What it means
A consensus mechanism is the set of rules that lets a network of computers agree on which transactions are valid without a central authority. Proof of work and proof of stake are the two best-known mechanisms, and each has strengths and weaknesses.
Proof of activity was proposed as a way to borrow the good parts of both. In a typical description of the model, mining begins as it does in proof of work.
Miners race to find a block template, which is an empty block with a header that meets a difficulty target, and the winner publishes it to the network. The system then uses the information in that header to pick a small group of coin holders at random, with a higher chance of selection for those who hold more coins.
These chosen holders must digitally sign the block, and only when enough of them have signed does the block become valid and join the chain. The reward for the block is then shared between the miner and the signing stakeholders.
This means coin holders are paid for taking part, and an attacker would have to control both a large share of mining power and a large share of coins to cheat the system, which in theory makes attacks more expensive. The model has drawbacks.
It is more complicated than either parent system, it still needs mining and so still uses energy, and it relies on enough holders being online to sign blocks. For these reasons it has been used mostly in experimental or smaller projects, and readers should treat it as one of several designs rather than a standard.
For a business reader, the useful takeaway is that consensus design is a trade-off between security, cost, speed and fairness. Proof of activity tries to improve fairness and attack cost, but it pays for that with extra complexity, so anyone evaluating a project built on it should ask who validates blocks, who earns the rewards and what happens when participants go offline.
In practice
Real-world examples.
Example
A developer designing a new coin wants miners to keep the network secure but also wants long-term holders to earn something for supporting it. She chooses a proof of activity model so that block rewards are shared between miners and randomly chosen coin holders.
Example
A coin holder with $8,000 of tokens sees that wallets holding more coins are more likely to be picked as signers. She keeps her wallet online so that she can sign when selected and receive her part of the block reward.
Example
An analyst at a research firm compares the cost of attacking three networks. For the proof of activity network she concludes that an attacker would need to buy both mining equipment and a large number of coins, which makes it more expensive than attacking a pure proof of work network of similar size.
Case study
Seen in the real world.
Meridian Chain is an illustrative, fictional blockchain start-up that wanted to build a payments network with strong security but a more even distribution of rewards. Its founders worried that a pure mining system would concentrate rewards among a few large mining firms.
They chose a proof of activity design in which every block needed signatures from randomly selected coin holders. In testing, rewards were spread across hundreds of wallets rather than a handful of miners, which supported their goal of a wider community.
However, the testing also showed that blocks were slower when many selected holders were offline. The team added incentives for staying online and a fallback rule for missing signers. The illustrative lesson is that a hybrid design can spread rewards more widely, but it needs careful engineering to handle people who do not take part.
Watch out
Common mistakes.
- Assuming proof of activity is the main system used by large cryptocurrencies, when it is a less common hybrid design.
- Believing that a hybrid mechanism removes the energy use of mining, when the mining stage still requires computing power.
- Treating security claims about any consensus design as proven, rather than testing them in live conditions over many years.
Questions
People also ask.
How is proof of activity different from proof of work?
Proof of work relies only on miners, while proof of activity adds a second step in which randomly selected coin holders must sign the block.
How is it different from proof of stake?
In proof of stake, coin holders alone choose and validate blocks, while proof of activity still begins with a mining race.
Is proof of activity used by major cryptocurrencies?
It has appeared in experimental designs and in variations used by a small number of projects, but it is not the standard for the largest networks.
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