation.

The Bottom Line

Proof-of-authority represents an important evolution in the landscape of blockchain consensus mechanisms. It offers an energy-efficient, fast, and secure way of validating transactions, especially in permissioned or private blockchain settings. While it does trade off decentralization for these benefits, in certain contexts, this can be an acceptable compromise.

However, like all consensus mechanisms, PoA is not without its downsides, the centralization inherent in the system and the potential for manipulation are key points of consideration. As with all technologies, the utility of PoA depends on the specific requirements of the use case it is being applied.

It’s an important tool in the blockchain toolbox, offering a distinct blend of speed, security, and efficiency where these attributes are paramount.

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Sam Cooling
Crypto & Blockchain Writer
Sam Cooling
Crypto & Blockchain Writer

Sam Cooling is a crypto, financial, and business journalist based in London. Along with Techopedia, his work has been published in Yahoo Finance, Coin Rivet, and other leading publications in the financial space. His interest in cryptocurrency is driven by a passion for leveraging decentralized blockchain technologies to empower marginalized communities worldwide. This includes enhancing financial transparency, providing banking services to the unbanked, and improving agricultural supply chains. Sam has a Master’s Degree in Development Management from the London School of Economics and has worked as a Junior Research Fellow for the UK Defence Academy.