Proof of Authority

Gepubliceerd op 10 juli 2022 om 16:01

Proof of Authority (PoA) is one of the many consensus mechanisms that exist. This algorithm is not well known, but it is a very interesting consensus mechanism. This blog will discuss this consensus mechanism. What is the PoA and how does this consensus mechanism work?

What is PoA?

This consensus mechanism was developed in 2017 by Gavin Woord. Gavin Wood is a co-founder of Ethereum. In the PoA, staking can also be done, just like the Proof of Stake (PoS) consensus protocol. By staking crypto in a wallet, the validator can verify the transaction on the blockchain which shares the transaction cost with the rest of the users who have staked their crypto. However, in the PoA, no crypto is staked, but the identity is staked.

The nodes/users in the PoA network do not become miners verifying transactions on the blockchain (like in the Proof of Work consensus mechanism). They are rather called validators, just like in the PoS. The blockchain then randomly chooses a validator who may verify transactions on the blockchain. The validator that is chosen is chosen by its reputation. If a validator's reputation is high, the chances are that this validator will be allowed to verify the transaction on the blockchain and thus receive a reward.

The reputation of a validator is linked to the identity of the validator. This will make the validator work  harder because this validator does not want its reputation to deteriorate. Good to know is that it takes a long time for a validator to build a high reputation. This does not happen overnight. 

The PoA does not have many validators. There are fewer validators than miners in the Proof of Work consensus. Because of this, blockchain with a PoA is scalable. This is because there are few miners needed in the network which provides less pressure on the blockchain. The validators are also pre-approved, so only reliable validators are active in the network. This can be a great advantage. 

Organizations also have more control over the network through PoA. If something goes wrong at the validators side, they also know immediately who is responsible.

Who uses PoA consensus?

There are several projects using the PoA consensus. For example, the PoA can be used for logistics purposes where all players in the chain benefit.

Also a number of companies in the financial sector can use the PoA. Banks, for example, are not likely to use bitcoin. They do not consider these blockchains to be secure. There is something to be said for this, as it is completely unclear who exactly is the miner verifying the transactions on the blockchain. In addition, the argument is electricity usage. Banks do not want to be associated with projects where the impact on the climate is significant. This makes the PoA a good alternative. In fact, the PoA provides more trust than the Proof of Work and the PoS. After all, everyone knows who validates and verifies the transactions. This allows the bank to quickly crack down on malicious players in the network.

What are the cons of the PoA consensus?

  • Because there are reliable and knowable validators that verify the transactions, the PoA is less decentralized than, say, the Proof of Work consensus. This can be a big barrier for prospective users to enter the PoA network.

  • Validators with a good reputation verify the entire network. It is difficult for a newcomer to become a validator with a good reputation. This takes a lot of time. Meanwhile, the existing validators with good reputation continue to build on their reputation which makes it very difficult to compete with them.

  • If it is a public blockchain, then the PoA is a big disadvantage because the public blockchain is not meant to have a central consensus algorithm. In the case of a private blockchain - where the network is meant to be able to be monitored - the PoA can be a great alternative.

  • The chances of censorship and blacklisting are higher with the PoA. Also, the validators with good reputation can be pressured to perform certain acts. This is because the identity of the validators are known to everyone. This has two sides. On the one hand, a validator can be held responsible if he or she makes a mess of the system. They will therefore do their best because they do not want to risk their reputation. On the other hand, certain stakeholders can influence, extort and blackmail these validators.

  • In the crypto world, many users are reluctant to use the PoA or integrate it into the blockchain network. Many users doubt the positive effects of the PoA. However, the PoA could be applied well within logistics. It is hard to say if the PoA will become popular in the crypto world. In the crypto world it probably won't, but in the "real" world it might.

PoA vs PoS

Many users see similarities between PoA and the PoS. And rightly so. With the PoS you stake crypto while with the PoA you stake your identity. The validators at the PoA don't stake their crypto, but their own identity. At the PoS, a node/user loses its crypto if the node doesn't perform well. At the PoA, the validator does not lose crypto, but its reputation gets worse. If his reputation gets worse to such an extent, then he may lose his role as a validator. That costs money in addition to his reputation. Namely the reward after verifying a transaction.

The PoS is much more decentralized than the PoA. This is because with the PoA there are only a few validators who can verify transactions. This is different with the PoS. With the PoS, it's all about how much has been staked into a wallet. On the other hand, PoA is a lot more scalable than the PoS. There is something to be said for both the PoS and the PoA. But because decentralization is such an important component of the blockchain, I don't think the PoA will last long. But again, this is not entirely true. A private blockchain can work just fine with a PoA.

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