Consensus mechanisms are a crucial evolving aspect of blockchain technology. Choosing the consensus algorithm is one of the most important decisions while designing a blockchain system. In addition to the well-known Proof-of-Work (PoW) and Proof-of-Stake (PoS) algorithms, other consensus mechanisms have emerged.
Proof-of-authority (PoA) is one such consensus algorithm that requires fewer computing resources than Proof-of-Work and has been presented as a better energy-efficient alternative to Proof-of-Stake. Let’s have a detailed look at it.
What is the Proof-of-Authority?
Proof-of-authority is a consensus algorithm that provides a scalable solution for blockchains (especially private ones). It is taught to be an upgraded form of Proof-of-Stake; instead of a stake, the validator’s authority is used to give rights to verify transactions. This term was coined by Gavin Wood, co-founder of the Ethereum blockchain. VeChain (VET) along with Ethereum testnets such as Kovan, Goerli, and Rinkeby are some of the popular platforms that employ a PoA algorithm.
The Proof-of-Authority (PoA) consensus method grants a limited number of blockchain actors the authority to validate transactions or interactions within the network. Nodes that have demonstrated their authority in PoA get the right to generate new blocks. A node must first pass a preliminary authentication to get this power and the ability to verify transactions and add new blocks. These reliably validated machines, or validators, are pre-approved and safeguard PoA blockchains by validating blocks and transactions.
Why do we need Proof-of-Authority?
PoA, like PoS, has similar benefits to PoW; they both eliminate the need to spend a large amount of electricity to validate the blocks. However, in PoS, the blockchain participants with the greatest stake in it are chosen by the algorithm to validate the blocks. Proof-of-Stake is based on the assumption that those with a stake in a network are incentivized to act in its best interests. All else being equal, the greater one's stake, the greater one's interest in preserving the system.
Accordingly, the major flaw in such a concept is that the same-sized stake may be valued differently by different actors. For example, consider Person X, who is an early adopter of blockchain technology with a sizable portfolio of digital assets, and Person Y, is a newcomer who is just getting started in the emerging token economy.
Assume that they both have 500 Coin Gabbar Tokens (CGT). When we compare their other holdings in detail if 500 CGT represents only 1–5% of Person X's total wealth while representing nearly 40–50% of Person Y's. Even though they both have a stake in Coin Gabbar, Person X may be less concerned with it than Person Y. As a result, X’s desire to act in the best interests of the network may not be as strong as Y's, or any one of them could be a bad actor. Hence, this makes the staking algorithm of PoS uncertain and unreliable as it is unable to find bad actors.
Proof of Authority (PoA) uses the validator's identity as the stake instead of a monetary value. Identity refers to the correspondence between a validator's personal identification on the platform and officially issued documentation for the same person, i.e. the certainty that a validator is who they claim to be. PoA is an alternative consensus mechanism in which nodes are explicitly allowed to validate blocks while ensuring that all validators value the network similarly, regardless of other circumstances.
The identity mechanism brings the essence of certainty that a validator's identity is correct. This cannot be a simple or easily abandoned process. It is highly capable of filtering out bad actors. Finally, ensuring that all validators follow the same procedure ensures the integrity and reliability of the system.
How does the Proof-of-Authority work?
In PoA, the working is quite similar to other consensus mechanisms, the only difference is in the selection process of validators. In PoW, the validators, or miners, mine native cryptocurrency with their computational power; conversely, in PoS, the validators are selected based on their stake in the network. However, in PoA, the validators are selected by going through the process of personal identity authentication.
Depending on the scheme chosen, one or more validating machines are in charge of generating each new block of transactions that will be added to the blockchain. By reaching a uniform agreement among the majority authority nodes, or validators, the new block is accepted directly without any further verification.
Transactions and blocks in PoA-based networks are validated only by approved accounts. Validators use software that allows them to validate and group transactions into blocks. The process is automated, so validators do not need to constantly monitor their computers. Validators generate blocks in a sequence at predetermined time intervals.
After validating a block, validators earn incentives by associating a reputation with an identity. Unlike PoS, the incentives are balanced. PoA only permits non-consecutive block approval from a single validator, implying that the risk of serious damage is centralized at the authority node. It requires keeping the authority node uncompromised to receive incentives. ...Read More
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