What is Proof of Authority?
Proof of Authority (PoA) is a type of consensus model that uses reputation as basis for verifying transactions on a blockchain. This term was introduced by Ethereum co-founder Gavin Wood in 2017. In PoW model, miners generate computational power.
In PoS method, validators stake native cryptocurrencies on the blockchain. In PoA process, nodes stake their reputation.
It means that a PoA blockchain selects nodes to validate transactions on the network based on their trustworthy status. Therefore, PoA blockchains require limited number of block validators. In this manner, PoA blockchains are highly scalable.
All transactions and blocks on this network is approved by pre-approved participants that are called moderators.
This type of verification method is common among logistics applications. Therefore, many supply chain users incorporate PoA model for their native applications. PoA model also allow companies to increase privacy and avail functionality of a blockchain network.
This type of blockchain does not require issuing a cryptocurrency. Azure network developed by Microsfot is a good example of PoA blockchain network.
Features of Proof of Authority Consensus
Different PoA blockchains may incorporate different versions of this type of verification method. However, at its base a PoA blockchain consists of the following basic components:
The moderators on the blockchain must provide and authenticate their real identities.
The moderator selection process is rigorous and difficult. The nodes who are applying to become moderators must invest money and put their reputation at stake. The selection process is tough and consists of various levels of scrutiny to weed-out any suspicious nodes and ensure long-term commitment.
PoA blockchain set a standardized process to test all the candidates that are applying for the position. In this manner, the network ensures equal opportunity for all participating nodes.
A PoA network ensures transparency and fair selection process for appointing a moderator is very fair and perfectly unbiased. At the same time, moderators also share the responsibility of adding their real identification to bring more transparency to the network.
Risks Associated with Proof of Authority
One visible downside of PoA blockchain is that it removes decentralization of a blockchain. Therefore, this type of network is more suitable for centralized, private, and regulated blockchain networks.
This mechanism is very useful for big corporations and logistics sector. However, it does not consist of any type of native cryptocurrency system to enable exchange of value.
At the same time, the throughput of PoA network is high but it does not have the same immutability on account of features such as censorship and blacklisting.
The real identities and details of PoA moderators are reserved with a few established network managers. Therefore, a PoA network does not have transparency such as public disclosure.
Proof of Authority Vs Proof of Stake
There are different types of consensus models that different blockchain incorporate as a way to adopt to verify the transactions on their blockchain networks. PoS or Proof of Stake is a type of verification model where nodes have to stake a required amount of cryptocurrencies in order to become validators.
They are able to do this by locking the native currency of that blockchain in smart contracts. The greater amount of staked currencies led to greater probability of getting selected for verifying a block.
PoS model is a transition from PoW or Proof of Work consensus where miners have to generate computational power to verify a block first. PoS remove the need for generating higher amounts of computational power and selects validators in a randomized manner based on their staked tokens.
However, PoW and PoS blockchains operate in a public manner that is not suitable for private businesses.
On the other hand, PoA blockchains are more suited for private companies as they have a centralized infrastructure.
At the same time, the performance capabilities of PoA blockchains are higher in comparison to public blockchains since they contain a limited number of pre-elected moderators that verify the blocks on the network in a speedy and efficient manner.
PoA blockchains have become popular among private enterprises on account of their operational capabilities and higher output. With the passage of time, more professional sectors are adopting PoA blockchains.