The cryptocurrency space has evolved a lot since the first blockchain transaction on the Bitcoin network. Besides the well-known Proof of Work and Proof of Stake algorithms, other consensus mechanisms have been proposed, as well as alternative methods for achieving consensus within a blockchain system.
The PoW consensus algorithm used by Bitcoin is the most reliable and secure in existence today. However, it is not really scalable. Bitcoins, as well as other PoW-based blockchains, have limited performance in terms of transactions per second (TPS). This limitation is linked to the fact that Bitcoin relies on a distributed network of nodes, which must reach consensus and constantly agree on the state of the blockchain. This means that before a new block of transactions is confirmed, it must be verified and approved by the majority of nodes in the network. As a result, the decentralized aspect of Bitcoin provides a secure economic system that does not require a trust index, but this limits its potential for wider use.
When it comes to the amount of transactions per second, Proof of Stake blockchains generally perform better than Bitcoin. However, the difference is not that significant and PoS networks have not really managed to solve the scalability problem.
In this context, proof of authority is a concept currently being explored, as a more efficient alternative and capable of performing many more transactions per second.
What is an authority proof?
Proof of Authority (PoA) is a reputation-based consensus algorithm that introduces a practical and efficient solution for blockchain networks (especially for private networks). The term was proposed in 2017 by former CTO and co-founder of Ethereum, Gavin Wood.
The PoA consensus algorithm emphasizes identity, which means that block validators do not use their Coins, but their own reputation. Therefore, PoA blockchains are secured by validator nodes which are arbitrarily selected as trusted entities.
The proof of authority model relies on a limited number of block validators, making it a highly scalable system. Blocks and transactions are verified by pre-approved participants, who act as system moderators.
The PoA consensus algorithm can be applied to various scenarios and is considered a potentially very attractive option for its logistics applications. When it comes to supply chains, for example, PoA is considered an effective and reasonable solution.
The proof of authority model allows businesses to preserve their confidential information while leveraging the benefits of blockchain technology. Microsoft Azure is another example of PoA application. In a nutshell, the Azure platform provides solutions for private networks, with a system that does not require a native currency such as ether “gas”, since there is no need for undermine.
Proof of Authority vs. Proof of Stake
Some consider PoA to be a modified PoS, which relies on identity rather than staking of Coins. Due to the decentralized nature of most blockchain networks, PoS is not always suitable for some businesses and corporations. On the other hand, PoA systems may represent a better solution for private blockchains, as their performance is considerably higher.
Necessary conditions for consensus by proof of authority
Although the conditions may vary from system to system, the PoA consensus algorithm generally relies on:
valid and trustworthy identities: validators must confirm their real identity.
the difficulty of becoming a validator: a candidate must be willing to invest money and put their reputation on the line. A complex process is put in place to reduce the risks of selecting questionable validators and incentivizes long-term commitment .
a standard for the approval of validators: the method of selecting validators must be identical for all candidates.
The reputation mechanism is essentially based on the certainty of the identity of the validator. This can neither be an easy process nor one that is easily abandoned. This process must be able to weed out bad players. Finally, ensuring that all validators follow the same procedure guarantees the integrity and reliability of the system.
Limits
The PoA mechanism is seen as a renunciation of decentralization. So one could say that this consensus algorithm model is just an effort to make centralized systems more efficient. While this makes PoA an attractive solution for large companies with logistical needs, it creates some hesitancy, particularly in the cryptocurrency space. PoA systems have high traffic and throughput, but some aspects of immutability are challenged when measures such as censorship and blacklisting can be easily introduced.
Another common criticism concerns the identity of the PoA validators, which is viewable by everyone. The argument being made is that only established and capable actors would seek to become a validator (as a publicly known participant). Additionally, knowing the identity of validators could potentially lead to cases of third-party corruption. For example, if a competitor wants to disrupt a PoA-based network, it may attempt to influence publicly known validators to act dishonestly in order to compromise the system from the inside.
Conclusion
PoW, PoS or PoA all have their own advantages and disadvantages. It is well known that decentralization is highly valued by the cryptocurrency community and that PoA, as a consensus mechanism, sacrifices decentralization to achieve high throughput and scalability. The inherent characteristics of PoA systems contrast sharply with how blockchains have worked thus far. Nevertheless, PoA presents an interesting approach and cannot be ignored as an emerging solution in the world of blockchain, which could for example be suitable for private applications of blockchain technology.
