In this article, We will explore the Proof of Authority consensus algorithm, and also see its advantages and application of it in detail.
When it comes to blockchain consensus mechanisms, Proof of Work (PoW) and Proof of Stake (PoS) are the two most widely discussed approaches in the community.
However, Proof of Authority (PoA) may be the next big thing on the horizon, especially considering some of the glaring issues with both PoW and PoS. So, what exactly is PoA? And why do we need it?
What Is Proof of Authority?
Proof-of-authority (PoA) is a consensus algorithm used with blockchains that deliver comparatively fast transactions through a consensus mechanism based on identity as a stake.
Unlike proof-of-work (PoW), PoA does not require computational power for verification, meaning it does not use energy or waste electricity as PoW does.
Proof-of-stake (PoS) is another blockchain consensus algorithm and also does not rely on computing power to verify transactions.
The primary difference between PoS and PoA is in how new blocks are created; while both algorithms are known as consensus mechanisms.
Because they both come to an agreement about which block should be added next to a blockchain, they achieve their goals in different ways.
Related Article: Proof of Stake (PoS): What is it and How does it Work?
How Does It Work?
Proof-of-authority consensus uses what’s called a masternode list, which is a list of pre-approved nodes that can add blocks to a blockchain network.
- The selection process varies slightly from blockchain to blockchain but generally goes like so: masternodes are selected by community consensus.
- If someone wants to add something new to a PoA blockchain, they must get at least two other approved masternodes to also verify and approve their block.
- This makes for fast transactions because there isn’t much red tape involved with verifying transactions.
- It also makes for an immutable ledger because it relies on identities rather than pseudonyms or anonymous addresses.
Related Article: What is Consensus Algorithm in Blockchain?
Why do we need Proof of Authority Consensus?
Proof of Stake consensus relies on who owns what and may be advantageous for platforms wanting to encourage users to hold onto their coins.
Proof of Work consensus is more secure because it relies on computational power, but it consumes a lot of energy.
Proof of Authority consensus provides a way to balance between these two models by relying on identity as stake.
By identifying certain validators, PoA can incentivize good behavior while keeping transaction costs low and throughput high by preventing abuse.
Related Article: Proof of Work (PoW): What is it and How Does it Work?
What Platforms Are Using Proof of Authority?
VeChain is a decentralized blockchain platform designed to enhance supply chain management processes and business models.
VeChain uses proof of authority as its consensus mechanism, and users hold an amount of VET to become a validator node on their private blockchain.
In addition, VeChain users who run applications built on top of the VeChainThor blockchain must also hold VET tokens.
Once you meet these requirements, you can begin earning rewards for processing transactions in blocks.
The more VET you have, the greater your chance of being selected to validate blocks and earn rewards.
If you don’t have enough VET or don’t want to use your own capital, there are other ways to earn by performing tasks such as providing data feeds or contributing code development.
How VeChain use Proof of Authority?
To achieve their vision for a fully transparent and customer-centric business ecosystem, VeChain has developed a proof-of-authority consensus mechanism.
With PoA, known identities (nodes) are used to generate blocks and secure transactions on the network.
Nodes are required to stake a minimum amount of VET to run as an authority node, while other nodes in their turn will be selected by said authorities.
As such, there is no mining involved in generating new blocks and verifying transactions on VeChain’s blockchain.
This means that unlike with proof-of-work blockchains like Bitcoin or Ethereum, transaction times are incredibly fast – under 10 seconds – and there is no need for computing power to compete with others over who can solve complex mathematical problems first.
Applications of Proof of Authority Consensus
PoA consensus is usually not used on its own. Generally, a PoA network is integrated with multiple other consensus methods like PoS or PBFT in order to maximize efficiency, security, and speed.
In such instances, PoA is most commonly used for specific transactions that require high transaction throughput.
VeChain, for example, uses their proprietary internal blockchain (VeChainThor) with both PoW and PoA consensus mechanisms to improve overall transaction throughput.
The use cases for Proof of Authority are limited due to factors including identity verification being an expensive process, no ability to scale horizontally, and increased centralization.
However, it has found significant application in areas where high-speed transactions are more important than decentralization.
Examples include digital currency exchanges, financial services platforms, and supply chain management systems.
Advantages of Proof of Authority
Proof-of-authority is a consensus mechanism that is used by blockchain platforms such as VeChain, POA Network, and Hyperledger Burrow.
Proof-of-authority allows companies to build private blockchains that are secure. Let’s take a look at some advantages of proof-of-authority.
You don’t need lots of computing power: PoA is much faster than other forms of consensus mechanisms because it doesn’t require all nodes in a network to solve mathematical problems before adding new blocks to a chain.
Disadvantages of Proof of Authority
- PoA is not as secure as proof-of-work, However, it’s not terribly less secure than proof-of-stake.
- The biggest drawback with PoA is that identity alone is used to establish authority, which can lead to collusion and other issues.
- In addition, since there are no miners or stakers in a PoA system, you don’t have an incentive for securing the network.
For example, if you own 10% of all tokens in a PoS system like NEO or Ethereum (and thus have an interest in its success), you would be incentivized to ensure these platforms continue running smoothly.
Proof of Authority Consensus and Common Attacks
PoA consensus is an algorithm used with blockchains that deliver comparatively fast transactions through a consensus mechanism based on identity as a stake.
The most recognized platform using Proof of Authority is VeChain, In PoA, token holders vote on candidates who would make up one or more consensus groups.
A security deposit, normally in VET, is required for anyone to become a candidate, If they do not behave honestly and according to protocol rules during their term, they will be disqualified and lose their deposit.
This incentivizes honest behavior by making it costly to act dishonestly, It also means that a single malicious entity cannot take over control of validation from other validators without making significant financial sacrifices.
Sybil attack – An attacker creates multiple identities (known as Sybils) in order to gain more influence than its real stake would allow.
Solution: Require all participants to use multi-signature addresses, meaning that each participant must sign a transaction before it can be broadcasted across the network.
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Proof-of-authority is used by only a few blockchains, although it has seen increased adoption.
VeChain claims that its proof-of-authority consensus protocol allows for comparatively fast transactions in comparison to proof-of-work protocols.
With a PoA protocol, the consensus is reached by identity as a stakeholder in an organization rather than computing power.
In addition, transaction finality is determined by validators instead of miners, This means there are no rewards or penalties for honest or dishonest behavior and little room for manipulation on behalf of miners and validators alike.
The lack of mining also means that there are no hardware requirements or electricity costs associated with participation in a PoA network like there are with other blockchains based on proof-of-work (PoW) algorithms.
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Nitin is a professional data Engineer, Who has a Post Graduation in Data Science and Analytics and working in the healthcare sector. Experts in Data analysis, Machine learning, AI, blockchain, Data related tools, and technologies. He is the Co-founder and editor of analyticslearn.com