What is proof of authority?

Proof of authority is a consensus algorithm used in different permissionedPermissioned blockchains are a mix of public and private blockchains; anyone can join the network, but only authorized users are allowed to mine the blocks. and private blockchainIn private blockchain networks, people can join the network only through an invitation. networks. In proof-of-authority-based blockchains, the identity of a particular node is at stake rather than computational power or stake, like in proof-of-work- and proof-of-stake-based blockchains. Only trusted individuals can validate transactions and create new blocks in proof-of-authority-based blockchains.

The trusted nodes are also known as authorities. The authorities are selected based on their expertise, stake, or reputation in the network. Authorities must identify themselves using digital certificates or via another form of verification. This approach puts the responsibility of any malicious activity on that node.

Terms for proof-of-authority consensus

A user must meet the following basic requirements:

• A validator must be trustworthy: It is mandatory that the validator demonstrates good moral standards and does not have a criminal record.

• Identity validation: Validators on the network must undergo a formal validation process, and it is important that their information can be verified publicly. This means that the network confirms the validators’ real identities.

• Willingness to invest on the platform: A prospective validator should be ready to invest capital and stake their reputation. Implementing a thorough selection process helps minimize the chances of choosing unreliable validators and promotes their long-term dedication to the network.

Advantages of proof of authority

Proof-of-authority-based blockchains provide us with some advantages, like the following:

• Since providing identity in proof-of-authority-based blockchains is mandatory, Sybil attacks are not feasible because a node has an associated identity, so a malicious user cannot manipulate the blockchain with multiple votes.

• Validating a block is not computationally extensive, requiring less computational resources, unlike proof-of-work-based blockchains.

• The transaction speed is faster in proof-of-authority-based blockchains.

Disadvantage of proof of authority

One big disadvantage of proof of authority is that it is more centralized as vendors are preapproved. In proof-of-authority-based blockchains, the authorities are known entities, so their privacy is compromised along with the anonymity in the chain. Reputation is not always enough to keep participants from malicious actions. A participant can harm the system if the reward for fraud is more valuable than the reputation.

Real-world examples

Some real-world examples where proof of authority is very helpful are the following:

• Supply chain management: Supply chain operations can be monitored easily using proof of authority because all the entities involved can be verified by authorities, and in the case of supply chain systems, it makes sense to stick with proof of authority. Only the entities involved in an operation need to validate the block.

• Identity verification: We can use proof of authority to verify and authenticate identities.

• Governance: The process of voting can be improved using proof of authority. Since in proof of authority, one account/node is associated with one person only, it would make the voting process fair as well.

Proof of authority is a good way to ensure a blockchain is secure and fast. It works well for private and group networks where everyone knows and trusts each other. However, setting up the rules and penalties fairly is crucial to keep the network running smoothly and safely.