Since the first blockchain transaction was executed on the Bitcoin network, the world of digital currencies has changed dramatically. In addition to the well-known Proof of Work and Proof of Stake algorithms, other consensus mechanisms and methods of reaching consensus within blockchain systems have also become known.
The proof-of-work algorithm used by Bitcoin is the most reliable and secure algorithm available today. However, it is not truly scalable. Bitcoin and other proof-of-work based blockchain networks have limited performance in terms of transactions per second (TPS). This limitation is related to the fact that Bitcoin relies on a distributed network of nodes, as the nodes need to agree on the current state of the blockchain. This means that a new transaction block needs to be verified and approved by the majority of nodes in the network before it can be confirmed. Therefore, the distributed nature of the Bitcoin network, while providing a secure and trustless economic system, also limits its use on a larger scale.
Proof-of-stake blockchains generally outperform Bitcoin in terms of transactions per second. However, the difference is not significant, and proof-of-stake networks do not really solve the scalability problem.
In this case, Proof of Authority becomes a more efficient alternative as it can execute more transactions per second.
What is Proof of Authority?
Proof of Authority (PoA) is a reputation-based consensus algorithm that introduces a practical and effective solution for blockchain networks, especially private chains. The term was coined by Gavin Wood, co-founder and former CTO of Ethereum, in 2017.
The Proof of Authority consensus algorithm uses the value of identity, which means that the person who is selected as a block validator is not based on the collateralized digital currency but on the personal reputation. Therefore, the Proof of Authority blockchain is protected by the verification nodes of trusted entities.
The Proof of Authority model relies on a limited number of block validators, which makes it a highly scalable system. Blocks and transactions are validated by pre-approved participants who act as curators of the system.
The Proof of Authority algorithm can be applied in various scenarios, and it is considered a preferred choice for logistics applications. For example, in the supply chain, Proof of Authority is considered to be an effective and reasonable solution.
The proof-of-authority model enables companies to protect their privacy while leveraging blockchain technology. Microsoft Azure is another example of a proof-of-authority implementation. In simple terms, the Azure platform provides a solution for private networks, and since mining is not required, the system does not require native tokens such as "gas".
Proof of Authority vs. Proof of Stake
Some people consider proof of authority to be an improved version of proof of stake because it uses identity instead of currency. Due to the decentralized nature of most blockchain networks, proof of stake is not always suitable for certain enterprises and companies. In contrast, proof of authority may be a better solution for private blockchains because its performance is much higher.
Conditions for Proof of Authority Consensus
While conditions may vary from system to system, proof-of-authority consensus algorithms generally require the following characteristics:
Valid and trustworthy identity: Validators need to confirm their true identity.
The requirements to become a validator are strict: candidates must be willing to invest and stake their reputation, which also reduces the risk of suspicious validators being selected and incentivizes long-term commitment.
Criteria for validators to pass: The method of validator selection must be consistent.
The essence of the reputation mechanism is the determination of the identity of the validator. This is not a simple process, nor is it a process that can be easily abandoned. It must eliminate unqualified members. Ultimately, all validators need to go through the same process to ensure the integrity and reliability of the system.
limit
One perception of Proof of Authority is that it sacrifices decentralization. It can therefore be argued that this consensus algorithm model is simply intended to improve the efficiency of a centralized system. While this is an attractive solution for large companies with logistical needs, Proof of Authority does have some drawbacks - especially within the scope of cryptocurrencies. Proof of Authority does have high throughput, but the irreversibility aspect is a problem when things like censorship and blacklisting can be easily achieved.
Another common criticism of authoritative consensus is that anyone can see the identity of the authoritative consensus validator. Critics argue that only senior people who are capable of holding this position would want to become a validator (as a publicly known participant). However, knowing the identity of the validator could lead to third-party intervention and manipulation. For example, if a competitor wants to undermine a network based on authoritative consensus, he might try to incite public opinion that the validator is cheating, thereby undermining the internal system.
Proof of Work, Proof of Stake, and Proof of Authority all have their own pros and cons. As we all know, decentralization is highly valued in digital currencies, and as a consensus mechanism, Proof of Authority removes decentralization to achieve high throughput and scalability. The inherent characteristics of the Proof of Authority system are in stark contrast to the way blockchain has operated so far. Nevertheless, Proof of Authority also presents an interesting mechanism, so it cannot be ignored as an emerging blockchain solution, and it may be very suitable for the application of private blockchains.
