The term Proof of Authority (PoA) was proposed by Gavin Wood, co-founder and CTO of Ethereum. It is a consensus algorithm based on the reputation of the network participants.
The interest of companies
This solution is highly sought after by companies, especially when it comes to logistics and supply chain.
The Proof of Authority, in fact, is particularly observed by the corporate sector as it allows companies to maintain a certain level of privacy and at the same time obtain some advantages offered by blockchain technology.
Since this mechanism does not involve any mining operation to validate transactions, there is no strict need for a native token on the blockchain to reward validators.
Obviously, a blockchain based on the PoA mechanism must follow some key rules in order to work properly.
First, validators must confirm their real identity. In addition, there must be a thorough and rigorous process of selecting validators that must always be the same for all candidates.
Once a candidate has obtained the status of validator, they must be monitored and the system must be able to allow for elimination in case of incorrect behaviour of the latter.
Pros and cons of the Proof of Authority
As can well be guessed, the Proof of Authority (PoA) mechanism does not fully respect the concept of decentralisation so dear to the cryptocurrency world.
This mechanism results particularly efficient, especially for private blockchains. In fact, this model requires a limited number of validators and this allows for high scalability compared to other mechanisms such as Proof of Work (PoW).
Blockchains with this consensus algorithm are able to guarantee a much higher throughput versus competing mechanisms.
In contrast, as there are blacklists and censorship measures, the notion of data immutability is lost.
Another criticism directed at Proof of Authority (PoA) is that the identities of the validators are public. As a result, these subjects can be potentially attacked by third parties interested in corrupting the system.