CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What does PoA mean in crypto?

Proof of Authority

What is proof of authority (POA)? The term was coined by Ethereum co-founder Gavin Wood in 2017. Proof of authority definition in cryptocurrencies refers to an alternative consensus mechanism that attempts to make networks more scalable by leveraging the identities of its participants. 

Proof of authority blockchain, is positioned as an improved version of the proof of work (PoW) and proof of stake (PoS) algorithms. 

How does proof of authority work?

Carrying out crypto transactions requires a distributed network of nodes within a blockchain system. Crypto proof of authority involves a network of participants sharing their identity to produce blocks.

Due to this feature, the PoA consensus mechanism has an inherent transparency and smooth functioning considering the users involved aren’t hiding behind any proof of authority coins or arbitrary tokens.

While the settings for a PoA algorithm may differ in various environments, there are some basic conditions which must be met for it to work: 

  • Presence of ‘validators’, who are essentially individuals confirming their real identities to run the blockchain.

  • A standardised validator approval mechanism, which applies the same set of rules and checks for every potential validator.

  • A rigorous selection system for a candidate to become a validator to ensure any unreliable elements are filtered out responsibly.

Advantages and disadvantages of PoA

PoA is often regarded to be an improvement over earlier consensus mechanisms of PoW and PoS. Under PoA, the need for specialised equipment as well as computational resources are relatively limited. 

The PoA system enables transactions per second. Plusm the fact that validators share their real identities to run the blockchain makes it likely they will remain more committed and motivated to run the network responsibly.

However, many argue that the PoA mechanism defeats the decentralisation concept on which crypto transactions are based, as it sacrifices anonymity of validators. Additionally, considering validators have to make their identities public under PoA, they tend to be established players in the crypto market and an outsider may not get a fair competing ground to become a validator.

Proof of Authority

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 580.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading