Consensus mechanisms are a fundamental part of the blockchain. There are several different consensus mechanisms that are in use. These mechanisms help to maintain the blockchain by ensuring all transactions taking place are genuine and agreed upon by all participants. It is a necessary byproduct of the decentralized design that defines the market.
How it Works
Proof of Authority (PoA) is one such consensus mechanism that is used by some projects. Based on Proof of Stake (PoS), where money is typically used as a stake, POA refers to the use of identity instead. The idea behind this is that people will be mindful of their reputation and so will be discouraged from acting maliciously.
In order to become a ‘validator’ within a PoA blockchain, users will need to disclose their identity to be cross-referenced with other public data. In this way, the position is earnt, which can act as a deterrent for bad behavior.
As validation plays a central role in creating trust, it is the foundation of PoA protocols. Validation can be processed through the use of DApps. They can be independent, or carefully chosen by projects using stringent verification processes. Each implementation is unique and offers different strengths and security.
Advantages and Disadvantages
Compared to other mechanisms, it requires less computational power. While the Proof of Work (PoW) mechanism requires mining, PoA is much less intensive in its approach. This makes it a more democratic model in a sense, with a lower barrier of entry.
It is also known for delivering faster transactions than some other protocols. Efficiency is a big advantage of this model, as no communication is necessary between nodes to reach a consensus. Scalability too, is a major benefit due to this, making it an attractive option for enterprise-scale projects.
A major issue with using identity as a stake is the reduction in privacy and anonymity. Seeing as the cryptocurrency market is big on these elements, it can be difficult to encourage individuals to divulge their personal information for this purpose.
Both PoW and PoS, in comparison, are consensus methods with more decentralization than PoA. Due to its nature, PoA requires a centralized authority node to verify and approve identities, meaning it detracts from one of the biggest benefits of the blockchain. This means it is a compromise between reduced decentralization and increased efficiency.
Otherwise, for some individuals, reputation within the community may not be a major deterrent from performing malicious actions. This diminishes the concept somewhat.
Comparison with Other Consensus Mechanisms
So far, there are two main options in use that are the most common and make up the majority. These are Proof of Work and Proof of Stake.
Proof of Work allows for trustless and distributed consensus, important for an industry such as cryptocurrency. It involves the process of mining, best described as performing calculations to verify the legitimacy of transactions and create new currencies. The first miner to complete the calculation is rewarded with a new coin and the block is added to the chain.
This was the original design created for Bitcoin, for which the blockchain was created. While it was ideal for this use-case, there were some downsides. On the other hand, its defining feature was its decentralized design.
Proof of Stake is defined by the use of a stake in deciding who will create the new block. This stake is the number of tokens the individual holds. Someone holding more tokens will be more likely to be chosen as a validator for the next block. Rewards are derived from transaction fees as no new coins are created in the process.
A more recent addition to the industry, this option is more power efficient than PoW as it forgoes the ‘mining’ process. The upfront cost for the collateral negates this and puts into place a different barrier of entry.
As mentioned, Proof of Authority comes with several strengths over other options. In its design, it is similar to the PoS protocol while also sharing some elements with PoW. However, it is significantly faster at processing transactions thanks to the lack of need for communication between nodes. Adding to this is the fact that it requires less computational power than both these options, making it easier to set up and get involved.
Examples of Projects That Use PoA
There are some examples of projects that use the PoA protocol.
POA Network is one of the biggest examples and, as the name suggests, is a major focus of the project. Their goal is to develop this system as an alternative to PoS.
xDai from MakerDAO
xDai is an example of PoA in use. POA Network were the first to launch a blockchain where the native currency of the chain is stable to the USD. The xDai Chain, an Ethereum compatible sidechain where Dai is the native currency of the network, combines POA Network’s interoperability knowledge and technology with MakerDAO’s Dai, the permissionless, crypto-collateralized USD-stable coin.
The xDai Chain is a newly developed network, created by POA Network, that utilizes xDai. xDai is a representation of Dai on the new network as its native currency. This means that all transactions and gas costs are done in xDai.
On the xDai Chain, the native coin is the xDai. Transaction fees are fixed in Dai, effectively the same rate as USD. This new blockchain will leverage POA Network’s technology which, thanks to the strengths of PoA, ensures it runs fast, scalable, and cost-efficiently.
With a five second block generation time, transaction speeds of 60 tx/s are possible. Otherwise, with gas costs reaching as low as 1 Gwei per transaction, 500 transactions on the xDai chain will cost less than 1 cent.
ZINC utilizes this system for the purpose of blockchain based advertising, with its purpose-built solution allowing for improved scalability and lack of transaction fees.
The project is being developed using a Ethereum consortium network with POA consensus. This allows it to benefit from the inherent lower network costs, latency and solve scalability concerns associated with the consensus model. The Ethereum Clique proof of authority mechanism enables community members to select the authority nodes that can authorize transactions.
The selection will be made by people who are contributing the most to the community. In order to add a new authority node, all the current authority nodes must agree. A maximum number of blocks that an authority node can mine can be set as a kind of security measure.
Through this method, the network can keep its decentralized nature while ensuring no node has too much authority to negate attackers infiltrating the network. The idea is that the network validators will ’self-govern’ the platform due to being incentivized through given a stake in the platform.
The responsibilities these validators hold will be periodically audited by the Zinc foundation as another safety measure to ensure high security levels of all the nodes. Ultimately for Zinc, the POA consensus model offers more security compared to POS and more power than POW.
Consensus mechanisms are important elements of blockchains. It is arguably one of the biggest decisions to be made. They all have the same goal of ensuring information is verified before being added to their respective blockchain. Proof of Authority looks to use identity and, to an extent, reputation as a stake.
Validators are incentivized and encouraged through rewards, similar to PoS networks. However, PoA goes further to improve upon some of the problems PoS faces. This has much potential in securing the blockchains and increasing efficiency, while also posing some new risks. Several different cryptocurrencies make use of the protocol, with more likely coming in the future.
Try KuCoin as your Cryptocurrency Exchange
Bitcoin Exchange Guide News Team. (2018, July 19) Proof of Authority (PoA) Blockchain Network Consensus: How Does It Work? Retrieved from: https://bitcoinexchangeguide.com/proof-of-authority-poa-blockchain-network-consensus/Curran, B. (2018, July 5) What is Proof of Authority Consensus? Staking Your Identity on The Blockchain. Retrieved from: https://blockonomi.com/proof-of-authority/
Fortney, L. (2018, December 29) Bitcoin Mining, Explained. Retrieved from: https://www.investopedia.com/terms/b/bitcoin-mining.asp
POA Network. (2017, November 12) Proof of Authority: consensus model with Identity at Stake. Retrieved from: https://medium.com/poa-network/proof-of-authority-consensus-model-with-identity-at-stake-d5bd15463256
Shipley, L. (2018, February 12) The Higher Utility ~ The Zinc token. Retrieved from: https://medium.com/zinc_work/the-higher-utility-the-cvtoken-ee15641a6c8e
VeChain Foundation. (2018, May 8) Defining the VeChainThor Blockchain Consensus — Proof of Authority. Retrieved from: https://medium.com/@vechainofficial/defining-the-vechainthor-blockchain-consensus-proof-of-authority-8cf3f51a5fa0
Winco. (2018, September 21) Proof of Authority (PoA). Retrieved from: https://cryptocurrencyhub.io/proof-of-authority-poa-b8faad1c768e
Barinov, I. (n.d) Has the contract code for the POA Bridge been audited? Retrieved from: https://poanet.zendesk.com/hc/en-us/articles/360003713554-Has-the-contract-code-for-the-POA-Bridge-been-audited-MakerDAO Documentation. (n.d) Retrieved from: https://makerdao.com/documentation/
POA Network (2018, December 22) xDai Chain — Let the Decentralization Begin! Retrieved from: https://medium.com/poa-network/xdai-chain-let-the-decentralization-begin-1c6f2b255e58
POA Network. (2018, October 2018) POA Network partners with MakerDAO on xDai Chain, the first ever USD-Stable Blockchain! Retrieved from: https://medium.com/poa-network/poa-network-partners-with-makerdao-on-xdai-chain-the-first-ever-usd-stable-blockchain-65a078c41e6a
Zinc’s Whitepaper. (n.d) Retrieved from: https://token.zinc.work/whitepaper.pdf