A Guide to Consensus Algorithms on Blockchain Networks Part 15

Introduction to proof of authority consensus algorithms.


Proof of work (PoW) and proof of stake (PoS and its variations such as delegated PoS and Byzantine Fault Tolerance PoS) are the main consensus algorithms the public blockchain networks use today to create new blocks and enable users to transact on the networks.

However, blockchains do not all have to be public. Blockchains can also be private. For example, a group of banks can decide to have a private blockchain on which only the banks from the group will be able to post transactions.

Today, many companies are developing their own private blockchains for all kinds of purposes.

According to an article in Bloomberg from March 21, 2018, Google is developing its own blockchain technology and is planning to use it in the company’s cloud business. While the details are not known because Google is a private business, it is easy to determine what Google could do because networks such as Sia are already using blockchain technology to improve the experience of users and lower prices when it comes to cloud storage.

In December of 2017, journalists from CoinDesk have noticed that Apple has filed a patent application about applying blockchain technology to digital timestamps.

In its patent application, Apple says that the technology that it is working on would protect external storage elements such as SIM cards from being accessed in case a card or a mobile device gets into the hands of thieves or hackers.


Proof of Authority

Proof of Authority is yet another consensus algorithm, yet this algorithm has a disadvantage of being centralized, which is why no popular public blockchain uses it today but it is very possible that blockchains by private companies such as Google and Apple will be using proof of authority in the future.

In proof of authority, only confirmed accounts get to approve transactions and create blocks of the blockchain. The problem with this approach is that somebody needs to be confirming the accounts. Allowing parties to confirm accounts if they do work would change this algorithm into proof of work. Allowing parties to issue confirmations based on the stakes of the parties in a network would change the algorithm into proof of stake. However, this does not mean that proof of authority does not have future in the blockchain world. Even today there are several network that are using it, including POA Network, an Ethereum-based smart-contract platform.

The idea behind proof of work is that to seal blocks of blockchain miners need to do hash calculations, which in turn require electricity and hardware. Electricity and hardware are scarce resources in the sense that nobody has access to unlimited free electricity or free unlimited hardware, so in essence miners on proof of work networks exchange valuable physical resources into value on proof of work blockchains.

On proof of stake networks stake holders need to have active deposits in the form of network currency, which is also a scarce resource.

The POA network takes an approach that is similar conceptually, but very different when it comes to implementation. On the POA network, the proof of authority algorithm uses identities to determine stakes because identities are a scarce resource in a sense that there can only be one identity per person. Conceptually, this is the same approach that proof of work uses with electricity and proof of stake uses with coin holdings.

An identity stake on the POA network means that a user voluntarily discloses his or her identity in exchange for a right to validate the blocks of the blockchain of the network. Obviously, users who disclose their identities are interested in the network functioning properly and would not attempt to attack the network when the whole world knows about their identities.

Obviously, for this approach to work, identities need to comply with a strict and robust process of identity verification. Eligibility to participate in the process needs to be hard to obtain, otherwise people would not value their status of being a validator on the network. Finally, the procedure of identity verification and establishment of the authority needs to be the same for all the members of the network.

As it turns out, making all these steps work is not very difficult because the society has been working with identities and documents verifying identities for a long time.