What is Proof of Authority in Blockchain?

In an age where banks are collapsing once again, it is important to revisit the founding of cryptocurrency and get a sense of its poignance. Bitcoin emerged at a time when the failures of banking were in the public eye, but now, with history repeating itself, blockchain is so much more than Bitcoin.

The proof of work consensus algorithm at the heart of Bitcoin was one of the key innovations in both computing and finance for a long time, but we now have many more options. Proof of stake is the main contender for proof of work’s crown, but several prominent blockchain projects employ the proof of authority consensus mechanism.

So, why are consensus algorithms important, and how is proof of authority different from proof of work and proof of stake? Read on to find out!

What are Consensus Algorithms?

Blockchains are decentralized public ledgers, which means their main purpose is to keep an immutable record of past transactions. This sounds simple, but it’s actually quite revolutionary, given the difficulties inherent in ensuring immutability and being legitimately decentralized.

Transactions in a blockchain network are grouped together into blocks that link back to each other in a chain using a hash of the block’s contents. If you go back and change a transaction, you change the hash, making the chain break.

Added to this mechanism is the fact that blockchains run on multiple nodes. In Bitcoin or any other proof-of-work network, the nodes that add blocks to the blockchain are called miners. They propose blocks and then come to an agreement on whether or not the block’s contents are correct. This is called consensus.

Every blockchain that runs on multiple nodes and is, therefore, decentralized needs a consensus mechanism. Without one, it’d either be down to a bunch of different nodes proposing their own versions of what happened and never agreeing, or a single centralized entity calling the shots.

What is Proof of Authority?

The reason that many different consensus algorithms exist is partly due to something called the “blockchain trilemma.” Simply put, the blockchain trilemma means that it’s difficult for a system to score highly on all three factors of decentralization, security, and scalability.

Bitcoin is a great example of this. It’s extremely decentralized and secure, but not scalable. Bitcoin blocks can contain only a limited number of transactions, and they’re ten minutes apart to boot.

Ethereum has at times shown this as well, and the resulting gas fees at times of high traffic have often made the blockchain unusable for smaller transactions. Nevertheless, both Bitcoin and Ethereum prize decentralization and security over scalability.

Proof of authority takes another tack. Instead of compromising scalability out of the three, it embraces scalability instead and compromises decentralization. By reducing the number of block producers and validators on the network and trusting them via some sort of vetting process, it can make a network extremely fast.

For this reason, private blockchains can be said to be running proof of authority. Blockchains in the public domain that are yet owned by private companies also tend to use proof of authority since a certain measure of control can be applied to the network.

How does Proof of Authority Work?

As mentioned, proof of work consensus has miners proposing and validating a blockchain’s blocks. With proof of stake and its derivatives, this duty falls to nodes named validators.

Proof of authority also has validators, but the primary condition is that they, or more precisely, the operators of these nodes, are somehow vetted. Given that proof of authority blockchains are run by private entities, it would be these entities themselves that carry out the vetting procedures, whatever they are.

Therefore, proof of authority validators may have to meet and uphold certain standards. It may be possible to apply to become a validator on a proof of authority network, but that’s not necessarily true in all cases.

Generally, proof of authority networks also bring in elements of proof of stake, whereby validators are willing to buy and bond a certain amount of network currency to the protocol. This allows them to receive payment for serving as a validator and keeping the network in good order.

It’s entirely possible to run a proof of authority blockchain without this proof of stake element, though. Imagine setting up a blockchain in your home, with a handful of your household’s computers acting as validators at your discretion.

Proof of Authority Benefits

So, what benefits does proof of authority confer? Take a look at the list below:

• Scalability. Because it’s easy to ramp up scalability, proof of authority blockchains tend to be some of the fastest out there.
• Computing power. It’s generally possible to run a validator node on a proof of authority network with minimal computing power since the network securing element comes via vetting and the fact that a validator attains trusted status.
• Conflict resolution. If something goes wrong or there’s a network breach, it’s generally easy to sort out since all validators are on the same page. On a truly decentralized network, these things can be very tricky, such as with the DAO hack in Ethereum’s early days.

Proof of Authority Drawbacks

Despite the performance advantages of using proof of authority, most of the top blockchain projects don’t use it. Here’s why:

• Centralization. This is a key, inescapable fact when it comes to proof of authority blockchains. Given what it means for the system, centralization is no mere byproduct of architecture—it’s a design decision.
• Lacking immutability. With centralization comes a risk to the blockchain’s immutability since the controlling entity has ultimate leverage over the validators. If something happens on the blockchain that threatens its owners, the likelihood of a rollback is huge.
• Censorship resistance. It’s possible that proof of authority blockchains may be less censorship resistant than more decentralized chains since there are fewer validators to censor. If the project is controlled by a private organization, it’s possible for pressure to be put on that organization to censor or shut down the project.

Proof of Authority vs. Proof of Work

Proof of work consensus revolves around the network’s miners, who race each other to solve cryptographic puzzles that, when won, confer the block reward along with the right to produce a block.

The difficulty of this puzzle is what determines how secure the blockchain is. The more miners and computing power on the network, the more difficult mining becomes. This translates into a relatively consistent block time as well.

With proof of authority, however, security comes not from difficulty but from the authority given to validators. Different PoA networks do it differently, but ultimately, the validators are trusted to a certain extent. So it’s possible to compare this to a seller’s rating on eBay, for instance.

Proof of Authority vs. Proof of Stake

On the other hand, proof of stake lets holders of a certain amount of network coins play the part of a validator. These stakers have a chance to produce a block proportional to the number of coins they’ve staked.

Proof of stake can be compared to proof of authority because stakers also hold a certain amount of authority in the network. However, this is assured by investment in coins rather than some sort of approval process.

It’s fairly common to see blockchain projects hybridize these two systems, deploying a vetting mechanism and requiring validators to stake a significant amount of network coins. This may still be centralized, but it is more trustless since it’s assumed validators will behave properly to protect their stake.

Which Blockchains Use Proof of Authority?

Proof of authority is a robust method of achieving blockchain consensus despite its downsides, and it provides excellent performance. For this reason, it’s been used in several projects since its proposal by Polkadot founder and Ethereum co-founder Dr. Gavin Wood in 2017.

#1. VeChain

VeChain uses a modified proof of authority consensus mechanism with 101 Authority Masternodes responsible for block production and validation. There’s a proof of stake element here in that these nodes also have to stake VET, but to attain Authority Masternode status in the first place, they need to be vetted and granted permission.

#2. BNB Chain

BNB Chain, which used to be called the Binance Smart Chain, also uses proof of authority for consensus. It’s a significant part of the Binance cryptocurrency exchange’s ecosystem, so proof of authority is ideal for making the chain performative but also under Binance’s control. It also includes a Tendermint proof of stake module, but validators are chosen by Binance.

#3. Hedera Hashgraph

While not a proof of authority network per se, Hedera Hashgraph uses a rotating governing council consisting of a number of permissioned organizations that run validator nodes. While decentralized proof of stake is planned for the future, HBAR remains a hybrid proof of authority system.

The Future of Proof of Authority

It can’t be suggested that proof of authority fulfills the classic requirements of blockchain or its founding vision, but it’s more than likely that it will continue to have a future in the industry going forward.

Not every blockchain-based project could or should be another Bitcoin or Ethereum, and smaller projects can come to an early demise if opened up freely to validators right from the start. For this reason, proof of authority can be a very valuable consensus before transitioning to decentralization or for smaller projects to remain secure.

Key Takeaways

Proof of authority, or PoA, is a consensus mechanism often favored by private blockchains or blockchains launched by companies wanting to remain in control of the project.

In PoA, validators are vetted by the entity or entities in control of the project as a whole and are granted the authority to produce and validate blocks. It’s quite common to implement a proof of stake module in addition to this to further incentivize validators.

Proof of Authority is widely used in the blockchain industry, including projects like BNB Chain and VeChain. At the end of the day, PoA blockchains compromise on decentralization but are secure and often extremely scalable.

Proof of Authority FAQ

• What is Proof of Authority?

  Proof of Authority is a consensus mechanism for blockchains that limits the number of validator nodes and requires them to be vetted and permissioned in some way. It’s the most common consensus mechanism used by private blockchains.

• How is Proof of Authority different from Proof of Work?

  You can set up a mining farm for any number of proof of work cryptocurrencies without any restrictions, but proof of authority blockchains will. They’re much less hardware intensive, though, and all that’s needed is a server.

• How is Proof of Authority different from Proof of Stake?

  Proof of stake requires validators to buy and bond a certain amount of the blockchain’s native coin. This then gives them the authority to become validators, but it isn’t usually permissioned in any way.

• Is Proof of Authority used by any Blockchains?

  Yes. VeChain is one of the best-known blockchains using proof of authority, and BNB Chain does so too. If you investigate the Polkadot and Cosmos ecosystems, you’ll likely find a few PoA blockchains kicking around.