What Is Proof-of-Activity And Why It Matters To Understand Blockchain Business Models

Proof-of-Activity (PoA) is a blockchain consensus algorithm that facilitates genuine transactions and consensus amongst miners. That is a consensus algorithm combining proof-of-work and proof-of-stake. This consensus algorithm is designed to prevent attacks on the underlying Blockchain. 

DefinitionProof-of-Activity (PoA) is a hybrid consensus algorithm used in blockchain networks to secure and validate transactions. It combines elements of Proof-of-Work (PoW) and Proof-of-Stake (PoS) mechanisms. In a PoA system, participants are required to perform a PoW challenge to create new blocks, and once a block is mined, validators with stakes verify and sign the block. This dual mechanism aims to strike a balance between energy-efficient block creation and maintaining a decentralized network. PoA is designed to mitigate the environmental concerns associated with PoW while providing security through PoS-like validation.
Key ConceptsProof-of-Work (PoW): PoW involves solving complex mathematical puzzles to validate transactions and create new blocks. It consumes significant computational power and energy. – Proof-of-Stake (PoS): PoS relies on validators who hold cryptocurrency stakes to validate transactions and create blocks. It is more energy-efficient than PoW. – Hybrid Consensus: PoA combines PoW and PoS elements to achieve both security and energy efficiency. – Block Creation: PoA requires miners to perform PoW for block creation, followed by validation by stakeholders in the PoS phase.
CharacteristicsEnergy Efficiency: PoA is more energy-efficient compared to traditional PoW algorithms because it only requires energy-intensive mining during block creation. – Decentralization: The presence of PoS validators helps maintain network decentralization. – Block Finality: Transactions in PoA networks achieve finality more quickly than in PoW-only networks due to the PoS validation phase. – Security: PoA aims to provide security through PoS-like validation, reducing the risk of 51% attacks.
ImplicationsReduced Energy Consumption: PoA reduces the energy consumption associated with PoW consensus mechanisms, making it more environmentally friendly. – Faster Transaction Confirmation: PoA networks offer faster transaction confirmation times compared to PoW-only networks. – Enhanced Security: The combination of PoW and PoS enhances network security by reducing the risk of centralization and 51% attacks. – Balanced Consensus: PoA strikes a balance between the energy efficiency of PoS and the security of PoW.
AdvantagesEnergy Efficiency: PoA is more energy-efficient and environmentally friendly than traditional PoW. – Quick Confirmation: Transactions are confirmed faster due to the PoS validation phase. – Security: PoA maintains security through the PoS element, reducing centralization risks. – Decentralization: The presence of PoS validators helps maintain network decentralization.
DrawbacksComplexity: Implementing a PoA consensus algorithm can be more complex than using PoW or PoS alone. – Validator Selection: The selection of validators in the PoS phase needs to be carefully designed to avoid centralization. – Hybrid Nature: The hybrid nature of PoA may make it less straightforward for participants to understand and implement.
ApplicationsProof-of-Activity is mainly applied in blockchain networks where there is a desire to reduce energy consumption while maintaining security and decentralization. It is used in various blockchain projects that seek to combine the advantages of PoW and PoS.
Use CasesDecred (DCR): Decred is a cryptocurrency that uses a hybrid PoW/PoS consensus system, which includes a PoA element for added security. – NavCoin (NAV): NavCoin employs a PoA consensus algorithm known as Proof of Stake Plus Work (PoS+W). – Emercoin (EMC): Emercoin utilizes a PoA-based hybrid consensus algorithm to secure its blockchain network. – Peercoin (PPC): Peercoin combines PoW and PoS mechanisms, including PoA, to validate and secure its transactions. – Myriad (XMY): Myriad employs a PoW/PoS hybrid algorithm with a PoA component to enhance network security.

Understanding Proof-of-Activity

Proof-of-Activity is a combination of Proof-of-Work (PoW) and Proof-of-Stake (PoS).

Proof-of-Work is the most common consensus algorithm and is utilized by Bitcoin among other cryptocurrencies. While PoW maintains blockchain integrity and security, it does consume vast amounts of computing power and electricity. There are also issues with scalability and centralization, with most of the hashing power held by a select few individuals or groups.

Proof-of-Stake remedies the resource intensiveness of PoW but also suffers from a form of centralization. In this case, centralization is caused by early adopters who earn a larger share of block creation fees and discourage late adopters from participating.

Proof-of-Activity was first proposed in a research paper in 2014. In the abstract of the paper, the authors “propose a new protocol for a cryptocurrency, that builds upon the Bitcoin protocol by combining its Proof-of-Work component with a Proof-of-Stake type of system. Our Proof-of-Activity (PoA) protocol offers good security against possibly practical attacks on Bitcoin, and has a relatively low penalty in terms of network communication and storage space.

How blocks are generated in a PoA network

The following steps dictate the block creation process in a PoA network:

  1. To start, each miner uses hash power to try and generate an empty block header. This is header data consisting of the hash of the previous block, the miner’s address, the height relative to the genesis block, and a nonce. It’s important to note that the header does not include past transactions.
  2. A miner succeeds in generating a block header when the hash of their block header data is less than the current difficulty target. Once successful, the block header is broadcasted to the network.
  3. The hash of the block header is linked with the hash of the previous block. Each combination is then hashed and follow-the-satoshi is invoked with each hash acting as input. Follow-the-satoshi is a PoA subroutine, which transforms a pseudorandom value into a small unit of cryptocurrency called a satoshi. Each satoshi is picked randomly from the satoshis that have been already mined.
  4. Active miners then check whether the block header from step two is valid. Does it contain the hash of the previous block and does it meet the current difficulty? After validation, each miner determines whether they are one of the stakeholders of the block. Successful miners sign the hash block header with a private key that determines their satoshi and broadcasts their signature to the network. This process is repeated until every chosen validator signs the block.
  5. The last miner to sign the block then broadcasts the wrapped block to the network. The block is considered a legitimate extension of the blockchain once other nodes see validity in the above four steps. Similar to the Bitcoin blockchain, the nodes try to extend the longest branch they are aware of by assessing PoW difficulty. The fees collected by the last miner are shared between themselves and the remainder of the “winners”.

Protection against malicious attacks

Both PoS and PoW were designed to prevent 51% attacks, where one individual or party attempts to gain majority control over mining power.

However, PoA adds another layer of protection against such attacks. In theory, a malicious actor would need to have 51% or more of the total mining power in addition to 51% or more of the coins staked in the network.

Key takeaways:

  • Proof-of-Activity (PoA) is a hybrid of the PoS and PoW consensus mechanisms. It facilitates genuine transactions and consensus among miners.
  • PoA attempts to address centralization issues in both PoS and PoW. It also seeks to do so in a manner that is not resource-intensive.
  • The probability of a 51% attack on a PoA system is reduced significantly. This is because a malicious actor would need majority control of both the mining hash rate and the number of coins in a system.

Learn More From The Book Blockchain Business Models


Read Next: EthereumBlockchain Business Models FrameworkDecentralized FinanceBlockchain EconomicsBitcoin.

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Related Blockchain Business Frameworks


Web3 describes a version of the internet where data will be interconnected in a decentralized way. Web3 is an umbrella that comprises various fields like semantic web, AR/VR, AI at scale, blockchain technologies, and decentralization. The core idea of Web3 moves along the lines of enabling decentralized ownership on the web.

Blockchain Protocol

A blockchain protocol is a set of underlying rules that define how a blockchain will work. Based on the underlying rules of the protocol it’s possible to build a business ecosystem. Usually, protocol’s rules comprise everything from how tokens can be issued, how value is created, and how interactions happen on top of the protocol.

Hard Fork

In software engineering, a fork consists of a “split” of a project, as developers take the source code to start independently developing on it. Software protocols (the set of rules underlying the software) usually fork as a group decision-making process. All developers have to agree on the new course and direction of the software protocol. A fork can be “soft” when an alteration to the software protocol keeps it backward compatible or “hard” where a divergence of the new chain is permanent. Forks are critical to the development and evolution of Blockchain protocols.

Merkle Tree

A Merkle tree is a data structure encoding blockchain data more efficiently and securely. The Merkle tree is one of the foundational components of a Blockchain protocol.


The nothing-at-stake problem argues that validators on a blockchain with a financial incentive to mine on each fork are disruptive to consensus. Potentially, this makes the system more vulnerable to attack. This is a key problem that makes possible underlying blockchain protocols, based on core mechanisms like a proof-of-stake consensus, a key consensus system, that together the proof-of-work make up key protocols like Bitcoin and Ethereum.

51% Attack

A 51% Attack is an attack on the blockchain network by an entity or organization. The primary goal of such an attack is the exclusion or modification of blockchain transactions. A 51% attack is carried out by a miner or group of miners endeavoring to control more than half of a network’s mining power, hash rate, or computing power. For this reason, it is sometimes called a majority attack. This can corrupt a blockchain protocol that malicious attackers would take over.

Proof of Work

A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.

Application Binary Interface

An Application Binary Interface (ABI) is the interface between two binary program modules that work together. An ABI is a contract between pieces of binary code defining the mechanisms by which functions are invoked and how parameters are passed between the caller and callee. ABIs have become critical in the development of applications leveraging smart contracts, on Blockchain protocols like Ethereum.

Proof of Stake

A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.

Proof of Work vs. Proof of Stake


Proof of Activity

Proof-of-Activity (PoA) is a blockchain consensus algorithm that facilitates genuine transactions and consensus amongst miners. That is a consensus algorithm combining proof-of-work and proof-of-stake. This consensus algorithm is designed to prevent attacks on the underlying Blockchain.

Blockchain Economics

According to Joel Monegro, a former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum).

Blockchain Business Model Framework

A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.


Blockchain companies use sharding to partition databases and increase scalability, allowing them to process more transactions per second. Sharding is a key mechanism underneath the Ethereum Blockchain and one of its critical components. Indeed, sharding enables Blockchain protocols to overcome the Scalability Trilemma (as a Blockchain grows, it stays scalable, secure, and decentralized).


A decentralized autonomous organization (DAO) operates autonomously on blockchain protocol under rules governed by smart contracts. DAO is among the most important innovations that Blockchain has brought to the business world, which can create “super entities” or large entities that do not have a central authority but are instead managed in a decentralized manner.

Smart Contracts

Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.

Non-Fungible Tokens

Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.

Decentralized Finance

Decentralized finance (DeFi) refers to an ecosystem of financial products that do not rely on traditional financial intermediaries such as banks and exchanges. Central to the success of decentralized finance is smart contracts, which are deployed on Ethereum (contracts that two parties can deploy without an intermediary). DeFi also gave rise to dApps (decentralized apps), giving developers the ability to build applications on top of the Ethereum blockchain.

History of Bitcoin

The history of Bitcoin starts before the 2008 White Paper by Satoshi Nakamoto. In 1989 first and 1991, David Chaum created DigiCash, and various cryptographers tried to solve the “double spending” problem. By 1998 Nick Szabo began working on a decentralized digital currency called “bit gold.” By 2008 the Bitcoin White Paper got published. And from there, by 2014, the Blockchain 2.0 (beyond the money use case) sprouted out.


An altcoin is a general term describing any cryptocurrency other than Bitcoin. Indeed, as Bitcoin started to evolve since its inception, back in 2009, many other cryptocurrencies sprouted due to philosophical differences with the Bitcoin protocol but also to cover wider use cases that the Bitcoin protocol could enable.


Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.

Ethereum Flywheel

An imaginary flywheel of the development of a crypto ecosystem, and more, in particular, the Ethereum ecosystem. As developers join in and the community strengthens, more use cases are built, which attract more and more users. As users grow exponentially, businesses become interested in the underlying ecosystem, thus investing more in it. These resources are invested back in the protocol to make it more scalable, thus reducing gas fees for developers and users, facilitating the adoption of the whole business platform.


Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.


In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.


Launched in October 2020, Filecoin protocol is based on a “useful work” consensus, where the miners are rewarded as they perform useful work for the network (provide storage and retrieve data). Filecoin (⨎) is an open-source, public cryptocurrency and digital payment system. Built on the InterPlanetary File System.


BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.

Decentralized Exchange

Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.

Read Next: Proof-of-stakeProof-of-workBitcoinEthereumBlockchain.

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