What Is Proof of Activity and How Does This Consensus Mechanism Work?

What Is Proof of Activity?

Proof of Activity is a hybrid consensus mechanism for crypto in which proof of work and proof of stake together decide whether a new block gets finalized. Simply put: miners start the process with computing power, and then selected coin holders help approve the block.

The original design appeared in 2014 and was created by Iddo Bentov, Charles Lee, Alex Mizrahi, and Meni Rosenfeld. The idea is that you do not rely entirely on one group. Mining first produces an outcome that is hard to fake. That outcome then randomly chooses which stakers get to take part.

A miner first finds a block header. That is a small piece of information that, among other things, points to the previous block. You can think of it as the starting proof for a new block. Based on that header, the system chooses coin holders who have to sign the block.

Important to know: Proof of Activity is often shortened to PoA, but that abbreviation is also used for Proof of Authority. That is a very different consensus mechanism, where pre-known parties validate blocks.

Key Takeaways

• Proof of Activity combines proof of work with proof of stake.
• Miners start block production with computing power.
• After that, coin holders are selected to sign the block.
• In the original design, the selection of stakers depends on the found block header.
• Proof of Activity is different from Proof of Authority, even though both use the abbreviation PoA.

How Does Proof of Activity Work?

In the original proposal, Proof of Activity starts with mining. Miners use proof of work to find a valid, almost empty block header. To do that, they have to calculate a huge number of hashes until one meets the network’s difficulty target.

Then comes the staking phase. The found header uses a method called follow-the-satoshi to assign a number of pseudorandom stakeholders. Pseudorandom here means the result looks random, but it still follows fixed rules that everyone can verify.

The chance that someone gets chosen depends on how many coins that person owns. So someone with more coins has a higher chance of being selected. The first selected stakeholders sign the header. The last selected participant collects the transactions, creates the complete block, and sends it out to the network.

In the original proposal, that complete block is called a wrapped block. It is basically the miner’s empty header, filled out with transactions and the required signatures from stakers.

Example: Suppose a miner finds a valid header and the protocol chooses four stakeholders. Three of them sign the header. The fourth adds transactions, puts everything into a full block, and signs it too. Only then can the block be broadcast.

Nodes then check whether everything follows the rules. For choosing between different versions of the blockchain, the original design follows the chain with the most total PoW difficulty, just like Bitcoin.

Are the selected stakeholders offline? Then that header may not be able to be completed. Other miners can then find new headers, which causes the system to select different stakeholders. Exactly how many signatures are needed and how rewards are split depends on the protocol.

What Role Do Mining and Staking Play in Proof of Activity?

Mining and staking each have their own role in Proof of Activity. Mining handles the PoW phase: miners use computing power to find a valid header or candidate block. Staking then handles the PoS phase: selected coin holders verify and sign the result.

Because of that, the design uses two kinds of economic resources for security:

• Hashrate: the total computing power miners put in.
• Stake: coins that determine how likely you are to be selected.

The idea behind that is pretty straightforward. Someone who only controls a lot of mining equipment cannot finish every block on their own in this design. Selected stakers also have to take part. On the other hand, stakers cannot start a new block without the mining phase.

The exact rules do vary a lot from one blockchain to another. Decred is a well-known example of a hybrid PoW/PoS system inspired by Proof of Activity, but it does not work exactly like the original proposal.

In Decred, PoW miners create blocks. Then five randomly chosen staking tickets vote on those blocks on-chain. At least three votes are required. For such a ticket, DCR is temporarily locked up. If the ticket votes successfully, the owner gets the staked DCR back plus a PoS reward. If the ticket is not available when it is called, it misses the vote and the reward too.

So staking does not automatically mean every holder always validates. You have to be selected, and in some designs you also have to be online at the right time.

What Is the Difference Between Proof of Activity and Proof of Work?

The big difference is that pure proof of work relies only on computing power, while Proof of Activity also needs selected stakers after mining to finish a block.

In pure PoW, miners compete with each other to find a new block. The miner with a valid result gets to add the block. In the original Proof of Activity design, mining still does that first job, but then an extra verification layer from coin holders is added.

So Proof of Activity does not make mining unnecessary. Miners still have to use hardware and calculate hashes. The energy and hardware costs of PoW do not disappear.

What it does aim to do is make an attacker account not only for hashrate, but also for the stake of selected participants. How much extra protection that really provides depends on how hashrate and coins are distributed, how many stakers are online, and what rules the protocol uses.

The original design aimed to possibly need less PoW security than a fully PoW-based system. That could lower energy use. But that is not automatic: a hybrid design still depends on mining and can therefore still use a lot of resources.

What Is the Difference Between Proof of Activity and Proof of Stake?

In pure proof of stake, validators are responsible for block production through stake, while Proof of Activity first needs a miner to start the process.

In a PoS system, validators lock up coins as collateral and are selected according to that network’s rules to create or verify blocks. No PoW mining phase is needed for each block.

With Proof of Activity, it works the other way around in two steps. First, a miner uses computing power to find a valid header. That header then determines which stakeholders sign and finalize the block. So Proof of Activity combines mining costs with participation based on stake.

By the way, proof of stake is not one fixed recipe. Ethereum, for example, uses Gasper. There, validators lock up ETH, vote on blocks, and can lose part of their stake for certain malicious actions. That is called slashing.

Decred is also not a pure PoS blockchain. There, miners create the blocks and selected tickets vote on them. That combination is exactly why Decred is better seen as a hybrid PoW/PoS design.

What Are the Benefits of Proof of Activity?

One benefit of Proof of Activity is that control over block production can be shared between miners and stakeholders. That means the network does not rely only on parties with a lot of computing power, and not only on large stakers either.

In the original design, someone who wants to create an alternative chain has to do more than just mine. That person also has to have enough influence over the selected stake, or get selected participants to cooperate. Under the design’s assumptions, that can make an attack more expensive and harder.

The staking phase can also give coin holders an incentive to keep nodes online. Miners usually have costs for equipment and energy. Stakers, according to the original model, have lower operating costs, which could make the balance between security and rewards more favorable.

A hybrid system can also tie extra features to staking. Decred shows that: selected tickets do not just validate blocks made by miners, they can also vote on preset changes to the consensus rules.

In Decred, ticket votes can also affect miner rewards. If a majority of the selected tickets rejects the previous block, the miner can miss out on the reward for it. That gives stakers in that protocol a way to slow down problematic mining behavior, like mining empty blocks.

These are properties of a specific design or protocol, though. The Proof of Activity label alone does not automatically tell you how much energy a blockchain uses or exactly how hard an attack is.

What Are the Limitations and Risks of Proof of Activity?

Proof of Activity does not completely remove the downsides of mining. Because the PoW phase stays in place, there are still energy costs, hardware costs, and pressure toward larger miners who can afford more resources.

Stake concentration is also still an issue. In the original follow-the-satoshi design, participants with more coins have a higher chance of being chosen as signers. That can mean they receive rewards more often and gain more influence.

Availability is a second practical risk. If a selected staker is offline, they cannot sign. In the original design, that can sometimes prevent a header from being completed. In Decred, an offline ticket at the time it is called leads to a missed vote with no reward. Whether a blockchain slows down because of that depends on the required number of votes and the fallback rules.

The rules are also more complicated than with one standalone consensus mechanism. You have mining, stake selection, signatures, rewards, and rules for different versions of the blockchain. That calls for careful code, audits, and clear protocol agreements.

In Decred, users can delegate tickets to Voting Service Providers, or VSPs. In theory, such a service could vote differently from the ticket owner’s preference. That would be visible, and users could switch to another service, but it is still a risk around delegation and centralization.

In short: a hybrid model can add extra hurdles for attackers, but it also keeps the risks of both mining and staking.

Where Is Proof of Activity Used?

Decred is a working blockchain with a PoW/PoS hybrid model inspired by Proof of Activity and an earlier design called MC2. It does not run the original Proof of Activity protocol exactly, but it does show well how mining and staking can work together in one system.

Since block 4,096, which was mined on February 21, 2016, every Decred block includes votes from at least three tickets. Those votes approve the contents of the previous block. So miners create blocks, but they need ticket holders to take part in validation.

The difference from the original proposal is mainly in the selection. Decred works with a pool of pre-purchased tickets that first have to mature. The original design selects stakeholders through follow-the-satoshi based on the header a miner just found.

Besides Decred, Espers is sometimes mentioned as a Proof of Activity use case. Its current operation and exact connection to the original design are not clear. That is why it is not correct to say that Proof of Activity is widely used today.

Conclusion

Proof of Activity is a hybrid way to handle consensus in crypto. Miners start block production with proof of work, and then selected stakers help verify and finalize the block.

That can spread control over a blockchain more than using only mining or only staking. At the same time, the system still depends on mining hardware, available stakers, and carefully chosen rules. Decred shows how such a hybrid approach can work in practice, even though it differs technically from the original Proof of Activity proposal.

For you, the main thing to remember is this: Proof of Activity is not a standard model you see everywhere, but an interesting design where two well-known forms of consensus come together.