What is Proof of Authority (PoA) and how does it work?

What is Proof of Authority (PoA)?

Proof of Authority (PoA) is a consensus mechanism used by blockchains to validate new transactions and add blocks to the blockchain. A consensus mechanism is a system that determines whether a transaction is valid. This happens in blockchain technology in a decentralized manner, without a centralized party that manages everything, like a company. The type of consensus mechanism determines how this process works.

Consensus within Proof of Authority is achieved by nodes. You can function as a node in the PoA system by being selected based on reputation. You build this reputation by verifying your identity, consistently demonstrating honest and stable network behavior, operating transparently and being known as a reliable party within the ecosystem.

Based on that reputation, nodes are chosen that must collectively agree on whether a transaction is valid. Then, one of these nodes is allowed to create the block in which the transactions are processed. This keeps the blockchain operational and up-to-date.

The identity of nodes is usually public in Proof of Authority. Because of this, misuse can be detected and punished, which keeps the system fair. At the same time, this means PoA is less anonymous than many other blockchain solutions, an important consideration for users and projects that value anonymity.

Thanks to the reputation system, Proof of Authority works differently from well-known consensus mechanisms such as Proof of Work (PoW) and Proof of Stake (PoS). Blockchains that use these mechanisms rely on computing power (mining) or financial commitment (staking). Instead, Proof of Authority relies on a limited number of trustworthy validators chosen based on a strong reputation.

Key Takeaways

• Proof of Authority (PoA) is a consensus mechanism where transactions are validated by a small group of preselected, identified validators.
• Validators are chosen based on their reputation, identity and reliability, which makes misuse less attractive and allows errors to be traced to responsible parties.
• With a limited number of validators, PoA can process transactions very quickly, cheaply and energy efficiently, unlike PoW and PoS.
• PoA is mainly used in private blockchains, consortium networks, enterprise solutions and fast sidechains where control, scalability and predictability are more important than maximum decentralization.
• The downside of PoA is that it is less decentralized and may be more vulnerable to concentration of power or collusion among validators.

How does Proof of Authority (PoA) work?

Proof of Authority (PoA) works by selecting a small group of preapproved validators based on their reputation and identity. This means the system decides which companies or individuals may function as a node, validate transactions and ultimately add a new block to the blockchain. Unlike Proof of Stake, where financial stake is central, validators in PoA primarily put their real identity, reputation and responsibility at risk. This makes misuse less attractive and creates a reliable network with low computational requirements.

How the process works exactly depends on the blockchain. Specific steps can differ, but these are the core steps:

• Identity verification
  To serve as a node, you must go through a strict identity verification procedure, such as a KYC or KYB check where identity, reliability and background are reviewed. This ensures the validator is trustworthy.
• Assignment of validation rights
  After successfully completing the verification process, the new validator gains access to a node and can begin validating transactions. An important requirement is that the validator properly maintains their servers to continue validating safely. This means keeping the node software up to date. This keeps the system secure and ensures continuity of the network.
• Rotation or fixed order
  Based on a fixed or algorithmic schedule, validators are selected to produce new blocks. In practice, one validator often proposes a block while other validators review and approve the proposal. This usually occurs via a BFT-like system, where a majority must agree to reach consensus. The exact conditions vary per system.
• Reputation as security
  Because the identity of validators is known, the risk that they try to deceive the system is low. Their reputation is at stake. Misbehavior, abuse or causing failures can result in penalties such as losing validation status or even full exclusion. This incentivizes validators to behave reliably and securely.

Efficient, fast and reliable

Thanks to the combination of reputation, automation and identity control, PoA is a fast, energy-efficient and reliable system. Validation is highly efficient because a select group of validators has already been chosen. Compared to Proof of Work, where thousands of unknown computers perform complex calculations in an energy- and cost-intensive process, PoA is significantly more efficient.

Also compared to Proof of Stake, where participants risk financial stake, PoA is more efficient: validators do not need to lock large amounts of tokens but instead use their identity and reputation as a guarantee. This makes PoA especially suitable for networks that require high performance while maintaining control over who governs the network.

Why validate transactions in Proof of Authority?

Parties want to serve as nodes in a Proof-of-Authority network because it offers several advantages. These benefits depend on the network but often include:

• Incentives: Nodes receive financial rewards, such as block rewards or a share of transaction fees, paid in tokens.
• Influence in the network: Nodes gain influence, such as voting rights on new proposals when a governance system is used. This allows nodes to take part in decisions about the project’s future.
• Reputation building: Successfully validating transactions improves the validator’s reliability and reputation, increasing the likelihood of being selected again.
• Reputation as a company: Participating as a validator signals that a company operates reliably and professionally within the crypto sector, which can attract partners, customers and investors.

Where is Proof of Authority used?

Proof of Authority (PoA) is used by blockchains that require high scalability, predictability and reliability. Unlike networks such as Bitcoin, which rely on thousands of anonymous nodes, PoA networks depend on a limited group of preapproved validators. This allows PoA networks to operate faster and more efficiently but with less decentralization.

Proof of Authority is suitable for:

• Private and consortium blockchains
  PoA is widely used in closed or semi-closed blockchains such as private or consortium networks. In these systems, one or more selected organizations decide who may be a validator. Because validators are known and verified, it is clear who is responsible for block production and governance. With fewer validators, the network can process transactions quickly and efficiently.
• Businesses and institutions
  PoA blockchains suit companies that need a reliable, controllable and legally accountable infrastructure. In sectors such as transportation and logistics, a PoA model can help record supply chain processes on the blockchain. This ensures transparency, clear accountability and reduces the risk of fraud or data manipulation since validators are identifiable.
• Fast and low-cost transaction networks
  PoA enables fast, cheap and predictable transactions because only a small group of validators processes blocks. PoA is therefore often used by sidechains, testnets and some layer-2 ecosystems where scalability matters more than full decentralization. These networks use PoA to process transactions efficiently without relying on large numbers of anonymous validators.

Which cryptocurrencies use Proof of Authority (PoA)?

Within the crypto sector, several major projects use Proof of Authority fully or partially, such as:

• VeChain (VET) - VeChain is a blockchain focused on tokenizing business processes such as supply chain management. For example: when creating a handbag, each step in the production process can be recorded on the blockchain using QR codes and IoT sensors. This allows the entire journey, from raw material to delivery, to be tracked transparently and efficiently. The network uses a PoA variant called PoA 2.0. Within this mechanism, Authority Masternodes validate blocks. These masternodes are strictly selected beforehand based on identity, reputation and reliability. This controlled validator set allows VeChain to offer high transaction speeds, stable finality and enterprise-level security.
• Binance Smart Chain (BSC) - The Binance Smart Chain is a smart contract platform that uses a hybrid consensus mechanism called Proof of Staked Authority (PoSA). This mechanism combines Proof of Stake with elements of Proof of Authority. The Proof of Stake component determines which candidates are eligible to become validators, based on the amount of staked BNB and their technical performance. The Proof of Authority component ensures that only a limited, preapproved group of validators can actually produce blocks, which increases network security and stability. Each day, the network activates a set of 21 validators responsible for validating transactions and new blocks. This combination delivers fast block times, low transaction fees and an efficient network, but also means BSC is less decentralized than platforms like Ethereum.

Pros and cons of Proof of Authority

Proof of Authority has many advantages but also some drawbacks.

Pros:

• High transaction speed
  With fewer validators, blocks can be created quickly and cheaply.
• Low energy consumption
  No heavy computing power needed as in PoW.
• Reliability
  Validators are known and verifiable, reducing fraud or other misuse risks.
• Scalability
  Very suitable for large companies and applications with many transactions.

Cons:

• Less decentralization
  A small group of validators means more centralization compared to blockchain networks like Bitcoin and Ethereum.
• Potential risk of collusion
  If multiple validators collude, the network can be manipulated.
• Less suitable for fully open, permissionless blockchains
  Required identity verification does not align with blockchains where anonymity is a core value.

Final thoughts

Proof of Authority offers an efficient, energy-saving and reliable consensus mechanism for blockchains that prioritize speed, stability and clear governance. Because validators are preselected based on identity and reputation, PoA networks can process transactions extremely quickly and consistently without the high costs or complexity of other consensus models. At the same time, this approach brings less decentralization, making PoA especially suitable for private blockchains, consortium networks and enterprise solutions where control and accountability are central. For fully open and permissionless environments, it is less suitable, but within the right context, PoA can be a powerful and scalable solution.