Since the first blockchain transaction was executed on the Bitcoin network, the world of digital currencies has changed dramatically. In addition to the well-known proof-of-work and proof-of-stake algorithms, other consensus mechanisms and methods of reaching consensus within blockchain systems are also beginning to be known.

The proof-of-work algorithm used by Bitcoin is the most reliable and secure algorithm available today. But it's not really scalable. Bitcoin and other proof-of-work based blockchain networks have limited performance in terms of transactions per second (TPS). This limitation is related to the fact that Bitcoin relies on a distributed network of nodes, as nodes need to agree on the current state of the blockchain. This means that a new transaction block needs to be verified and approved by a majority of nodes in the network before it can be confirmed. Therefore, the distributed nature of the Bitcoin network, while providing a secure and trustless economic system, also limits its use on a larger scale.

Proof-of-stake blockchains generally outperform Bitcoin in terms of transactions per second. However, the difference is not significant, and proof-of-stake networks don’t really solve the scalability problem.

In this case, Proof-of-Authority becomes a more efficient alternative because it can perform more transactions per second.

What is a proof of authority?

Proof of Authority (PoA) is a reputation-based consensus algorithm that introduces a practical and effective solution to blockchain networks, especially private chains. The term was coined in 2017 by Gavin Wood, co-founder and former chief technology officer of Ethereum.

The authoritative proof consensus algorithm uses the value of identity, which means that being selected as a block validator depends not on the mortgaged digital currency but on personal credibility. Proof-of-authority blockchains are therefore protected by verification nodes from trusted entities.

The Proof-of-Authority model relies on a limited number of block validators, making it a highly scalable system. Blocks and transactions are verified by pre-approved participants, who act as stewards of the system.

The authority proof algorithm can be applied in various scenarios, and it is considered a priority for logistics applications. For example, in the context of supply chains, proof of authority is considered an effective and reasonable solution.

The Proof-of-Authority model enables companies to leverage blockchain technology while protecting their privacy. Microsoft Azure is another example of implementing proof of authority. Simply put, the Azure platform provides solutions for private networks. Since mining is not required, the system does not require native tokens like "gas".

Proof of Authority VS Proof of Equity

Some people think that Proof of Authority is an improved version of Proof of Equity. Because it uses identity rather than currency. Due to the decentralized nature of most blockchain networks, proof-of-stake is not always suitable for certain businesses and companies. In contrast, Proof-of-Authority may be a better solution for private blockchains because its performance is much higher.

Conditions for proof-of-authority consensus

While conditions may vary from system to system, proof-of-authority consensus algorithms generally require the following characteristics :

• Valid and trustworthy identity: Verifiers need to confirm their true identity.

• The conditions for becoming a validator are demanding: candidates must be willing to invest and stake their reputation, which also reduces the risk of suspicious validators being selected and incentivizes long-term investment.

• Criteria for passing the verifier: The method of verifier selection must be consistent.

The essence of the reputation mechanism is the determination of the identity of the verifier. This is not a simple process, nor is it one that can be given up easily. It must weed out unqualified members. Ultimately, all validators need to go through the same process to ensure the integrity and reliability of the system.

Limitations

One view of authoritative consensus is that it abandons decentralization. Therefore, it can be said that this consensus algorithm model is only to improve the efficiency of centralized systems. While this has proven to be an attractive solution for larger companies with logistical needs, it does have some drawbacks - especially within the scope of digital currencies. Authoritative consensus does have high throughput, but the irreversibility aspect is a problem when things like censorship and blacklisting can be easily implemented.

Another common criticism of authoritative consensus is that anyone can see the identity of the authoritative consensus validator. Critics argue that only senior people who are qualified for the position will want to become a validator (as a publicly known participant). However, knowing the identity of the validator could lead to manipulation by a third party. For example, if a competitor wants to disrupt a network based on authoritative consensus, he may try to incite public opinion that the validator is cheating, thereby disrupting the internal system.

Proof of Work, Proof of Stake, and Proof of Authority all have their own advantages and disadvantages. As we all know, decentralization is highly valued in digital currencies, and as a consensus mechanism, Proof of Authority removes decentralization to achieve high throughput and scalability. The inherent characteristics of proof-of-authority systems are in stark contrast to the way blockchains have operated to date. Nonetheless, Proof-of-Authority also presents an interesting mechanism, so it cannot be ignored as an emerging blockchain solution, and it may be well suited for private blockchain applications.