How Proof-of-Authority eliminates blockchain mining

25 December, 2018

Earlier we published a post discussing a new proposed cryptocurrency that utilizes proof-of-space rather than proof-of-work as the mechanism for verifying transactions. It was a fascinating discussion focusing on whether it is possible to create a greener cryptocurrency by changing how coins are mined.

We want to take what was learned from that post and expand it further to talk about something known as proof-of-authority (PoA).

PoA is now a legitimate topic of discussion thanks to Microsoft's recent announcement of their Blockchain as a Service (BaaS) offerings. What they have done with PoA completely eliminates the need for mining. This makes it a lot easier to use blockchain technology for developing software apps without requiring the tremendous amount of raw power and resources mining requires.

By the time you finish reading this article you will hopefully understand blockchain's value above and beyond cryptocurrency. You will hopefully have a better understanding how blockchain can be used to develop all sorts of software products, including the next generation of online casino games. It could be that future iterations of games such as the world's most popular online jackpot slot will be developed with blockchain and PoA.

Why Mining Is Necessary

We eventually want to understand why Microsoft took mining out of the blockchain equation. But let us first discuss why it is necessary in the context of cryptocurrency. A platform like Bitcoin has a few things working against it from a security standpoint.

First and foremost, Bitcoin's blockchain ledger is a distributed ledger that is completely decentralized. What does this mean? In a practical sense, it means two things:

  • There are multiple copies of the ledger sitting on servers all over the world; and
  • Anyone who wants a copy can get one simply by downloading it.

This raises a red flag of security concerns, which lead directly into the second point and a simple explanation of why mining is necessary. Mining is a direct result of the need to secure the ledger from those who would seek to commit fraud or modify blocks.

Bitcoin's ledger is secured through encryption and a proof-of-work requirement. In order to finalize transactions that occur on the Bitcoin network, data generated by those transactions must be decrypted and verified by computer nodes. These nodes are what we call coin miners. Therefore, mining is necessary to verify transactions while simultaneously maintaining security.

If Bitcoin's ledger was not encrypted, anyone with a copy of the ledger would have access to digital wallet information, transaction values, coin holdings, etc. It would be incredibly easy for bad actors to steal. Likewise, there would also be no need for miners. But there is. Simply put, mining maintains the integrity and security of the ledger with every transaction processed.

The Problem with Mining

There is no doubt that mining is valuable from a security standpoint. However, it has one inherent weakness: mining requires a tremendous amount of computing power and raw energy. Thus we talked about Chia and its proof-of-space algorithm in our previous post. The way Chia miners would verify transactions requires significantly less computing power and energy.

Getting back to the topic at hand, the amount of power necessary to mine coins using a proof-of-work algorithm hinders the usability of blockchain for developing software. A software development company would spend far too much time and an excessive volume of resources on mining just to keep development going. But here's the thing: it is completely unnecessary.

A Trusted Network

Microsoft has proposed that mining is only necessary for security purposes. In the context of a cryptocurrency network, that network is populated by untold numbers of complete strangers. There are a few well-known names on the network, but everyone else is all-but anonymous. You don't know who you're dealing with at any given time. That is not the case in the context of software development.

Let's say a company is developing a brand-new piece of software using blockchain technology. They are partnering with two other companies to complete the project. Everyone involved has access to the network on which the software is being developed.

The total number of people with network access is limited by the scope of the project. Moreover, everyone involved in the project knows everyone else. Therefore, you don't have the same trust issues. There is no need for the same level of security required by cryptocurrency platforms. Thus, mining is unnecessary. There are other ways to guarantee network security without the power and resource-hungry process of proof-of-work mining.

How Proof-of-Authority Works

Without the need for overbearing proof-of-work mining, Microsoft set about to come up with some other means of maintaining security and verifying data. They eventually ended up applying the PoA model on an Ethereum blockchain. Keep in mind that Ethereum was originally built as a software development platform rather than a crypto platform.

Microsoft's PoA utilizes a decentralized application known as Governance DApp to maintain security. The app is used to provide authority to key players on the network who have already been tapped to govern the current project. In settings outside of Microsoft, these individuals would likely be everyone working on the project in question.

Nonetheless, the team with governing authority acts as the nodes. In order for blockchain modifications to be made permanent, every node must vote in favor of it. Participants can delegate other nodes to vote on their behalf should it ever become necessary. This always allows for work to continue as long as there is consensus on modifications among the nodes.

This model also allows network administrators on-chain voting capabilities that allow them to do what they are tasked with doing outside of the project itself. This keeps network administrators in the loop so that any changes to the blockchain do not negatively impact their operations.

One last thing to note is that Microsoft has built smart contracts into their blockchain. This should prove beneficial for future software development in that smart contracts allow for a greater level of automation. This could be useful for testing purposes, among other things.

Eliminating a Big Hurdle

All of this may mean nothing to you if you haven't a clue about how software development works. So let us break it down and try to make it a bit more applicable. Rest assured that PoA could have an effect on your gambling habits should game developers choose to go the blockchain route.

By eliminating proof-of-work and replacing it with PoA, Microsoft has eliminated one of the biggest hurdles to blockchain software development. Imagine you develop casino games like You want to adopt blockchain for all future development, but you do not want to have to invest in the resources necessary to make it practical.

Along comes Microsoft's PoA-based Ethereum blockchain. It offers the same level of security without the heavy load of proof-of-work. Now you have something you can work with. You direct your team to start transitioning all game development to blockchain with PoA.

Blockchain and Game Development

What we described here could be reality at some point down the road. How will it affect you? In theory, transitioning to blockchain would accelerate innovation within the game development arena. For example, think about live games.

Developing live roulette and live blackjack is now a big thing among game creators. Each game has to be developed individually, almost in a sandbox, due to the nature of the current state of development. But if you transition those live titles to blockchain, you instantly create a parallel development model that opens the door to all sorts of new possibilities.

Basing those live games on blockchain technology would theoretically make it possible to offer every live game in a land-based casino to online players - simultaneously and in real time. Doing so would require multiple blockchains handling multiple tasks, but it could theoretically be done.

Above and beyond live games, blockchain could improve various aspects of RNG games. Progressive jackpots are one example. Mega Moolah built on blockchain could potentially make for bigger progressive jackpots fueled by more players spinning the reels simultaneously.

A Big Step Forward

The summary of this entire discussion is the fact that Microsoft has made a big step forward by replacing proof-of-work with proof-of-authority. Their decision to change the way blockchain security is maintained truly opens Ethereum to its full potential as a software development platform. Where developers go from here is anyone's guess.

In the meantime, those of us who are mere casual observers are coming to understand that there is more than one way to do things in blockchain. We are all accustomed to the proof-of-work concept required by Bitcoin and other cryptocurrencies for the purposes of verifying transactions and maintaining security. But now we also know about proof-of-space and proof-of-authority.

What will come down the road next? Nobody knows. What we do know is that blockchain is an evolving technology whose potential has not even begun to be tapped. The future reality of blockchain is likely to be way beyond any expectations we have at this point.