Blockchain insights

What is Proof of Authority?

7 min read
  • Proof of Authority (PoA) is a consensus algorithm that provides an efficient and practical solution for permissioned blockchain networks.

  • PoA leverages the value of identities rather than the staked monetary value of coins in Proof of Stake (PoS) or the combined computational power of miners with Proof of Work (PoW).

  • Advantages of PoA include high security, scalability and lower energy consumption.

  • PoA use cases: In an evolving permissioned DeFi world, PoA consensus plays a vital role in establishing regulatory compliant on-chain finance. 

In 2022, the Ethereum Merge put the focus on two dominant consensus mechanisms: Proof of Work (PoW) and Proof of Stake (PoS). However, there are a wide selection of other consensus mechanisms being utilized in blockchain, each with specific benefits and drawbacks.

For an overview of consensus mechanisms, head to our educational article, where we’ll focus on Proof of Authority (PoA) – a mechanism we’re using to incubate Haven1, a layer 1 blockchain. 

READ: Introducing Haven1: A secure blockchain to drive mass adoption of on-chain finance

PoA is a consensus mechanism used in blockchain networks that is gaining popularity for its balance of security and efficiency. Unlike PoW and PoS which rely on mathematical computations and the holding of tokens, respectively, PoA relies on pre-selected authoritative nodes to validate transactions and create blocks. 

This makes PoA particularly suitable for private and consortium blockchain networks, where the identity of the nodes is known and can be trusted, while still providing a decentralized solution. In this blog, we will delve deeper into PoA, how it works and its potential use cases.

What is a consensus mechanism?

A consensus mechanism is when a blockchain network reaches agreement among participating nodes on the state of the shared ledger. It ensures the integrity and reliability of the data on the blockchain by allowing nodes to reach a consensus on the valid transactions and the order in which they should be recorded. 

Different consensus mechanisms have different properties, such as security, energy efficiency, and speed, and are suited for different types of blockchain applications.

Learn more about consensus mechanisms here.

How does Proof of Authority reach consensus?

The PoA mechanism was proposed in 2017 by Ethereum co-founder Gavin Wood and leverages the value of identities, rather than relying solely on the staked value of coins (PoS) or the combined computational power of miners (PoW).

READ: Decoding blockchains: An introduction to Layer 1

PoA uses a set of trusted and identified validators, instead of computational power, to validate transactions and reach consensus. In PoA, the validators are pre-selected by the network and their identity is verified. After this, they have the authority to validate transactions and create new blocks. The consensus is reached through the agreement of the validators on the state of the network.

PoA vs PoS vs PoW

PoA_vs_PoS_vs_PoW

The scalability trilemma

In blockchain, all networks are said to be subject to the scalability trilemma. This is a concept in blockchain technology that states that it is difficult to achieve all three of the following properties simultaneously in a public blockchain network: security, scalability and decentralization.

PoA fits into the scalability trilemma by prioritizing security and scalability, while sacrificing decentralization to an extent due to the smaller number of validators. However, by having a limited number of trusted validators, PoA networks can validate transactions and create blocks more efficiently than networks with a larger number of participants. 

Properties_of_consensus_mechanisms

While a limited number of validating nodes makes the PoA design more centralized, it also makes it more scalable, allowing PoA blockchains to achieve much higher transactional throughput.

READ: Decoding blockchains: An introduction to Layer 2

High security through reputation

In PoA, a small group of trusted and verified individuals are designated as validators. As such, this consensus mechanism is highly secure. PoA networks can also validate transactions and create blocks more efficiently than networks with a larger number of participants.

How_validators_secure_blockchains

This makes PoA well suited for private networks and consortium chains where a high degree of security and efficiency is necessary, but full decentralization is not a requirement.

Lower energy consumption

Compared to PoW, both PoS and PoA operate with a reduced requirement for technical infrastructure and are characterized by significantly lower energy consumption. For example, Ethereum’s transition from PoW to PoS reportedly reduced its energy consumption by 99.95%.

Energy_consumptions

Since PoA blockchains require a lower number of validating nodes compared to PoS networks, their electricity consumption is even lower.

By utilizing the PoA consensus mechanism, blockchains such as Haven1 will have the capacity to become a carbon negative network by making a small contribution to carbon offset schemes. The goal will be to implement in-house efficiency measures, purchase renewable energy and work with external emission reduction projects to ensure that Haven1 is carbon negative. 

PoA validators and identity verification

In order for the PoA consensus algorithm to function properly, its validators must meet certain criteria. These validators run network nodes and validate transactions.

In a PoA network, they must verify their credentials to guarantee their accuracy and reliability. The identity verification process is designed to effectively eliminate potential bad actors.

READ: Ethereum scaling solutions: All you need to know about future plans to scale the Ethereum network

This is in contrast to PoS validators, who only need to stake a certain amount of the blockchain’s native coins in order to be eligible for running network nodes and validating blocks.

Consensus_mechanism_comparison

Proof of Authority use cases

A notable example of implementing a PoA consensus is the Quorum Blockchain Service. Quorum is a blockchain platform that provides a secure and private way to build decentralized applications and execute smart contracts. 

It is built using the Ethereum codebase and utilizes a consortium-style consensus mechanism called "QuorumChain", which allows for improved privacy and scalability. The Quorum Blockchain Service is a cloud-based offering that provides an easy-to-use environment for developers to build, test, and deploy Quorum applications. 

READ: The rise of institutional interest in DeFi

With its focus on security, privacy, and scalability, Quorum is well suited for use in financial and enterprise applications where sensitive data needs to be securely shared between parties.

Meanwhile, the Haven1 blockchain incubated by Yield App will also utilize the PoA mechanism to create a secure environment for transactions on-chain. Learn more about Haven1 here.

Conclusion

The absence of institutional-grade security and regulatory compliant solutions makes existing permissionless blockchains a risky undertaking for institutional participants. Permissioned PoA blockchains are able to address these shortcomings through a mechanism which ensures that all participants on the network are vetted and trusted.

As such, While PoW and PoS are likely to remain the most widely used mechanisms among public and decentralized blockchains, PoA is set to play a vital role in the development of institutional-grade on-chain finance, where trust and security are paramount. 

In the coming months, the development of Haven1 will place Yield App firmly on the map as a leading PoA blockchain for secure on-chain transactions for both institutional and retail crypto investors.

Do you want to earn a secure and sustainable yield on your digital assets? Sign up for a Yield App account today!



DISCLAIMER: The content of this article does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.

 

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