Proof of Authority (PoA) is a permissioned consensus mechanism that uses identity as a stake to provide fast transactions and add blocks via the network of authorized, reputable validators.

Proof of Authority (PoA) is a consensus algorithm that presents a pragmatic and effective workable alternative for blockchain networks, especially private blockchains. PoA uses real identities to enable validation within a blockchain. The PoA mechanism is based on a small number of block validators, which allows it to be a scalable system.

Identity and reputation are valued in the PoA consensus mechanism rather than staked cryptographic assets in PoS or energy consumption and enormous computational power in PoW. PoS and PoW consensus mechanisms use staking and mining respectively, to validate transactions and add blocks to the blockchain. PoA is effective in networks where the participants trust and know one another.

Further, Gavin Wood, the co-founder of the world’s second-largest blockchain, Ethereum, proposed Proof of Authority in 2015, and it has since become a prominent consensus mechanism. The proposal was motivated by two factors: the growing need to move away from energy-intensive Proof of Work (PoW) and the need to address specific issues with Proof of Stake (PoS). Therefore, this article discusses PoA, its working principles, how it improves on Proof of Work and Proof of Stake, and its benefits and limitations.

Blockchains that Use Proof of Authority

PoA is well-suited for networks with a high level of trust among members, such as blockchain consortia and private networks. Examples include:

• Hyperledger Besu, an Ethereum implementation, provides two PoA options, Clique and IBFT 2.0.
• PoA is also used by three of Ethereum’s Testnets: Kovan, Goerli, and Rinkeby.
• PoA is an excellent choice for a sidechain, which is a type of blockchain that runs in parallel and is associated with a parent blockchain through a two-way bridge. A good example is the PoA Network, a public Ethereum sidechain that is based on pre-selected validators whose identities are verifiable and public. Then there’s VeChainThor, which is perhaps the most well-known example of a public network that uses PoA consensus.

Difference Between Permissioned and Permissionless Blockchains

Permissionless blockchains are decentralized networks, open to the public, and anyone with the equipment needed can participate. This type of blockchain is often used for cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, Avalanche, etc. because they use an incentive mechanism that encourages users to operate the network.

Permissioned blockchains, on the other hand, are centralized and private—all nodes must be pre-authenticated, and network access is only granted with permission. Examples of this type of blockchain are Hyperledger, Corda, and Ripple.

While public, permissionless blockchains rely on consensus mechanisms such as Proof of Work and Proof of Stake, permissioned blockchains necessitate the use of alternative consensus algorithms such as Proof of Authority.

How Proof of Authority Consensus Mechanism Works

Proof of Authority uses pre-approved validators who risk their actual identities and reputations to ensure transparency, a procedure that includes the selection of such trusted validators at random. Validators are member nodes with the authority to validate transactions and add blocks to the blockchain, following the process in the figure below:

Source: VeriDoc Global

Validators organize transactions into blocks using the software. Because the process is automated, the validators do not need to constantly monitor their devices. That means validators should always keep their devices (admin sites) in good working condition.

In a PoA mechanism, each validator possesses its own distinct identity and can also run redundant nodes for each identity to guarantee that consensus cooperation is upheld even if one node fails.

The PoA consensus mechanism operates by following the steps below:

• Transactions are initiated by users and smart contracts, and they are continuously submitted to the network.
• The transaction requests are constantly received by a peer-to-peer network of approved validators for acceptance in the next block.
• An algorithm designates one validator node as primary.
• The primary validator node assembles transactions into a block, confirms its validity, and signs it.
• The other approved validators in the network confirm the validity of the primary node’s block.
• Once consensus is reached, a new block is added to the blockchain.

Note: If the primary node fails to generate a new block during the round, other honest nodes will mark it “inactive.” An inactive node will be considered “active” once it generates a new block. Also, if a validating node processes a malicious or fraudulent transaction, it can be banned or removed from the list of validating nodes, causing reputational harm to the validator that is running it. In addition, validators must meet a set of standards to be reputable.

PoA Terms and Conditions

The following fundamental requirements must be met for a PoA algorithm to function, even though the settings may change depending on the environment:

• Identity Confirmation: The real identities of the validators must be confirmed.
• Strict Eligibility Criteria: To become a validator, a candidate must meet strict eligibility criteria such as good moral standards, no criminal records, trustworthiness, and commitment to the network.
• Universal Selection Process: Validators’ selection process must be the same for all participants, who are potential validators.

PoA vs. PoW

Proof of Work (PoW) is a kind of cryptographic proof in which one node (called the prover) must demonstrate to the other nodes (the verifiers) that they expended a specific amount of computational power in solving a block hash. PoW is based on large networks of computers run by crypto miners, who are in charge of verifying and tracking transactions as well as minting new currency.

The key drawbacks of PoW are its huge power consumption and limited scalability. It also depends on specialized equipment and hardware, limiting participation. These drawbacks are the advantages PoA has over PoW.

PoA vs. PoS

The Proof of Stake (PoS) consensus algorithm works by validators staking their coins to stand a chance of adding a block to the chain and validating the transaction. Validators are picked at random and based on the number of staked assets rather than competing to add a block of transactions to the blockchain as miners do in PoW. PoS has been lauded as a preferable alternative to PoW. It offers financial incentives to participants without the energy-intensive computational activities of powerful computers. It also allows sharding, which makes a blockchain network quite scalable.

Despite all these benefits, there is a significant disadvantage that is frequently disregarded. It is assumed that the greater a person’s stake, the more driven they are to ensure the network’s success. This assumption, however, fails to account for the fact that, while identical stakes may be equally valuable in terms of money, they may not be equally valued by their holders. For instance, regardless of the actual stake amount, a user who has 10% of their entire possessions placed in a network is likely to be far more committed to the success of that network than a user who has 1% of his holdings staked.

This is where PoA made improvements. The PoA algorithm is based on the concept that participants stake their identities rather than tokens. This means that validators are well-known entities who risk their reputations to validate the blocks. This modification to the PoS model eliminates the need to consider possible monetary discrepancies among validators and makes sure that all validators are equally driven to work for the success of their network.

How PoA Fortifies against Common Attacks in the Crypto Space

• 51% Attack: A 51% attack in PoA consensus requires an attacker to gain control of 51% of network nodes. This is in contrast to the 51% attack for the PoW consensus mechanism, in which an attacker must obtain 51% of the network’s computational power. Controlling nodes in a permissioned blockchain network like PoA is far more difficult than acquiring computational power. An attacker would have to take over 51% of the authorized entities, which is far more difficult to accomplish, especially when they are not directly connected.
• Distributed Denial of Service (DDoS): A Distributed Denial of Service (DDoS) attack attempts to take down an online service by flooding it with traffic from multiple sources. The attacker bombards a targeted network node with a huge number of transactions in an effort to interfere with it and render it inaccessible. In the PoA consensus, the network nodes are pre-authenticated, and only nodes with the security in place to withstand a DDoS attack can be granted the power to generate blocks.

Benefits of Proof of Authority (POA)

The benefits of PoA include:

• High transaction rate
• Time and energy efficiency
• Highly Scalable
• Great choice of private or permissioned blockchain
• No high computational power resources required
• Protection against 51% attacks
• No communication is required between nodes to reach a consensus
• Higher throughput capacity

Limitations of Proof of Authority (POA)

PoA is not a perfect algorithm and it also has its limitations, just like PoS and PoW.

• Because validators are preapproved, the PoA mechanism is considered centralized. This consensus algorithm model was developed primarily to improve the efficiency of centralized systems.
• Validators are visible to everyone, which could allow a third party to manipulate them.
• It is more appropriate for a private blockchain than a public blockchain.
• Participants become less engaged in the process as a result of the mechanism’s automatic elimination of inactive or uncommitted validators.
• It is difficult to become a validator on a permissioned network.

Applications of the PoA Consensus Mechanism

More and more companies are becoming aware of the advantages that blockchain technology offers as it expands. Consequently, permissioned blockchains like PoA are becoming more and more popular, particularly in fields where identity definition, privacy, security, and fast transaction processing are crucial requirements.

The PoA consensus algorithm can be used to achieve high throughput in a wide range of industries and fields, which include the following:

• Governance: PoA can be implemented in decentralized organizations to facilitate decision-making and voting operations, enabling secure and transparent governance.
• Supply Chain Management: PoA can be used to track or monitor the movement of goods and supplies through the supply chain, resulting in a tamper-proof record of the products’ origin, quality, and location.
• Insurance: PoA can be used in the insurance industry to automate and streamline the claims process, allowing for faster and more precise payouts.
• Identity Verification: PoA can be used to authenticate and verify identities, such as in the case of digital certificates or identification documents that are issued by the government.

Conclusion

There is no perfect consensus mechanism, they all have their advantages and disadvantages. However, in the case of PoA, its major disadvantage is the absence of decentralization which makes it a better option for a centralized solution. PoA’s efficiency and power consumption properties make it a good choice too but it is likely that the more robust and decentralized consensus mechanisms, such as PoW and PoS, will remain difficult to replace in the long term.