December 27, 2022

What is Proof of Authority?

The Balance Ecosystem encompasses a wide range of innovative products and developments in various DeFi and Web3 technology areas.
Balance is poised to build bridges between the theoretical and practical sides of finance so that there is a means in which we can provide real-world solutions and create value driven products within the web3 space.

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Consensus, or a general agreement by and between a group of people, has been an integral part of civilization. It triggers an execution of a law, a proposal, or a new way of living. In the same manner, consensus determines whether a block must be mined or a transaction must be processed in a blockchain that is essentially immutable. Consensus initiates a permanent mark on a blockchain. In discovering the best way to have consensus, several mechanisms were designed. One of which is the Proof of Authority.

This article shall explore how Proof of Authority works and how it differs from the more popular consensus mechanisms.

How POA Works

When a Proof of Authority (POA) consensus method is used, the consensus to produce a block is reached when the authorized validator chooses to validate the transaction. This means that validators are authenticated with their identity and reputation. They are arbitrarily selected to carry the responsibility of making sure that transactions imprinted on the blockchain are secure.

Speed is the utmost priority in POA. With a limited number of validators, it requires little to no computing power to determine who shall validate the transaction. This means that this system is more eco-conscious as only minimal electricity is necessary. Since staking power is also not a factor to be validator, financial capital does not cause tyranny of votes - making all validators start on relatively equal footing.

Unfortunately, decentralization is compromised. Despite being scalable with the speed that it brings, the power to validate is concentrated on a small number of people. Not to mention, qualifying to be one entails a rigorous and limited process. Another con could be that validators are required to be publicly known, which may lead to manipulation or undue influence. Although from another perspective, this could be a pro as it adds more pressure for validators to uphold their values for the integrity of the blockchain.

Use Cases

Since the validators are selected with their identity and not entirely with their staking power, the POA system is suitable for private blockchains. In fact, some financial institutions are already utilizing this. Walmart, Microsoft, and even JP Morgan have been using POA to facilitate more secure yet efficient operations.

While decentralization is still the main focus of the Web3 economy, POA may open that path towards mass adoption during the infancy of blockchains. It embodies the speed and cost-efficiency that most Web2 services offer while providing an avenue for the public to be familiar with blockchain technology.