What Is Proof-of-Authority?

It's a consensus system that allows only authorized entities to validate transactions in a blockchain network.

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB

One major evolving element of blockchain technology is consensus mechanisms. After the original proof-of-stake (PoS) and proof-of-work (PoW) methods were developed, other consensus mechanisms came into fruition.

One such consensus mechanisms is proof-of-authority (PoA), which has been introduced as a more energy-efficient alternative to PoS as less computational resources are needed.

This guide will explain the PoA network's principles.

Proof-of-authority explained

Proof-of-authority is a consensus algorithm that delivers an efficient solution for blockchains, specifically private ones. The term was coined in 2017 by Gavin Wood, a co-founder of the Ethereum blockchain.

In proof-of-authority, machines earn the right to generate new blocks by passing a strict vetting process, which is discussed in detail in the next section. As a result, trustworthy validation machines protect PoA blockchains. These system moderators are preapproved participants who check blocks and transactions.

The proof-of-authority model is scalable because it is based on a small number of block validators. VeChain (VET) is an example of a popular platform that uses a PoA algorithm.

How does proof-of-authority work?

Preapproved validators use software to organize transactions into blocks. The process is automated, and so the validators don't need to monitor their computers constantly. That, however, means that validators must keep their computers (admin sites) in good working order.

Terms for proof-of-authority consensus

Although conditions differ from one system to the other, to be chosen as a validator, a user must meet these three basic requirements:

  • A validator should be trustworthy, of good moral standards and without any criminal record.
  • A validator's identity must be formally validated on the network, with the ability to cross-check the information in the public domain. Therefore, the real identities of validators are confirmed.
  • A validator candidate should be willing to invest money and stake their own reputation. A rigorous process reduces the possibility of selecting questionable validators and encourages a long-term commitment.

The essence of the reputation mechanism is trust in the validator's identity. It is a complex process to ensure weak candidates are weeded out. This guarantees that all validators follow the same procedure, ensuring the system's integrity and reliability.

Let’s take an example of a reputational rating mechanism within eBay (EBAY). In the beginning, all sellers are subjugated to rules of the platform and feedback from buyers.

A seller with a 100% positive feedback score earns buyers’ trust, which affects the trust and reputation of eBay. Sellers with low feedback ratings, however, receive warnings and fewer seller privileges. Sellers receiving consistently low positive feedback scores are filtered from eBay, leaving the reputable sellers with high positive feedback to continue selling on the platform.

Just as reputation is critical on eBay, reputation for verifying is also critical in PoA.

Users who receive the right to become validators due to the PoA algorithm have an incentive to keep their rating high. Validators are motivated to maintain a stable transaction process to avoid tarnishing their reputation, which is tied to their real-life identity. As a result, most users value their hard-won role as a validator.

Terms for proof-of-authority consensus

Although conditions differ from one system to the other, a coherent PoA algorithm is dependent on the following:

  • Individuals who are active and trustworthy (validators who must identify themselves).
  • Validators who are willing to invest money and risk their reputation. A rigorous process reduces the possibility of selecting questionable validators and encourages long-term commitment.
  • A validator approval standard: Every validator follows the same procedure, ensuring the system's integrity and reliability.

Proof-of-authority advantages

PoA differentiates itself from other consensus mechanisms such as PoW and PoS in two main ways:

  • There are more transactions per second that can be executed.
  • Less computational resources are needed.

Proof-of-authority disadvantages

The PoA mechanism is considered to be centralized as validators are preapproved. This consensus algorithm model is primarily an attempt to improve the efficiency of centralized systems. Although PoA systems have high bandwidth, immutability aspects are called into question as censorship and blacklisting are easily implemented.

Another common critical issue is that everyone has access to the identity of PoA validators. The counterargument is that only recognized players can hold this position, and they will always strive to become validators (as publicly known participants). However, knowing the validator's identity may allow third parties to manipulate the system.

Final thoughts

There is no perfect consensus mechanism as each one has pros and cons. Though decentralization is seen as an advantage by the cryptocurrency community, PoA sacrifices decentralization to achieve high output and scalability.

This article was originally published on Jun 2, 2022 at 4:37 p.m. UTC

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB

CoinDesk - Unknown

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB


Crypto Terms

background

Crypto Flashcards & Glossary

View All