Simple Definition of Proof-of-Authority
  • Proof of Authority (PoA) is a modified form of Proof of Stake (PoS) where instead of stake with the monetary value, a validator’s identity performs the role of stake.
  • Proof-of-Authority (PoA) is a new consensus algorithms family that provides high performance and fault tolerance.
  • In PoA, rights to generate new blocks are awarded to nodes that have proven their authority to do so. To gain this authority and a right to generate new blocks, a node must pass a preliminary authentication.
  • Kovan and Rinkeby, the two Ethereum testnets, also use PoA as a consensus mechanism.

What is Proof-of-Authority Consensus?
  • The PoA consensus algorithm leverages the value of identities, which means that block validators are not staking coins but their own reputation instead. Therefore, PoA blockchains are secured by the validating nodes that are arbitrarily selected as trustworthy entities.
  • The Proof of Authority model relies on a limited number of block validators and this is what makes it a highly scalable system. Blocks and transactions are verified by pre-approved participants, who act as moderators of the system.
  • PoA consensus algorithm may be applied in a variety of scenarios and is deemed a high-value option for logistical applications. When it comes to supply chains, for example, PoA is considered an effective and reasonable solution.
  • The Proof of Authority model enables companies to maintain their privacy while availing the benefits of blockchain technology. Microsoft Azure is another example where the PoA is being implemented. In a few words, the Azure platform provides solutions for private networks, with a system that does not require a native currency like the ether ‘gas’, since there is no need for mining.
Proof of Authority vs Proof of Stake
  • Some consider PoA to be a modified PoS, which leverages identity 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 because its performance is considerably higher.
Advantages of Proof-of-Authority Consensus

Compared to other consensus types that require a proof of spent computational resources (Proof-of-Work) or an existing “share” (Proof-of-Stake), PoA consensus has several notable advantages:

  • High-performance hardware is not required. Compared to PoW consensus, PoA consensus does not require nodes to spend computational resources for solving complex mathematical tasks.
  • The interval of time at which new blocks are generated is predictable. For PoW and PoS consensuses, this time varies.
  • High transaction rate. Blocks are generated in a sequence at appointed time interval by authorized network nodes. This increases the speed at which transactions are validated.
  • Tolerance to compromised and malicious nodes, as long as 51% of nodes are not compromised.
Conditions for Proof-of-Authority Consensus

Although the conditions may vary from system to system, the PoA consensus algorithm is usually reliant upon:

  • valid and trustworthy identities: validators need to confirm their real identities.
  • difficulty to become a validator: a candidate must be willing to invest money and put his reputation at stake. A tough process reduces the risks of selecting questionable validators and incentivize a long-term commitment.
  • a standard for validator approval: the method for selecting validators must be equal to all candidates.

The essence behind the reputation mechanism is the certainty behind a validator’s identity. This can’t be an easy process nor one that would be readily given up. It must be capable of weeding out bad players. Finally, ensuring that all validators go through the same procedure guarantees the system’s integrity and reliability.

Limitations of Proof-of-Authority
  • The perception of the PoA mechanism is that it foregoes decentralization. So one could say that this model of consensus algorithm is just an effort to make centralized systems more efficient. While this makes PoA an attractive solution for large corporations with logistical needs, it does bring some hesitation - especially within the cryptocurrency scope. PoA systems do have a high throughput, but aspects of immutability come into question when things like censorship and blacklisting can be easily achieved.
  • Another common criticism is that the identities of PoA validators are visible to anyone. The argument against this is that only established players capable of holding this position would seek to become a validator (as a publicly known participant). Still, knowing the validators’ identities could potentially lead to third-party manipulation. For instance, if a competitor wants to disrupt a PoA-based network, he may try to influence public known validators to act dishonestly in order to compromise the system from within.
  • PoW, PoS, or PoA all have their own unique advantages and disadvantages. It is well known that decentralization is highly valued within the cryptocurrency community and PoA, as a consensus mechanism, sacrifices decentralization in order to achieve high throughput and scalability. The inherent features of PoA systems are a stark contrast from how blockchains have been functioning until now. Still, PoA presents an interesting approach and cannot be disregarded as an emerging blockchain solution, which may suit well for private blockchain applications.