What Is Proof-of-Activity (PoA)?

Proof-of-activity (PoA) is a blockchain consensus algorithm used in cryptocurrencies and similar systems. It is used to ensure that all transactions occurring on the blockchain are genuine, as well as to ensure that all miners arrive at a consensus. PoA is a combination of two other blockchain consensus algorithms: proof-of-work (PoW) and proof-of-stake (PoS).

Key Takeaways

  • Proof-of-activity (PoA) is a blockchain consensus algorithm that is a combination of two other blockchain consensus algorithms: proof-of-work (PoW) and proof-of-stake (PoS).
  • The PoA system is an attempt to combine the best aspects of both the PoW and the PoS systems; the mining process begins like a PoW system, but after a new block has been successfully mined, the system switches to resemble a PoS system.
  • Decred (DCR) is the most well-known cryptocurrency that uses the PoA consensus mechanism.

Understanding Proof-of-Activity (PoA)

Bitcoin, the most popular cryptocurrency, uses the PoW consensus algorithm. A special feature of this algorithm is that it increases the difficulty level of mining as time passes by. This method also prevents the bitcoin network from being hacked. However, because the difficulty of mining increases more and more computing power must be used. As a result of there being more energy consumption, there are more costs involved (including the costs of wear and tear on the hardware).

With a PoW system, a miner can mine or validate transactions based on the amount of effective work they have already contributed to the blockchain. As energy and hardware costs spiraled upwards, as a result of increased mining difficulty in PoW networks, the PoS system emerged as an alternative.

With a PoS system, a miner's ability to mine or authenticate transactions depends on how many cryptocurrency coins they hold. Although the PoS system achieves a reduction in electricity bills, an unintended side effect of it is that it can promote coin hoarding (rather than spending).

Both PoW and PoS systems are intended to prevent the likelihood of a 51% attack—a situation where a group of participants gains control of more than half the network's mining computing power. The danger of a 51% attack is that that group can then have full control of the network, including the power to halt new transactions from getting confirmed, stop payments between various blockchain users, and even reverse the transactions completed in the past during their control of the network, allowing them to double-spend the cryptocurrency coins.

PoA also prevents the chance of a 51% attack, like in POW and POS, because it is impossible to predict who the signing peer would be in the future, and coin saving competition among signers does not allow the computing power to be accumulated within a group.

Special Considerations

Mining Process in a Proof-of-Activity (PoA) System

The PoA system is an attempt to combine the best aspects of both the PoW and the PoS systems. In PoA, the mining process begins the same way as in a PoW process, with various miners trying to outpace each other with higher computing power to find a new block. When a new block is found (or mined), the system switches to PoS, with the newly found block containing only a header and the miner's reward address.

Based on the header details, a new, random group of validators from the blockchain network is selected; they are required to validate or sign the new block. The more coins a validator owns, the more chances they have for being selected as a signer.

Once all the validators sign the newly-found block, it gains the status of a complete block, it gets identified and added to the blockchain network, and transactions start getting recorded on it. In the event that some of the selected signers are unavailable to sign the block to completion, the process moves to the next winning block with a new set of validators being chosen at random (depending on their coin stake). This process continues until a winning block receives the required number of signers and becomes a complete block. The mining fees/rewards are split among the miner and the various validators who contributed in their respective roles to sign off on the block.

Since the PoA system marries PoW and PoS, it draws criticism for its partial use of both. Too much power is still needed to mine blocks during the PoW phase, and coin hoarders still have more chances of getting on the signers' list and accumulating more virtual currency rewards.

Example of Proof-of-Activity (PoA)

Decred (DCR) is the most well-known cryptocurrency that uses the PoA consensus mechanism. With Decred, blocks are created about every five minutes. The mining process for Decred begins with nodes (computers that participate in the network) looking for a solution to a cryptographic puzzle with a known difficulty level in order to create a new block. So far, this process resembles a PoW system.

Once the solution has been found, it is broadcast to the network. The network then verifies the solution. At this point, the system becomes a PoS. The more DCR that a node has mined, the more likely they are to be chosen to vote on the block. (In DCR's blockchain, stakeholders earn tickets that grant them voting power in exchange for mining DCR.) Five tickets are chosen pseudo-randomly from the ticket pool; if at least three of the five vote "yes" to validate the block, it is permanently added to the blockchain. Both miners and voters are rewarded with DCR.