What is a credential?

What is a credential?

This is a consensus system that allows only authorized entities to validate transactions on a blockchain network.

An important element of the development of blockchain technology is consensus mechanisms. After the development of the original Proof-of-Stake (PoS) and Proof-of-Work (PoW) methods, other consensus mechanisms came into play.

One of these consensus mechanisms is Proof-of-Authority (PoA), which was introduced as a more energy-efficient alternative to PoS because it requires fewer computational resources.

This guide explains the principles of the PoA network.

Proof-of-Authority explained

Proof-of-Authority is a consensus algorithm that provides an efficient solution for blockchains, especially private blockchains. The term was coined in 2017 by Gavin Wood, a co-founder of the Ethereum blockchain.

With Proof-of-Authority, machines earn the right to generate new blocks by going through a rigorous verification process, which is explained in more detail in the next section. As a result, trusted validation machines protect PoA blockchains. These system moderators are pre-approved participants that verify blocks and transactions.

The proof-of-authority model is scalable because it is based on a small number of block validators. VeChain (VET) is an example of a popular platform that uses a PoA algorithm.

How does the proof-of-authority process work?

Pre-approved validators use software to organize transactions into blocks. The process is automated so that verifiers do not have to constantly monitor their computers. However, this means that auditors must keep their computers (administrative sites) in good working order.

Conditions for proof-of-authority consensus.

Although conditions vary from system to system, a user must meet the following three basic requirements to be selected as a validator:

  • A validator should be trustworthy, morally sound, and have no criminal record.
  • The identity of a validator must be formally validated on the network, with the possibility of cross-checking publicly available information. In this way, the actual identity of the validator is confirmed.
  • A validation candidate should be willing to invest money and put their own reputation on the line. A rigorous process reduces the possibility of selecting questionable validators and encourages long-term commitment.

At the core of the reputation mechanism is trust in the identity of the validator. It is a complex process that ensures weak candidates are weeded out. This ensures that all validators follow the same procedure, ensuring the integrity and reliability of the system.

Let's take an example of a reputation evaluation mechanism on eBay (EBAY). Initially, all sellers are subject to the rules of the platform and feedback from buyers.

A seller with a 100% positive rating earns the trust of buyers, which affects eBay's trust and reputation. Sellers with low ratings, on the other hand, receive warnings and fewer seller privileges. Sellers who consistently receive low positive ratings are weeded out by eBay, allowing reputable sellers with high positive ratings to continue selling on the platform.

Just as reputation is critical on eBay, reputation is critical for verification on PoA.

Users who earn the right to become validators based on the PoA algorithm have an incentive to keep their ratings high. Validators are motivated to maintain a stable transaction process to avoid damaging their reputation, which is tied to their real identity. Consequently, most users value their hard-won role as validators.

Proof-of-Authority Consensus Conditions.

Although conditions vary from system to system, a coherent PoA algorithm depends on the following:

  • Individuals who are active and trustworthy (validators who must identify themselves).
  • Validators who are willing to invest money and risk their reputation. A rigorous process reduces the possibility of selecting questionable validators and encourages long-term commitment.
  • A standard for approving validators: every validator follows the same process, ensuring the integrity and reliability of the system.

Advantages of Proof-of-Authority

PoA differs from other consensus mechanisms such as PoW and PoS in two main ways:

  • More transactions can be executed per second.
  • Fewer computing resources are required.

Disadvantages of Proof-of-Authority

The PoA mechanism is considered centralized because validators are pre-approved. This consensus algorithm model is primarily an attempt to improve the efficiency of centralized systems. Although PoA systems have high bandwidth, aspects of immutability are questioned because censorship and blacklisting are easy to implement.

Another common criticism is that everyone has access to the identity of PoA validators. The counter-argument is that only recognized players can hold this position, and they will always strive to become validators (as publicly known participants). However, knowing the identity of the validator may allow third parties to manipulate the system.

Final considerations.

There is no perfect consensus mechanism, as each has advantages and disadvantages. Although decentralization is considered an advantage by the cryptocurrency community, PoA sacrifices decentralization to achieve high performance and scalability.