What Is Proof-of-Activity?

Proof-of-activity (PoA) is a blockchain consensus algorithm that uses concepts from proof-of-work and proof-of-stake in its design. The intent behind designing this mechanism was to address long-term sustainability against attacks on the Bitcoin blockchain after the last bitcoin is mined and the block reward removed. At this point, the incentive to conduct work for the blockchain will be reduced to the fees paid by users. If inteꦑrest in mining the cryptocurrency ever fails, participation (and thus hash rates) will drop, and the chain will be susceptible to attacks.

The solution proposed by proof-of-activity's designers was to add token staking (proof-of-stake) to the Bitcoin blockchain in addition to proof-of-work. This mechanism has been adopted only by a few other blockchain and cryptocurrency projects.

Understanding Proof-of-Activity

The Bitcoin blockchain is secured by♔ the size and speed of its network. It has attracted enormous computing power, which keeps it ahead of any would-be attackers. However, if the Bitcoin blockchain network is ever reduced in capacity, such as will likely occur when the difficulty gets too high or the last bitcoin is rewarded, the blockchain will become vulnerable. Participants will abandon it because the promise of profits will be much lower than they are today.

In a 澳洲幸运5开奖号码历史查询:proof-of-stake (PoS) system, a validator's ability to authenticatꦡe transactions and be paid network fees depends on how many tokens they offer as collateral. Although the PoS system achieves a reduction in electricity bills🐷, some unintended side effects are that it can promote coin hoarding (rather than spending) and centralization.

Proof-of-activity was designed by Charles Lee (the Litecoin founder), Iddo Bentov, Alex Mizrahi, and Meni Rosenfeld to address the eventual security issues they thought Bitcoin would face. In the whitepaper, they ꦓsไtate,

Since Bitcoin has proven to be quite capable of resisting attacks up until now, our focus is on long term sustainability. More specifically, we are especially concerned with the attack environment after Proof of Work (PoW) mining is no longer subsidized via the block reward, and the network needs to be secured via transaction fees acquired from the commerce taking place.

How PoA Works

PoA combines the block-proposing aspects of proof-of-work blockchains with the staking and validation aspects of proof-of-stake blockchains. Under a proof-of-activity system, users propose blocks that do not have transactions in them. They use the previous block's header, their public address, a nonce, and the distance to the 澳洲幸运5开奖号码历史查询:genesis block (the first block in the chain) in block height.

They send this information through a hashing algorithm, attempting to meet a target value (much like Bitcoin's proof-of-work). When a node generates a hash that meets the requirement, the network sends it to other nodes to compare the information contained in the block. When the block is validated by all online stakeholders, the semi-randomly chosen validators (who are stakeholders) sign the block, and the last to do so appends transactions to it.

Concerns About Proof-of-Activity

Since the PoA system marries PoW and PoS, it is criticized for its partial use of both. PoA critics claim that like Bitcoin and other PoW blockchains, the competitive process used in PoA requires energy-intensive computing. However, the Bitcoin uses the amount of energy it does because of the size of its network and its increasing hashing diffiꦯculty. If one bitcoin did not have the market value it does, it might not attract such a large parti🧜cipation rate, which generates the enormous amount of hashing power and energy use.

Proof-of-activity blockchains do not yet attract the same attention, and the few that exist use algorithms that are not compatible with the energy-guzzling 澳洲幸运5开奖号码历史查询:application-specific integr𓂃ated cir🗹cuits (ASICs) other cryptocurrenci💙es attr✨act. For example, Decred uses the Blake3 algorithm, which prevents it from being mined by these specially designed systems. This reduces the amount of energy needed, at least until ASICs designed for Blake3 emerge.

Another is💞sue that concerns some is that the staking mechanic encourages centralization because users with more tokens have a better chance of being selected as validators. However, it depe🌱nds on the design of the blockchain—Decred pays both its miners and pseudo-random voters.

Proof-of-activity is not as widely adopted as some PoW and PoS blockchains, which may be concerning to some because generally, smaller blockchain networks are more at risk of attack than larger ones. But attackers must overcome both PoW and PoS systems by owning 澳洲幸运5开奖号码历史查询:more than 50% of the hashing p🔯ower on ⛎the network, more than 50% of the staked tokens, and be randomly chosen as validators enough times to take over the network. The odds of this occurring are very low in a distributed network.

Example of Proof-of-Activity

Decred (DCR) is the most well-known PoA blockchain and cryptocurrency. It uses a variation of the PoA consensus mechanism it calls Hybrid PoW/PoS. Blocks are created on the Decred blockchain 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.

Once the solution has been found, it is broadcast to the network. The network then verifies the solution. At this point, the system becomes PoS, choosing validators from nodes with DCR staked. The more♕ stake a node has, the more likely they are to be chosen t✤o 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 votes "yes" to validate the block, it is permanently added to the blockchain. Both miners and voters are rewarded with DCR.

The Bottom Line

Proof-of-activity is a blockchain consensus mechanism that uses aspects of proof-of-work and proof-of-stake to address concerns about Bitcoin's inevitable rewardless future. It has only been successfully implemented in a few blockchains, which have not gained much traction or support in the cryptocurrency industry.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our 澳洲幸运5开奖号码历史查询:warranty and liability disclaimer for more info.