The blockchain space has improved greatly since the first consensus algorithm, Proof of Work (PoW), was established. Due to the limitations of the PoW algorithm, the PoS was proposed as a better option to scale transactions in Blockchain. Yet, more alternative methods of reaching consensus were introduced to keep solving the problem of scalability in Blockchain.
One of the most recent algorithm mechanisms is called Proof of Authority. It was coined by Gavin Wood, co-founder of Ethereum and Parity Technologies. In a Blockchain network that is run on a PoA algorithm, transactions and blocks are validated by approved accounts, known as validators.
These validators operate software that enables them to put transactions in blocks. The validation of transactions is automated and does not require validators to be constantly monitoring their computers. But they must constantly ensure that their Authority node is uncompromised.
Unlike the PoS mechanism which selects validators based on the number of tokens they own, the PoA selects validators based on their reputation. By attaching a reputation to identity, validators are incentivized to uphold the transaction process, as they risk tarnishing their reputation if anything goes wrong.
More so, the Proof of Authority is seen as a more efficient alternative for both private and public networks because it can perform many more transactions per second. When it comes to supply chains, for example, PoA is considered an effective solution for validating transactions on the Blockchain.
The Proof of Authority mechanism enables companies to maintain their privacy nature while profiting from the benefits of blockchain technology. When Polkadot launched its Beta phase last year, it was as a PoA network, before switching to a PoS for its full release. Also, a Blockchain network that is currently using the PoA algorithm is Vechain Blockchain.
Risks and Issues with Proof of Authority
Just like previous mechanisms like PoW and PoS, PoA also has some limitations. Due to the fact that the validators have to be identified, trusted, and selected by the network, the number of nodes that run the network is usually small. This results in the risk of such a network becoming heavily centralized.
In addition, due to the fact that PoA networks mostly accept individuals with established reputation as their validators, attaining that role can be out of reach for an ordinary person.