Proof-of-Work is a Sybil-resistance mechanism that leverages computation costs to self-regulate the network and allow fair participation. This works great in anonymous, open networks where competition for cryptocurrency promotes security on the network. However, in private/consortium networks the underlying ether has no value. An alternative protocol, Proof-of-Authority, is more suitable for permissioned networks where all consensus participants are known and reputable. Without the need for mining, Proof-of-Authority is more efficient while still retaining Byzantine fault tolerance.
In Proof-of-Authority, each consensus node on the network has its own Ethereum identity. In the case that a node goes down, it’s important that the member doesn’t lose consensus participation. Ideally, each member would run redundant consensus nodes to ensure a highly available network presence. To accomplish this, we’ve built an abstraction which allows each consensus participant to delegate multiple nodes to run on their behalf. Each Azure Proof-of-Authority network comes with our identity leasing system that ensures that no two nodes carry the same identity. In the case of a VM or regional outage, new nodes can quickly spin up and resume the previous nodes’ identities.
According to Wikipedia:
In PoA-based networks, transactions and blocks are validated by approved accounts, known as validators. Validators run software allowing them to put transactions in blocks. The process is automated and does not require validators to be constantly monitoring their computers. It, however, does require maintaining the computer (the authority node) uncompromised. The term was coined by Gavin Wood, co-founder of Ethereum and Parity Technologies.
With PoA, individuals earn the right to become validators, so there is an incentive to retain the position that they have gained. By attaching a reputation to identity, validators are incentivized to uphold the transaction process, as they do not wish to have their identities attached to a negative reputation. This is considered more robust than PoS (proof-of-stake), as:
In PoS, while a stake between two parties may be even, it does not take into account each party’s total holdings. This means that incentives can be unbalanced.
Meanwhile, PoW uses an enormous amount of computing power, which, in itself lowers incentive. It is also vulnerable to attack, as a potential attacker would only need to have 51% of the mining resources (hashrate) to control a network, although this is not easy to do.
On the other hand, PoA only allows non-consecutive block approval from any one validator, meaning that the risk of serious damage is centralized to the authority node.
