Consensus mechanisms are used by blockchains in order to validate cryptocurrency transactions and secure the network. Proof of Authority (PoA) is one such mechanism. Note that both the Proof of Authority and Proof of Activity consensus mechanisms, although different, take the PoA acronym.
Often compared to Proof of Stake (PoS), which depends on a validator’s economic stake in the network, Proof of Authority systems require participants to stake their identity and reputation in order to earn the right to sign off the hash and validate a new block. The right to generate a new block is granted to nodes that have proven their authority to do so.
These are participants with a verified network identity who maintain high levels of integrity and have established commitment to the network. The rationale here is that individuals are incentivised to preserve the network, as their reputation is — quite literally — at stake. This identity requirement stands in stark contrast to most blockchain protocols, which usually do not require users to reveal their identity to take part.
Because validators have to be identified, trusted, and selected by the network, Proof of Authority systems typically have a relatively small number of validating nodes. As a result, these protocols have faster block times and a much greater transaction throughput than many other consensus mechanisms, like Proof of Work (PoW), and they are highly scalable and less resource-intensive.
One criticism, however, is that utilising such a small group of known validators opens up risk for corruption and manipulation.
An example of a Proof of Authority consensus mechanism is the JPM Coin from JPMorgan. Other Proof of Authority-based projects include VeChain (VET) and Ethereum Kovan testnet.
