What is proof of authority (PoA) in blockchain?

Blockchain technology has revolutionized how we securely store and transfer assets through the introduction of cryptocurrencies with consensus mechanisms like proof of authority (PoA).

While consensus mechanisms like Proof of Work (PoW) have proven secure, their energy demands have also drawn criticism. As the blockchain industry evolves, newer consensus algorithms are emerging that aim to address these issues. One such algorithm gaining recognition is proof of authority.

In order to verify transactions and maintain the distributed registry, a private blockchain can use a consensus mechanism called PoA. Since less energy and computer time are needed, the network can be updated more often and greater transactions can be processed for a lower transaction fee.

In order to improve scalability with a small number of block validators, the system relies on moderators, who are pre-approved individuals who verify blocks and transactions.

In this article, we'll take a deeper look at PoA, how it works, and compare it to other consensus mechanisms. By the end, you'll have a better understanding of this efficient alternative and its potential role in the future of blockchain.

What is the proof-of-authority process?

PoA relies on "authority nodes," or validators, who are trusted entities pre-selected to validate blocks and transactions on the blockchain network.

The main distinction between PoW and Proof of Stake (PoS) is that identity rather than wealth or computational power determines authority. Around 6–15 different types of nodes are typically involved in PoA networks.

The process begins when a validator receives a new transaction. They independently validate it according to the network's rules before signing off.

Once a majority of validators have signed, the transaction is packaged into a new block that gets added to the growing blockchain in quick succession. Few consensus rounds are required due to the limited number of trusted validators.

There are three criteria that users must achieve in order to become validators: reliability, morality with a clean record, and identification.

Their reputation is dependent on their spending time and investing money validating their identification on the network and conducting cross-reference research in the public sphere.

System reliability is ensured by this comprehensive strategy. Therefore, the proof-of-authority process becomes more secure.

How does proof of authority work?

Let's break down the PoA process in more detail:

Selection of validators

Candidates undergo rigorous identity validation and review before being approved. Real-world reputation is crucial.

Block creation

Authority nodes take turns creating and signing new blocks every set interval (e.g., 15 seconds). The order is predetermined to prevent delays.

Validation

Other validators quickly receive and validate each signed block. They check that transactions abide by rules and that the previous hash is valid.

Finalization

Once a majority (e.g., 2/3) of validators have signed off, the block is permanently added to the chain in an append-only manner.

Punishments

Any validator acting outside the terms faces probation, eventually leading to removal if misconduct continues. This ensures honest behavior.

As you can see, PoA streamlines the consensus process through the upfront designation of trustworthy validators, avoiding the complexity and energy costs of PoW mining competitions.

Is proof of authority decentralized?

While PoA provides efficiency gains, it is considered less decentralized than mechanisms like PoW due to its reliance on a small but secure set of validators.

There is potential for censorship if colluding authorities block certain transactions. However, the following factors maintain a reasonable level of decentralization:

• Validators are geographically distributed nodes run by separate entities to prevent central points of failure or control.
• The open-source protocol and governing rules are public knowledge, so network participants can audit validator behavior.
• Over-centralization risks are mitigated through strict identity checks and performance monitoring of validators. Punishments deter bad actions.
• Sidechains increase independence as separate PoA networks can interconnect with larger public blockchains like Ethereum via two-way pegs.

Proof of authority is not fully decentralized but achieves a balance through transparency, accountability, and independent links between permissioned sidechains. This hybrid model maximizes efficiency without compromising too much on decentralization.

What are the advantages and disadvantages of proof-of-authority?

Advantages

• Near-instant transaction confirmation is due to the streamlined validation process and limited validator set.
• Energy costs and hardware requirements are negligible since no mining is involved.
• Throughput is high, as popular PoA chains can handle thousands of transactions per second.
• Costs per transaction approach zero since fees are minimal for validators.
• The network is highly secure as validator identities are known and behavior is closely monitored.

According to the World Bank, an estimated 1.7 billion adults worldwide remain unbanked as of 2017, demonstrating the large market need for innovative payment networks beyond traditional banking systems.

By reducing barriers to participation compared to other permissioned ledgers, PoA protocols may be able to onboard more of the unbanked population over time.

Disadvantages

• Less decentralized than PoW, with the potential for censorship if authorities collude to block transactions.
• It requires trusted setup and ongoing governance to select suitable validators upfront.
• Limited scaling as adding more validators increases oversight complexities.
• Not well-suited for public permissionless blockchains due to centralized validator control.
• PoA is a good way to go for private businesses that don't need full decentralization and need to keep costs low so that the technology can be widely used in business.

Proof of Authority vs. Proof of Stake

Both proof of authority and proof of stake (PoS) aim to improve over proof of work (PoW), but they take different approaches.

Let’s explain these differences in detail!

Decentralization

PoS is more decentralized by design with no predefined validators, while PoA relies on a limited set of authorities.

Trust requirements

PoA depends on trusted, pre-selected validators through identity, experience, and permission. PoS requires a large economic stake but no permissions.

Costs

PoA matches low PoS costs without staking lockups since validators aren't subsidized via inflation.

Throughput

PoA scales better than early PoS thanks to a streamlined low-latency validation process between known parties.

Use cases

PoA suits private permissioned systems, while PoS aims to secure low-cost public platforms without pre-approval barriers.

Both algorithms improve on PoW, but PoA delivers faster, lower-fee transactions better suited for private infrastructure through its simplified validator setup and management.

Proof of Authority vs. Proof of Work

PoW established blockchain credibility through intense energy-draining mining competitions. However, its disadvantages include:

• High costs from expensive mining hardware, electricity consumption, and transaction fees.
• Scalability issues arise as blocks take 10+ minutes to be added, limiting throughput.
• Continuous arms race as more hashing power is required over time to gain rewards.
• In contrast, PoA provides significant gains by avoiding mining altogether.
• Near-instant transactions without costly mining equipment or energy output.
• Throughput is orders of magnitude higher with customized fast block times.
• Costs are minimal, both for validators and users.

Research from Coinmetrics found that in 2021, Ethereum blockchain transactions reached an all-time high of 1.7 million transactions per day on average. However, high transaction fees and network congestion continued to be a challenge due to the computational overhead of PoW consensus.

PoA blockchains capable of handling millions of transactions per day could be better positioned to scale for both existing and future application demands on distributed ledgers.

While PoW secures public networks through decentralization, PoA streamlines permissioned systems. Both have key roles to play depending on the desired balance between efficiency, costs, and censorship resistance for a given use case.

Which consensus mechanism is better for the future?

There is no single optimal solution. As the industry evolves, different consensus mechanisms, including cross-chain techniques, will integrate with one another.

• PoW will likely retain dominance in protecting public assets through pure decentralization. Tested security is its foremost advantage.
• PoS will gain ground through lower energy usage and the absence of mining, scaling for broader commercial use cases. Several networks are transitioning to PoS-based systems.
• PoA finds applications as a high-performance protocol between known consortiums. Fast, low-cost transactions are well-suited for infrastructure applications.
• Hybrid models will arise, incorporating the strengths of each approach. For example, sidechains link low-cost PoA networks to high-security PoW/PoS for pooled security.

In the future, we will see technology leveraged situationally depending on whether censorship resistance, chain performance, or purely low resource consumption are priorities.

Blockchain technology must continue innovating interoperable solutions, optimizing the balance between decentralization, security, and scalability, to meet evolving commercial and technical demands.

Conclusion: Demystifying the trusted process behind proof of authority consensus

Proof of Authority speeds up validation between known, trusted parties, making it an effective and scalable way for permissioned blockchain networks to reach a consensus.

PoA strikes a balance between being less decentralized than PoW and having near-instant finality, low costs, and the high throughput that many enterprise applications need.

Going forward, we can expect PoA to play an increasingly important role in supporting core infrastructure, while mechanisms like PoW and PoS retain their value, securing public assets at scale.

As time goes on, more cross-chain innovations will figure out the best way to combine these algorithms based on each use case's security, performance, and resource needs.

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