Delegated Proof of Stake (DPoS) Explained
One of the primary aspects of any blockchain is its consensus algorithm or consensus mechanism. This is simply a name for the system used to achieve agreement among participants regarding the network's state. As you know, in decentralized networks, there is no central authority. As a result, any decision needs to be made by the community through a voting process. The cryptocurrency industry initially had the Proof of Work (PoW) algorithm, which launched with Bitcoin. Later, it developed a different approach called Proof of Stake (PoS). However, PoS also got modified in time.
This led to the launch of the Delegated Proof of Stake (DPoS), which is used by several projects. This guide will explain DPoS, including what it is, how it works, and how it differs from the other two. It will also note its advantages and limitations so that you would know its benefits and flaws.
What is Delegated Proof of Stake (DPoS)?
Delegated Proof of Stake, or DPoS, is a consensus algorithm that evolved from Proof of Stake (PoS). It's largely considered a more efficient and more democratic version of it. However, both are used as alternatives to the original, Proof of Work consensus. DPoS was developed in 2014, by a developer Daniel Larimer. Since then, it has been adopted by a number of cryptocurrency projects, including Steem, Lisk, Bitshares, and many more.
A DPoS blockchain uses a voting system where the stakeholder community outsources its work to third parties. They regain the right to vote for a few delegates who will care for network security on their behalf. The delegates are also called witnesses, and they are responsible for achieving consensus. In doing so, they ensure the generation and validation of new blocks.
The voting power depends on the number of coins that each stakeholder has. Of course, each project has provided its own unique spin on the algorithm. This is why the delegated voting system is slightly different from one project to the other. However, in general, each delegate gets to present an individual proposal, and other participants vote on it.
Typically, the rewards that delegates collect are shared proportionally with their respective electors. This means the DPoS algorithm's delegated voting system depends on the delegates' reputation. It's in the community's interest to have the most efficient delegates, so their performance is under close watch.
Furthermore, DPoS blockchains have high network security and scalability, with more transactions per second (TPS) than PoS chains. At the same time, both are far more advanced than PoW blockchains.
How does Delegated Proof of Stake work?
DPoS consists of many components that allow it to validate transactions and run a blockchain effectively. It's more efficient than PoS or PoW, despite the fact that both are used more than DPoS.
As for what are its main components, there are several worth discussing, including:
Voting is unique in Delegated Proof of Stake networks. Nodes must be selected and necessary for the transaction verification process. Stakers vote the nodes in and out based on their reputation and efficiency.
The way witnesses operate is also very interesting. Their purpose is to validate transactions and create blocks. The witness receives a special reward if all transactions within a block are adequately verified. They share this reward with every person who voted for them. However, the block is missed if a selected witness doesn't validate every transaction within their allotted time. This means that they get no rewards. Instead, their reward will be added to the prize of the next successful witness. When this happens, the block is considered "stolen."
It should be noted that one doesn't need cryptocurrency to become a witness. All they need is to secure enough votes to be elected. Later, when a witness confirms a transaction, it will be recorded in the ledger. The number of witnesses in a single server can be anywhere from 21 to 101. Witnesses are also able to keep some transactions out of the block. However, they don't have the power to change the information stored within transactions.
Another vital aspect of DPoS networks concerns their transaction time. This is a term that refers to the amount of time needed for a transaction to be processed. As mentioned before, DPoS was created to be more efficient than PoS and PoW. As such, its transaction time is generally shorter. However, transaction time still differs from one DPoS-running blockchain to another. For example, Tron has a transaction time of 1 minute, while for USD Coin, that time is 5 minutes.
Moving on, we have delegates, which are users who oversee governance within the blockchain in DPoS systems. One of their abilities is to propose specific changes, like altering the size of a single block. They can also change how many witnesses will be paid for validating blocks. However, the final decision is still on community members, who vote on such proposals.
Finally, we have validators, which are full nodes capable of validating blocks created by different witnesses. If a user becomes a validator, they are tasked with validating and verifying the network. They are different from witnesses as they do not benefit from the financial incentives.
DPoS vs PoS vs PoW
The original consensus algorithm for blockchain technology was Proof of Work, and Bitcoin introduced it. Its purpose was to generate new blocks and maintain the security of the network. For a time, PoW worked fine, although its flaws became apparent once levels of adoption started to grow.
Crypto users quickly realized that it required too much power and needed to be faster for mainstream adoption. However, many blockchains have already implemented it because there was no alternative. Of course, an alternative was necessary, so the Proof of Stake consensus mechanism was invented.
Proof of Stake is the most common alternative to PoW, as it was designed to solve many of its issues. It addresses the costs associated with mining and increases the speed of creating blocks. This means that transactions also get processed faster. Meanwhile, validators no longer have to provide their electrical and computing power in order to mine. Instead, they are required to acquire and stake coins.
However, PoS also had its downsides, which is why DPoS networks were created. DPoS is even faster; it outsources the work to third parties, and all that stakers need to do is vote.
Why do blockchains need a consensus algorithm?
Blockchains were initially made to serve as distributed ledgers. This was before they became development platforms with metaverses, NFTs, DeFi protocols, etc. Previously, its job was to record transactions within the network. Decentralization ended up being an essential component of it, as it increased security. At the same time, it reduced the likelihood of corruption and misuse.
It decentralized the transaction verification process by distributing them across numerous nodes in the network. Despite the fact that they are distributed, it is still possible to validate them through cryptographic hash functions. These functions generate unique values for different inputs.
A blockchain's consensus protocol is essential for it to function correctly. They allow different nodes to validate legitimate transactions properly. Over time, they changed to become more efficient, require less power, and secure greater decentralization.
DPoS networks are slightly different from one project to another, as each slightly changed to fit its needs. However, many influential and reputable projects use it today, such as:
What are the advantages and limitations of DPoS?
While DPoS is considered more efficient than its predecessors, it still has its own advantages and limitations.
- Delegates get elected based on their reputation. If they do a poor job or misbehave, they are easily replaced, incentivizing them to do a job.
- DPoS can reach consensus faster due to the cap on the number of required delegates. Their number can range from 20 to 100, depending on the blockchain.
- The DPoS consensus algorithm is more scalable since it doesn't require expensive hardware for hashing power.
- Since stakers can vote delegates in and out, this incentivizes delegates to act accordingly.
- Participants have to vote delegates in to make sure the network will run. This requires network users to remain active and involved
- Some DPoS projects suffer from lower decentralization due to a limited number of delegates.
- A capped number of delegates opens the DPoS systems to the possibility of a 51% attack.
Is DPoS better than the alternatives?
Delegated Proof of Stake is a consensus mechanism used by blockchains for validating transactions and creating blocks. It uses a group of trusted nodes to do this kind of work, and they are voted in and out by the stakeholders. While DPoS networks have many advantages, it is worth noting that there is no universally superior consensus mechanism. It's better than its predecessors in numerous areas, but it still has flaws of its own.
How does delegated proof of stake work?
Delegated Proof of Stake requires its stakeholders to vote in validators which will then verify transactions. If they perform well, they are rewarded and get to stay. If they perform poorly, they get replaced through a community vote.
Is ethereum delegated proof of stake?
No, Ethereum started with a Proof-of-Work, then switched to Proof-of-Stake to resolve scalability issues. However, it has never used DPoS. Whether it might change again in the future is unknown, but for now, it uses PoS.
What are examples of DPoS?
Some examples of DPoS include Tron, Cosmos, and EOS. All three projects are known for great scalability and fast networks.
Does Cardano use delegated proof of stake?
Cardano works on a specially designed Proof of Stake (dPOS) called Ouroboros. This consensus algorithm allows its token, ADA, to be sent and received quickly and securely. As such, it provides greater safety for smart contracts of Cardano's blockchain.