33. What is the Proof of Authority (PoA) consensus mechanism?

Blockchains, as well as cryptocurrencies, must validate their new blocks, using a consensus mechanism. This can be done in many ways – using the Proof of Work mechanism, or Proof of Stake, which we wrote about here. In today’s lesson, we will tell you about another – proof of authority (PoA) consensus mechanism.

What is the Proof of Authority (PoA) consensus mechanism?

Most blockchain-based ecosystems operate on consensus proof of work or proof of stake.

In the Proof of Work mechanism, network computers and miners solve difficult mathematical puzzles to mine the next cryptocurrency and when validating transactions.

In the case of the proof of stake system, validators staked their tokens, in exchange for validating new blocks and mining new coins in blockchain technology.

However, both examples are decentralized networks where any user can become a validator and earn new cryptocurrencies. At the same time, they ensure the security of all data, transactions and the seamless operation of blockchain networks on a global scale.

The consensus mechanism proof of authority approaches data validation in an entirely new way. Instead of decentralized validation nodes, the system relies on nodes that have special security clearance from validators. As a result, the people who validate new blocks of data don’t have to stake coins or own a crypto miner that often costs millions. They risk something more – their reputation.

Proof of Authority (PoA)

As you know, adding new nodes and blocks to the network requires reaching consensus among validators. Similar to the PoS or PoW consensus in blockchain technology. The difference, however, is that the validators in the Proof of Authority mechanism are selected by a central authority that must have deemed the node trustworthy.

Nodes in the proof of work or proof of stake consensus mechanism are completely anonymous and without authority. The Proof of Authority system has changed this mechanism and requires each node to log in and identify itself.

As you can see, this is an entirely different approach to network security blockchain. Here it is a central authority that issues the right to approve new data blocks. There are no anonymous validators, who check the consensus. There are no incentives in the form of staking your cryptocurrencies and receiving a reward. Instead, there is hard work ahead in the Proof of Authority consensus mechanism, very much tied to the selection of trusted and identity-verified validators.

How does Proof of Authority (PoA) work?

To fully verify a transaction in a network using the PoA mechanism, a specific node signs the transaction with its private key. The cryptographic signature is proof that the ruler node has verified the transaction in question. All other nodes in the network check the signature against the public key of the node that first signed the transaction. If the signature is valid, the transaction is also considered valid.

The key point is that for Proof of Authority to work properly, three conditions must be met:

1. Identify the block in the validator chain.
2. Signature qualification based on reputation, association, good name.
3. Full compliance with prescribed procedures and regulations.

We will use the VeChain platform to discuss this issue.

Proof of authority in this ecosystem has designated a list of 101 operators of masternode authority. They are selected and controlled by a committee that is responsible for the operation of VeChain. Of course, the ecosystem community elects the committee.

Each masternode authority undergoes a very rigorous vetting process involving accounting services giants PricewaterhouseCoopers and DNV. At the same time, the masternode must be involved in the development of VeChain and be an active developer. Therefore, it must not be a user of the network, but a person known in the cryptocurrency industry. To increase the capacity of the validation network, each operator has the option to launch several nodes.

The blocks thus created are added to the block ledger of the VeChain ecosystem by sending new data to operator nodes. The network then waits for trial nodes to validate the new block.

It is worth noting that the masternode group is small. As a result, reaching consensus happens quickly. New blocks in the VeChain network are generated about every 10 seconds.

Where else do we use Proof of Authority?

Interestingly, PoA was proposed in 2015 by Gavin Wood, co-founder of Ethereum. Wood wanted to create a consensus mechanism that relied on validators rather than using massive computing power or other resources.

As we mentioned, PoW and PoS allow users to be anonymous. In PoA, those approving nodes must reveal their identities, as they are selected based on their credibility.

Proof of authority works best on private, smaller blockchains. As for public networks – it has yet to develop. In addition to VeChain, Microsoft Azure also uses proof of authority on Ethereum implementations.

Advantages and disadvantages of Proof of Authority

The process is very profitable because, thanks to the operators, there are no costly operations in the form of staking or buying expensive mining excavators.

Computing power powers the entire ecosystem network, which uses proof of authority and is at a minimum level.

The consensus proof of authority is also extremely secure, thanks to continuous audits and inspections. Of course – it requires additional work, but the results are worth it.

In addition to the advantages of Proof of Authority, it also has one major downside. Because of its central management authority, blockchain using this consensus mechanism may be less automated than proof of stake or proof of work.

It is also worth considering that Proof of Authority is not fully decentralized, which may bother some users or validators.

Another disadvantage is scalability. Proof of authority is less scalable than proof of stake. It can only handle a certain number of transactions per second (TPS). The proof of stake consensus mechanism will handle more transactions because it does not require any authority for verification.

Proof of Authority vs. Proof of Work

The main difference between PoA and PoW is that the consensus Proof of Authority needs far less computing power. Proof of authority does not need a giant network of computers or electricity. What’s more – it has much less impact on the environment than the other consensus.

Proof of Authority is an excellent solution for enterprises where the total process does not need to be fully decentralized. However, as we mentioned in the paragraph above, proof of authority through its central management authority may not appeal to some users or developers.

The Proof of Authority consensus is also not as popular as Proof of Work. It is a relatively young idea that is just gaining popularity.

Proof of Authority vs. Proof of Stake

Proof of Authority is the idea of Gavin Wood, co-founder of Ethereum, as a solution to specific problems with the Proof of Stake mechanism.

Unlike proof of stake, the identity of the validator in the proof of authority consensus mechanism is public. Anyone can see the operator node and whether it inadvertently conveys false results. Consequently, users of Proof of Stake who know how to negatively affect nodes would certainly not want to switch to this consensus.

The proof of authority mechanism also uses far fewer validators than proof of stake. This results in faster settlement of transactions and execution of intelligent contracts.

On the other hand, like proof of work, PoA is not fully decentralized, so it is better suited to private networks. Proof of Stake is recommended for global blockchain networks.

Summary

You already know what the Proof of Authority consensus mechanism is and how it works. This is an idea that is sure to grow in the future. It has a good predisposition for that. Currently, it is a great solution for smaller, private blockchains. However, it is worth following its progress.