Believe it or not, the consensus algorithm may be one of the biggest achievements of the last few decades, and perhaps the century. While it doesn’t seem like such an amazing advancement for the entire global community, it just might be. For many, many years we have tried to establish a way to make data secure, immutable, and impervious to a physical disaster where it is being stored. A proper consensus algorithm can make this happen, and enable decentralization in a way that could not previously be maintained.
With the introduction of Proof of Work, and the explosion of blockchain mining that followed, we as a species discovered something new. When history views this time period, they may briefly discuss the hype that was Bitcoin, along with the crypto market as a whole, but the focus will be on the spark of ingenuity that led to decentralized computing, economies, and communities.
After we began to see the power of PoW, we also began to see the strains and limitations it caused. Intensive computing to solve complex equations makes for a secure way to create a new block on the chain, but the environmental impact, the costs associated, and the slow cycle time per block prevents many use cases from being realized. Thankfully, this same model was adopted to rely less on pure computation and more on the decentralized network of nodes to ensure consensus. From this, a number of different consensus methods were developed. The most widespread was Proof of Stake (PoS), but there is an emerging trend of platforms using the unique method called Proof of Authority (PoA), which is often used in private networks but is expanding to decentralized public networks, such as Cronos. Let’s explore PoA in detail, compare it to the more mainstream PoW and PoS, and examine some of the key use cases where PoA can really shine.
PoW vs. PoS vs. PoA
As stated above, PoW is achieved through intensive processing of complex math problems. When a new block is in the process of being created, it sends out this “math problem” for the nodes in the network to solve. These nodes, composed in many cases of blockchain miner operations (arrays of higher performance computers) compete to be the first to solve the equation, complete the block’s validation, and get rewarded with crypto. While incredibly secure, the process is far too slow for many practical blockchain use cases. It also creates a massive waste of resources, something that is causing a growing concern due to the amount of power needed and heat generated. Transactions per second (TPS), the amount of data that can be stored over time, and the complexity of the block creation process limit PoW from being a low cost, scalable solution.
PoS was created to address this, and does so by utilizing a chain’s native token. Instead of using intense calculations, the method allows users to run nodes when they stake a certain number of tokens. Then for each new block, the algorithm selects one of these nodes to create it, while the majority of the other nodes must validate it. In most versions of PoS, the more tokens staked, the higher the odds of being selected to create the next block. The reasoning behind this is that those who have the most staked have the most incentive to see the process run smoothly, to ensure the chain has a trustworthy reputation, and as a result the token does not lose value because the market no longer accepts it as a viable investment. This method has seen a great amount of success, but needs to reach a critical mass in order to reduce the risk of manipulation. The model becomes, essentially, a “pay to play” structure; those with the most assets can benefit the most. This element of the model also means that a person or group can use resources to get control of 51% or more of the nodes. If this happens, they can create a new node with false data, use the 51% to validate it, and in a way rewrite history to their benefit. These types of attacks have and will continue to happen when chains leave themselves vulnerable, or if the bad actor has enough resources and willpower to take over the chain. That said, many of the most successful blockchains are built around PoS, and with a much higher TPS than PoW, not to mention a fraction of the resources to run the chain, PoS has gained more popularity and adoption from platforms.
Proof of Authority seeks to address some of the risks and disparities of PoS while increasing the speed and efficiency of the network. Ironically, this model shares some key characteristics with models like Uber, AirBnB, and a democracy’s congress. With this model, instead of processing power or staked assets, the most important metric of value is reputation. Uber and AirBnB create trust where there was none before, because a person’s rating is critical for getting more work and bookings. If they were to treat a customer badly, it could reduce or eliminate their ability to find new customers. For PoA node validators, reputation is also critical. A small number of nodes are nominated and elected by the community to represent them. The network itself then conducts an intensive vetting process for the elected node owner, with steps such as KYC and even more invasive investigations. Clearly, this type of model gives up an element of anonymity for its elected node owners, and requires there to be at least a few centralized processes in place to conduct the vetting process. What are the advantages of this? There are several. First, with fewer nodes involved with block creation and validation, consensus can be reached much faster, meaning that TPS is significantly higher, there are fewer anomalies in the consensus process, and with the node validators gaining that role through a strong reputation, the level of trust tends to be much higher. Risks of PoA, other than a lean toward a centralized system (or at least a hybrid system), is that with identities known, there is a small chance that node owners could become targeted and compromised. Given the strengths and weaknesses, PoA has thrived in private chains used by enterprises, as they can better control who is a node owner and the reputation element is critical but also easier since all node validators are known by the community. That said, PoA shows promise in public chains as well.
Cronos Chain: A Case for Decentralized PoA
Cronos, a high profile chain using PoA, is an open-source project maintained by Crypto.org, and powered by the Cronos ($CRO) cryptocurrency. The ecosystem has a user community of more than 10 million crypto traders and gamers. After several years of development of the underlying technologies and of the chain protocol itself, Cronos launched officially in November 2021.
Cronos, while started by Crypto.com, is actually open-source and has expanded significantly in a short amount of time. Its use of PoA has been a strong contributor to the speed and the many use cases that require it. With such a strong, predictively fast TPS, new use cases that were previously unable to take advantage of blockchain power now can. Yet despite using PoA, Cronos is decentralized and open to a wide range of contributors and infrastructure partners. It will be interesting to watch the network grow, with new innovations developed that rely on a secure, fast, and decentralized ecosystem.
What’s on the Horizon?
PoS may be the most used consensus method right now, but there is a strong case to be made for the merits of PoA. For those networks where TPS (and the lower cost due to high efficiency) is key; where reputable actors can be identified; and where a decentralized system can manage the nomination and vetting process; PoA may just be the next game changer in the ever-evolving blockchain industry.
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