What is proof of activity

Investing in crypto involves learning a lot of terms, how they work, and how they can be acquired. Since each coin has its own set of features and characteristics, you will encounter terms such as consensus algorithms.

Consensus algorithms work as the frameworks that specify how coins authenticate transactions and uphold the integrity of their entire blockchain. These also determine a coin’s energy consumption, transaction fees, speed, and other specifics that will affect the blockchain as a whole. These protocols also dictate how resources are to be mined or obtained

The two most common consensus protocols are Proof of Stake and Proof of Work. What most people don't know is that there is another consensus algorithm that combines the principles of both which is called Proof of Activity (PoA). Here are a few things you should learn more about it: 

What does proof of activity mean?

A hybrid consensus mechanism called Proof of Activity combines the benefits of Proof of Work and Proof of Stake to create a new method of creating new blocks. To create a more effective algorithm, PoA makes use of the two mechanisms stated above and attempts to overcome their respective flaws.

It is used to ensure that all transactions recorded on a blockchain are real and that all miners achieve a consensus. Simply put, it protects the underlying blockchain from attacks.

The idea for proof of activity blockchain came from Litecoin founder Charlie Lee. It was theorised in 2014 with three other influential crypto figures. In its whitepaper, they said that PoA offers high security against possibly feasible future assaults on Bitcoin. They also said that it has a considerable penalty in terms of network communication and storage space. 

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How it works 

Technically speaking, PoA blockchain uses the mining concepts of PoW where miners have to solve complex mathematical computations. After the mining that’s similar to PoW’s is completed, the mechanism switches to PoS. There are three simple steps that make it work. These are:

1. Block mining by miners → Similar to PoW, miners attempt to submit their nearly empty block by obtaining the right nonce and block hash by solving a challenging mathematical challenge. This includes their header info and reward address.
2. Block signing by validators → The block that the miners have submitted is validated by a group of network users known as validators (or signers). These network validators are chosen according to the network currency they hold. 
   Then, the blocks are classified as signed or unsigned by validators after they’ve been examined. During this part of the process, the signing continues until a block receives the required number of validator signatures.
3. Adding transactions → Signed blocks will indicate its validity and completion. New transactions are then added to the block from the transaction pool. After that, the block will be added to the blockchain network. The rewards will then be distributed among the winning block’s miner and the validators who signed it. 
    

What sets it apart from other consensus mechanisms

Though it may work as a combination of two popular protocols, there are notable characteristics that set it apart. Among the notable differences that investors will notice is that unlike PoW, its mining can also be extensive but it consumes less power.

Proof of activity crypto can process thousands of transactions per second. To expand its scalability and give it the potential to process more transactions, its goal is to reach 1 M/tps.

The PoA protocol can be used on IoT devices without any risk of memory or power loss, which is perhaps the most essential benefit of all. In case you missed it, IoT or IOTA is an open-sourced distributed ledger that was designed for the Internet of Things. As the IoT sector continues to grow, this feature will become more crucial.

Advantages of using proof-of-activity 

Now that you know what is proof of activity, you should also know about the advantages that come with it. The main benefit it brings is its enhanced security. By fusing together the strengths of both PoW and PoS, PoA significantly reduces the chance of a 51% attack. This means that before an attacker can bring down PoA, they must first overwhelm both PoW and PoS systems, which requires them to hold a significant amount of coins and a hash rate of above 50%.

According to PoA proponents, this protocol follows the satoshi step which may gauge how engaged miners and other network stakeholders are. It also encourages them to take part in the validation process. As it allows PoW and PoS nodes to work together, PoA encourages an improved network topology. 

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Disadvantages of using proof-of-activity

Even if it has advantages like improved defence against 51% attacks, crypto PoA still has the same two issues that PoW and PoS are criticised for — energy and trust. PoA uses a lot of energy, much like PoW. Hence, it cannot be a sustainable alternative. Also, nothing prevents its validators from double signing, just like with PoS. 

Compared to PoW miners, certain validators may be less concerned with consensus because they might fork the blockchain by adding erroneous blocks to it so they can receive rewards for signing them. Still, this scenario remains impractical since there’s always a risk for the signers to get penalized if they do so. 

Examples of proof-of-activity 

There are two main coins that make use of proof of activity in blockchain. These are: 

• Decred (DCR) → This is known as the most popular example of PoA. One of the notable characteristics of this asset is how it can create blocks every 5 minutes.
   

To produce a new block, nodes in the Decred network first search for a solution to a challenging cryptographic puzzle. This procedure so far resembles a PoW system. Once the answer is found, transmitted to the network, and verified there, the system shifts to PoS. 

At this point, a node is more likely to be selected to cast a vote on the block if it has mined more DCR. The chance to have voting power on the DCR blockchain is one of the main reasons why stakeholders acquire more tickets. Then, the ticket pool is used to select five tickets at random. 

If the block is validated by three of the five tickets, it is added to the blockchain forever. When a new block is discovered, 60% of the block reward is distributed to PoW miners, 30% to PoS holders, and 10% is used to support the protocol's development.

• Espers (ESP) → It is a blockchain project founded in 2016 with the aim to provide an overall satisfying experience to all users. As a blockchain-based messaging service, it also has its native coin called ESP which runs the services of the platform.

Similar to how blockchain transactions are validated, Espers uses encryption methods to protect its users and secure messages. To maintain transparency, the messages sent and received are documented publicly. The messages' content, however, is secured as it can only be accessed with the private key.

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Other consensus mechanisms 

Aside from proof-of-activity, there are several other remarkable consensus mechanisms that investors may encounter. Among these are: 

• Proof of Work → This is the oldest consensus algorithm which is used by Bitcoin. This is based on network users' capacity to demonstrate the successful completion of a computer task. With its mining process, only specially created computers with the capacity to accept, send, or forward data inside its network.
• Proof of Stake → This was developed with the goal of reducing expenses and the requirement for expensive equipment. With an objective to create a verifiable interest in the ecosystem, a user only has to show that they possess a particular quantity of native crypto tokens for their transactions to be approved on the network.
• Proof of Capacity → The decentralised block creation and verification technique used by proof-of-capacity currencies is based on the hard disc storage space of computers.
• Proof of Authority → This is a technique that is frequently applied by commercial companies or organisations. This is dependent on blocks created by trusted sources and has unique access rights to the network. This protocol similarly bases assurance on reputation and authority rather than on general acceptance.
• Proof of Burn → Here, tokens are occasionally burned by miners so they can be erased or taken out of circulation. This somewhat reduces the chance of inflation.
• Proof of Elapsed Time → This technique uses a random timer that runs independently at each node to assign the block verification to a miner at random.
• Proof of History → Users can use this protocol to build historical records that show a record of transactions that took place at specific times.

These are just some facts that investors would have to learn more about proof-of-activity and what sets it apart from other protocols. By learning more about it as well as its pros and cons, it will be easier for investors to determine whether the assets that use this are worth investing in. 

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Words: Kyra Jimenez