Proof-of-Authority (PoA)

Blockchain technology is one of the most important innovations of our time. The digital ledger records transactions across many computers to ensure a single record is not altered retroactively without altering subsequent blocks.

Decentralization would not be possible without consensus algorithms. One of such algorithms is Proof of Authority (PoA). What does it do, how does it work, and what makes it different? Here is a detailed look into all that you need to know.

What is Proof-of-Authority and How it Works?

what is proof of authority

Ever since the emergence of Bitcoin in 2009, the cryptocurrency world has undergone tremendous changes. These changes not only impact the manner in which cryptos are used and their popularity, but also mechanisms put in place to maintain their integrity.

Proof of Stake and Proof of Work have traditionally been used to achieve consensus in the blockchain. However, these algorithms were determined to have a set of drawbacks, instigating the emergence of better options.

For those of you who do not understand what consensus and this talk about Proof of Authority is all about, the below piece of information might come in handy.

You see, as a distributed network of computers becomes the norm, it is paramount that each participant is on the same page. When it comes to the cryptocurrency system, this implies ensuring there is agreement regarding transaction history amongst a sufficiently large number of network nodes.

The agreement extends to the manner in which a transaction is validated. This is the basis of a single version of truth for transactions in the blockchain. Furthermore, the consensus algorithms make it incredibly hard for the decentralized networks to be abused.

Proof of Authority (PoA) is one of such consensus algorithms. It is an optimization of the Proof of Stake model which uses identity on the blockchain as a staking mechanism instead of tokens.

The proponents of PoA observe that this consensus takes in the features of completely decentralized models as well as highly efficient centralized models.

The term Proof-of-Authority is a creation of Gavin Wood, the former CTO and co-founder of Ethereum. As a matter of fact, this consensus was initially purposed to fight back spam attacks on the Ethereum network.

Today, the algorithm has grown to an extent that it is implemented as a more efficient consensus that can execute more transactions per second.

The PoA algorithm relies on the value of identifiers. This implies that the block validators do not establish coin steaks, instead, they have a reputation of their own. As a result of this approach, PoA blockchains receive protection from validation nodes whose trustworthiness is unquestionable.

proof of authority how it works

The reason as to why the PoA model is highly scalable is because it depends on an unlimited number of block validators. The authentication of blocks and transactions is done by pre-approved participants who are also considered the system’s moderators.

The simplicity of Proof of Authority consensus is associated with the need to establish the independence of validators as well as enabling them to protect their nodes.

The validators are essentially approved accounts and are used for approving transactions. These validators run software which they use to place transactions in blocks. They do not have to do this manually given that the whole process is automated.

Thus, the validator will not necessarily be required to keep on checking their computer. However, they will have to maintain the computer so as to make sure that it is not compromised.

The PoA system is set in such a manner that individuals have to earn the right of becoming validators, which means they have an incentive to retain the position. The exact incentive here comes in the form of reputation.

Since identity is associated with reputation, the validators are eager to uphold a transaction process in the bid to make sure their identities are not linked to a negative reputation.

The PoA approach is regarded as being more robust in comparison to Proof of Stake which fails to consider the total holdings of each party. In such a case, incentives could be unbalanced.

Both private and public networks will find PoA suitable in which case trust is distributed.

Conditions for PoA

There are some conditions that facilitate the operation of the Proof of Authority algorithm. These conditions are not universal as they may vary from one system to another.

conditions for proof of authority

Generally, the PoA algorithm depends on:

  • Trustworthy and valid identities – It is mandatory for the validators to confirm their identities;
  • Standardization in approving validators – There ought to be a universal method for selecting validators;
  • High difficulty level – Becoming a validator is not an easy walk in the park. You must be willing to invest money and place your reputation on the line. Such a tough process is essential as it ensures that questionable validators are kept at bay and that the selected candidates have incentives for a long-term commitment.

The reputation mechanism is chosen mainly because it brings to light the identity of a validator. As you have seen, this process is quite tough. Thus, whoever wins a spot would not readily give it up. Also, the system’s integrity and reliability are assured by the fact that all validators are taken through the same process.

PoA has a process for verifying your identity and becoming a validator. This is done via notaries, which can be looked at as a public DB of identities.

To gain the validator title, you have to run your identity via the POA network DApps. This system verifies your identity and determines if you are fit to become a validator before assigning due rights.

As you might expect, passing the scan is not that easy. You must have zero criminal records, pass notary test, and be a compliant citizen in general.

There are also numerous identity verification DApps which were created by the creators of this system. A single deviation from the norms of the network automatically warrants your termination as a validator.

Blockchains that use Proof of Authority

blockchains using proof of authority

Ethereum is a perfect example of how the Proof of Authority consensus can be put to use. At the moment, it is yet to be widely adopted even though it boasts of one of the most effective work models.

Private Blockchains are the most appropriate for this protocol since the system gets rid of essentially all manner of disagreements.

A good case to consider is the PoA of Azure. In a brief overview, the Azure platform allows private networks to access solutions with a system which doesn’t require currency of its own given that there is no need for mining.

The latest reports indicate that there are plans to implement PoA for mining the Gram, an internal Telegram cryptocurrency. Some other blockchains which have implemented PoA include VeChain, Ethereum Kovan testnet, and POA.Network.

Advantages of PoA consensus?

Speed

The fast speed of PoA is one of the most attracting features of this consensus. Since the number of validators is kept at a minimum by the strict vetting process they pass, they do not face competition for block creation rights.

Essentially, competition is shifted to the outside of the blockchain regarding who gets accepted as a validator. This ensures that performance is at its peak, which leads to more transactions per second.

Bitcoin itself has the ability to reach 4 transactions per second but a PoA system can theoretically scale this to tens or hundreds of thousands. It is worth noting that this claim is yet to be actualized.

Power Efficient

advantages of proof of authority

A major challenge that the world of cryptocurrency continues to grapple with is the issue of power consumption. When it comes to crypto mining, one must be ready to set aside a considerable electricity budget if they are to do so successfully.

Furthermore, they need powerful equipment that can keep up with increasing difficulty levels. Therefore, crypto enthusiasts will welcome anything that helps mitigate the amount of power required of them.

One such is PoA which has so far shown that minimal computing power can get the job done. Also, this consensus does not over-strain your electricity to keep the network running.

Scalability

As we embrace blockchains at the moment, we all are interested to find out what the future holds. A scalable system is more promising. PoA is one of such a system. This is especially true in comparison to PoW blockchains and is effectively adjusted to facilitate dapps development and maintenance.

Can Withstand DoS Attacks

PoA consensus is exposed to the danger of a Denial-of-Service attack. This is an attack in which the sender releases numerous transactions and blocks to the network node with the aim of interfering with its operations and making it unavailable.

The mechanism of PoA is such that it is protected against the attack. For starters, the network nodes are pre-authenticated thus rights are assigned only to nodes that have the ability to withstanding DoS attacks.

Secondly, a node that goes offline for a certain period can be comfortably excluded from being a validator.

Disadvantages of Proof of Authority consensus

disadvantages of proof of authority

PoA may have a good number of strong points, however, it also has its own limitations. Some of these are enumerated below:

The Centralization Problem

The notion of PoA consensus is that it foregoes decentralization. Thus, some may be quick to point out that this mechanism is just designed to enhance the efficiency of centralized systems.

Whereas this perception makes PoA attractive to large corporations facing numerous logistical challenges, it does encounter a cold shoulder from the cryptocurrency community. Remember that one of the motivating factors for cryptos is their decentralized nature.

Users of this type of currency are often eager to keep off anything that interferes with this property. The Proof of Authority consensus may have a considerable throughput, but then its viability becomes soiled the moment questions of censorship and blacklisting are raised.

Visibility of Identities

One of the reasons as to why identities are made visible is so as to create a certain sense of responsibility and commitment amongst the validators. Their identities are normally attached to their reputation.

The fact that these identities are visible means they would never wish for them to be associated with negative identities. However, many feel that making identities visible is a big deal for them.

The argument is that it encourages only established players to take on the role of a validator as the newcomers express fear. There is also the danger of third-party manipulation owing to the fact that identities are known.

For instance, a competitor with ill intentions of the PoA network could approach a publicly known validator to corrupt the system from within.

Risk of Reputation is not Effective Enough

PoA is reputation-based. That is, it seeks to associate one’s reputation with their identity so that they operate in such a manner that they will not be tagged in a negative manner.

However, as time has proven repeatedly, the risk of ruining your reputation does not necessarily mean that you will not take part in malicious actions.

In some cases, the gain that comes with ruining your reputation may be far much more than maintaining it, making a validator choose the former. This is an issue which makes the PoA network vulnerable to third-party interference as explained above.

Conclusion

Capping it all, PoA has its own set of advantages and disadvantages, just like the other systems. One unquestionable fact is that decentralization is something that the crypto world highly values.

Even though PoA registers a high throughput and scalability, it does so at the expense of decentralization. The inherent features found in the Proof of Authority mechanism blatantly contrast the known model of operation of blockchains.

Still, the consensus presents us with an interesting approach that private blockchain applications can build upon.

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