The cryptocurrency space has changed a lot since the first blockchain transaction on the Bitcoin network. Along with the well-known Proof of Work and Proof of Stake algorithms, other mechanisms have been proposed with alternative methods for achieving consensus within the blockchain.

The PoW consensus algorithm used by Bitcoin is the most reliable and secure one available today. However, it is not scalable. Bitcoin, as well as other PoW-based blockchains, have limited performance in terms of transactions per second (TPS). This limitation is due to the fact that Bitcoin relies on a distributed network of nodes that need to reach consensus and agree on the current state of the blockchain. This means that before a new block of transactions can be confirmed, it must be verified and approved by a majority of network nodes. Therefore, the decentralization aspect of Bitcoin not only ensures a secure and trusting economic system, but also limits its potential for use on a larger scale.

In terms of transactions per second, Proof of Stake blockchains  generally show better performance than Bitcoin. However, the difference is not very impressive, and PoS networks also could not solve the scalability problem.

In this context, Proof of Authority is currently being implemented as a more efficient alternative as it is capable of performing many more transactions per second.


What is Proof of Authority?

Proof of Authority (PoA) is a reputation-based consensus algorithm that provides a practical and efficient solution for blockchains (especially private ones). The term was coined in 2017 by Ethereum co-founder and former technologist Gavin Wood.

The consensus PoA algorithm uses the value of identifiers, which means that block validators do not stake the coin, but instead have their own reputation. Therefore, PoA blockchains are secured by validating nodes that randomly select a trustworthy one.


The Proof of Authority model is based on a limited number of block validators, and this is what makes it a scalable system. Blocks and transactions are verified by pre-approved participants who act as moderators of the system.

Consensus PoA can be applied in a variety of scenarios and is considered a high-value option for logistics applications. For example, when it comes to supply chains, PoA is considered to be a more efficient and smarter solution.

The Proof of Authority model allows companies to maintain their privacy while taking advantage of blockchain technology. Microsoft Azure is another example of software implementation. In a nutshell, the Azure platform provides solutions for private networks with a system that does not require its own currency, such as gas from Ether, since there is no need for mining.


Proof of Authority vs Proof of Stake

Some believe that PoA is a modified PoS that uses identities instead of coins. Due to the decentralized nature of most blockchain networks, PoS is not always suitable for certain businesses and corporations. In contrast, PoA systems may represent a better solution for private blockchains as its performance is significantly higher.


Proof of Authority consensus conditions

Although conditions may vary from system to system, the consensus PoA algorithm usually depends on:

  • Valid and trustworthy individuals: validators who must identify themselves;

  • The challenge of becoming a validator: The candidate must be willing to invest money and put their reputation on the line. A rigorous process reduces the risk of choosing questionable validators and encourages long-term commitment;

  • Validator approval standard: The method for selecting validators must be the same for all candidates.

The essence of the reputation mechanism is confidence in the identity of the validator. This will not be a simple process and it will not come easy. The process must be able to weed out bad players. Finally, it is ensuring that all validators go through the same procedure, which ensures the integrity and reliability of the system.


Limits

The perception of the RoA mechanism is the rejection of decentralization. So, we can say that this consensus algorithm model is simply an attempt to make centralized systems more efficient. While this makes PoA an attractive solution for large corporations with logistics needs, it has caused some hesitation, especially in the cryptocurrency space. PoA systems have high throughput, but the immutability aspects are questioned when things like censorship and blacklisting can be easily implemented.

Another common criticism is that the identity of PoA validators is public. The argument against this is that only established players are capable of holding this position and they will always strive to become a validator (like a publicly known participant). However, knowing the identity of the validator could potentially lead to manipulation by third parties. For example, if a competitor wants to disrupt a PoA network, they might try to influence a publicly known validator to compromise the system from within by acting dishonestly.


Conclusion

PoW, PoS or PoA have their own unique advantages and disadvantages. It is well known that decentralization is highly valued by the cryptocurrency community, and PoA as a consensus mechanism sacrifices decentralization to achieve high throughput and scalability. The inherent characteristics of PoA systems are a stark contrast to the way blockchains still operate. However, PoA is an interesting approach and cannot be ignored as an emerging blockchain solution that may be well suited for private blockchain applications.