How does the Proof of Authority algorithm work?

As blockchains become more viable for real-world applications, developers are seeking more efficient ways of achieving consensus. The Proof of Authority (PoA) consensus is similar to both the Proof of Work (PoW) and Proof of Stake (POS) algorithms. It combines a certain level of decentralisation with efficiency in a new protocol that requires less computational power.

It’s essentially a new way to solve the same problem. With this algorithm, nodes don’t need to solve complex mathematical puzzles to validate blocks anymore. The Proof of Authority (PoA) algorithm therefore enables scalable blockchains, as it uses a set of “authorities” to maintain the network.

What is the Proof of Authority algorithm?

The Proof of Authority algorithm is more recent than both the PoW and PoS consensus algorithms. It was proposed in 2017 as a solution for Ethereum-based blockchains by Gavin Wood, co-founder and former CTO of Ethereum.

Initially, the PoA algorithm was created to counter spam attacks on Ethereum’s Ropsten test network. However, the algorithm can power multiple types of systems, including supply chain solutions for companies.

The algorithm selects a limited number of nodes that are responsible for validating transactions according to certain strict rules. These nodes become the only ones responsible for keeping the network working.

How does the Proof of Authority algorithm work?

The difference between the PoS and PoA consensuses is that the latter leverages identity instead of the digital assets owned by each user. This means that reputation is more important than possession.

The network relies on a group of “authorities” who are pre-approved validators that verify transactions and build new blocks.

As the network using the PoA algorithm stakes identity, users wishing to become “authorities” need to voluntarily disclose their identity. Validators must comply with a series of rules to be considered trustworthy.

One of these requires them to be registered in the public notary database with the same identity they have on the platform.

For the network to function, more rules must be followed. Becoming a validator shouldn’t be easy. Candidates must go through a selection process in which they prove their long-term commitment to the network. They should also be ready to invest their money and put their reputation at stake during the selection.

Finally, the method for selecting authorities should respect standard rules to ensure that all candidates have an equal chance to reach the privileged position.

In exchange for revealing themselves and proving who they are with government-issued documents, validators get power and rewards. The number of “authorities” that validate transactions and blocks on the blockchain should stay small (around 25 entities). This way, the group can provide the efficiency and security necessary to keep the network efficient.

Of course, with the power in the hands of a limited number of users, it’s hard to talk about a decentralised network. That’s why the PoA consensus is seen as a solution for private networks rather than public blockchains.

The advantages of the Proof of Authority algorithm

Besides reducing the amount of power necessary to maintain the network, the Proof of Authority algorithm simplifies the validation process. The consensus also has a series of benefits that should be considered.

No need for sophisticated hardware

The PoW consensus algorithm requires high-performance hardware to solve the complex mathematical tasks necessary for validating blocks. In contrast, the PoA algorithm doesn’t need to solve puzzles to ensure the permanent connection between nodes. So, the validators don’t need special equipment to sustain the network.

Improved transaction rates

The Proof of Authority algorithm increases the speed at which the authorities validate transactions. Blocks are generated in a predictable sequence based on the number of validators, so the blockchain registers a higher transaction rate than PoW or PoS.

Tolerance to 51% attacks

The PoA consensus is supposed to be even more resistant to attacks than the PoW consensus. That’s because the network can’t be compromised by a user who manages to generate 51% of the computational power.

Getting control over 51% of authorities that aren’t connected directly is way harder than that. Plus, nodes are pre-authenticated, and if one of them is unavailable, the network can exclude it from the validation process.

Implementations of the PoA algorithm

The Proof of Authority consensus was first used for Ethereum’s Kovan testnet. Now, other known platforms use it to reach agreement on the blockchain, including POA Network and VeChain.

These start-ups have customised validation processes for authorities. In both cases, the network has rigid selection criteria in place for choosing validators, as their reputation guarantees the integrity of the entire system.

The takeaway

The Proof of Authority consensus algorithm is one of the best options available today for private blockchains. That’s because of its ability to reach consensus while maintaining some sort of decentralisation of the network. It could be a viable solution for corporations looking to implement in-house blockchain solutions to increase productivity.