What is Proof of Authority? Explaining how it works! =

Do you want to know what Proof of Authority is ? Proof of Authority is one of the many forms of the consensus algorithm. This algorithm is very important for blockchain as it eliminates the need for an intermediary for the processes running on the blockchain.

Let’s first explain what exactly a consensus algorithm is, so that we can easily explain what Proof of Authority is. Of course we also give examples of blockchains that use Proof of Authority.

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  • View quickly
  • The consensus algorithm
  • What is Proof of Authority?
  • Disadvantages of Proof of Authority
  • Who Uses Proof of Authority?
  • The difference between Proof of Authority and Proof of Stake
  • Conclusion

The consensus algorithm

Proof of Authority is thus a form of the consensus algorithm. The consensus algorithm ensures that all rules that have been set are followed. This allows anyone to make a secure transaction on the blockchain.

How does that happen? The network of a blockchain consists of nodes. All these nodes work together to process transactions. They do this by validating transactions and creating blocks. These blocks are added to the blockchain. When validating a transaction, several things are checked. Does the sender of a transaction have enough coins? Is the specified recipient address correct? In this way, the network ensures that nothing happens that should not happen.

When a node has validated the transaction, it receives a reward for this. What that reward looks like depends on the algorithm. But the way in which nodes validate transactions is also determined by the consensus algorithm.

There are several consensus algorithms. The most well-known form is probably Proof of Work. This algorithm is used by Bitcoin. Another well-known algorithm is Proof of Stake. For example, Ethereum is currently making the transition from Proof of Work to Proof of Stake.

What is Proof of Authority?

The Proof of Authority (PoA) algorithm was invented in 2017 by Gavin Wood. Gavin is also a co-founder and former CTO of Ethereum. This algorithm contains an element that can also be found in the Proof of Stake algorithm; ceasing. With Proof of Authority, the nodes will not issue coins, but their identity.

The nodes are not called miners at Proof of Authority, but validators . The blockchain then randomly chooses validators to validate transactions. The blockchain does this based on the reputation of a validator. When a validator has a high reputation, chances are they will be chosen to validate transactions and add blocks to the blockchain.

The reputation is then linked to the identity of the validator. This makes validators even more inclined to do their best. Of course they don’t want to risk their reputation. It can take a long time for a validator to build up enough reputation to validate. Therefore, validators with a high reputation will always do their best to deliver the best work. For example, Warren Buffet once said that ‘It takes 20 years to build a reputation, but you can destroy it in 5 minutes.’

In this algorithm there are not as many validators as there are miners in an algorithm like Proof of Work. This makes blockchains that use Proof of Authority very scalable. The validators have already been approved in advance, so that reliable validators are active in the network. This can bring many benefits. Organizations that would not use blockchain at first because they do not consider it safe enough due to the unknown miners, could now use blockchain if the blockchain uses Proof of Authority.

Organizations then have more control over the blockchain. If something goes wrong, they always know who is responsible for what went wrong. You might even think that organizations can punish those responsible in this way.

Disadvantages of Proof of Authority

Proof of Authority therefore uses a lot less validators than Proof of Work or Proof of Stake. The disadvantage of this is that a blockchain that uses Proof of Authority is less decentralized than a blockchain with Proof of Work, for example. The check is in the hands of a few validators with a good reputation. When you want to participate in the blockchain as a new validator, it can take a very long time before you have built up enough reputation. Meanwhile, the high-reputation validators continue to build, making it nearly impossible to ever level up with them.

This ensures that the same validators continue to validate the transactions. This is an advantage when that is the intention of the developer of the blockchain (for example with a private blockchain), but it can also be a major disadvantage when it is a public blockchain.

This also increases the chance that censorship and blacklisting will occur. Or that validators are put under pressure by stakeholders. After all, the identity of the validators is visible to everyone. Of course, this is done to ensure that validators continue to do their best, because they don’t want to risk their reputation. After all, when they abuse their power, everyone knows that it is on their conscience.

However, this solution also creates a new problem. That is, people with bad intentions can effectively extort someone to perform certain actions. The security and reliability of Proof of Authority can therefore be questioned.

That is also the reason that many people in the crypto world are a bit hesitant about Proof of Authority. They doubt the positive effect of the properties of this consensus algorithm. Therefore, you could say that Proof of Authority is very useful when the blockchain is used for a practical application. Consider, for example, user situations within logistics. However, the question is whether Proof of Authority is also so popular and useful within the world of cryptocurrencies.

Who Uses Proof of Authority?

There are several blockchains that use Proof of Authority. This consensus algorithm is ideal for certain business processes. For example, it can be used for logistics purposes, where suppliers, senders and recipients benefit from the blockchain.

Blockchains such as VeChain, Microsoft Azure and Ethereum Kovan Testnet use Proof of Authority. Microsoft Azure offers solutions for private networks with a system that does not require any other currency as no mining takes place.

But Proof of Authority can also be used in the financial world. Banks that have their own currency will not easily use a blockchain such as Bitcoin, Ethereum or Ripple. They will give the reason that this is not safe enough. Transactions within these blockchains are validated by miners whose identity is unknown.

A blockchain that is owned by them and uses Proof of Authority could be a solution. This ensures trust between all parties involved; everyone knows who validates the transactions, making it easy for banks to penalize the right people when something out of the ordinary happens.

The difference between Proof of Authority and Proof of Stake

So many people see a great similarity between Proof of Authority and Proof of Stake. The biggest difference in that case is that validators do not stake coins, but identity. They don’t put coins, but their identity on the line. With Proof of Stake, the node loses its stake (coins) when it does not do a good job. That is different with Proof of Stake. There the validator gets a bad reputation. This may prevent him from doing his job as a validator in the future.

Another difference is that Proof of Authority only offers decentralization to a limited extent. There are not as many validators as with a Proof of Stake blockchain. So it is actually a disguised form of a decentralized network. However, this ensures that a blockchain that uses Proof of Authority is a lot more scalable than a blockchain that uses the Proof of Stake algorithm.

There are therefore advantages and disadvantages for both consensus algorithms. The situation in which the blockchain is used will determine which consensus algorithms work best.

Conclusion

The consensus algorithm therefore validates the transactions in a blockchain. This can be done by miners in the case of Proof of Work, and is done by validators in the case of Proof of Authority. With Proof of Authority, the validators are chosen based on reputation. This reputation is linked to an identity, which means that validators will do their best to uphold the reputation.

Does that entail disadvantages? Yes, of course. A blockchain that uses Proof of Authority is therefore not as decentralized as it should be. Validators can also be put under pressure more easily, because malicious parties can also see the identity of the validators. Proof of Authority therefore offers advantages, although there are also disadvantages to this consensus algorithm.

There are several conceivable situations in which Proof of Authority could be used. There are currently already blockchains that use it. The most famous blockchain that uses Proof of Authority is probably Microsoft Azure. You see that blockchains that use Proof of Authority are often made for practical use. Proof of Authority is therefore very useful for this. Blockchains that are especially popular for the cryptocurrency are generally less likely to use Proof of Partication.

 

 

 

 

 

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