“Proof-of-Work (PoW)” and “Proof-of-Stake (PoS)” are the two most popular consensus algorithms when cryptocurrencies are being discussed. However, these two options have their limitations. Although PoW offers a solid defense against DoS attacks, it requires a lot of computational power – expensive mining equipment and electricity. PoS, on the other hand, eliminates the need for miners but is a less secure option. Interestingly, Microsoft has introduced a rather new governance algorithm on its Ethereum blockchain product.
Microsoft announced in a blog post that its cloud platform Azure has introduced a proof-of-authority (PoA) algorithm. The blog post reads:
“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 simpler terms, PoA is a modified version of PoS. In PoS, instead of using miners to validate transactions, individual nodes, otherwise known as validators enjoy the benefit of validating transactions. Factors such as the size of the stake and how long an individual has held his stake are taken into consideration. However, this is not fail-safe because the network may still be hijacked. In PoA, instead of staking money, a validator’s identity plays the role of money. The identity of a validator on the platform must correspond to officially issued offline documents. This confirms that it is the same person both online and offline.
The new algorithm by Microsoft is reported to allow a more efficient way to build decentralized applications (DApps) for private and consortium networks since all the participants are known and reputable. Participants do not also need to compete to complete transactions as in the case of PoW.
Some of the features of the new Ethereum product is Parity’s web-assembly support, an identity leasing system, a Governance DApp, and Azure Monitor.
The web assembly support will simplify the process of building smart contracts. At the moment, Ethereum smart contracts are based on Solidity programming language. Through Parity’s web support, developers can create smart contracts and DApps using languages they are familiar with, such as Rust, C++, and C.
The platform’s identity leasing system allows each member to possess “redundant consensus nodes”, but no two nodes can carry the same identity.
Finally, the governance DApp is a solution to simplify how voting is performed and which validator gets to do what in the process of participation in a consortium.
With the pace at which the industry is moving, we should expect to see more innovations and improvements to blockchain solutions. In the coming years, I believe that only the best of the bests will survive.