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Delegated Proof of Stake

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Proof of Stake

Consensus Mechanism - any method used to achieve agreement, trust, and security across a decentralized computer network - Read hexn.io blog

Consensus Mechanism in blockchain systems: What is it, how to use

Consensus Mechanism

Understanding the Delegated Proof of Stake (DPoS) Algorithm | DPoS and other consensus algorithms. A promising alternative for blockchain projects.

Understanding the Delegated Proof of Stake (DPoS) Algorithm

<h2>Basics</h2><p>Many view the Delegated Proof of Stake (DPoS) consensus algorithm as a superior and more democratic alternative to the Proof of Stake (PoS) mechanism. Both DPoS and PoS are employed in place of the Proof of Work (PoW) algorithm, which necessitates significant external resources. PoW requires a lot of computational work to secure a distributed ledger that is immutable, decentralized, and transparent. DPoS and PoS, on the other hand, require fewer resources and are more environmentally sustainable by design. Before comprehending how DPoS works, one must first understand the fundamentals of the Proof of Work and Proof of Stake algorithms that preceded it.</p><h2>Proof of Work</h2><p>Initially, the Proof of Work algorithm was the primary consensus protocol used in cryptocurrency systems, which operate on a distributed ledger called a blockchain. PoW was implemented as an essential element of the Bitcoin protocol, responsible for generating new blocks and maintaining network security through the process of mining. Bitcoin was created as an alternative to the conventional centralized and ineffective global monetary system. PoW established a viable consensus protocol that made money transmission without the need for a central authority feasible. It facilitated real-time decentralized payment settlements on a peer-to-peer economic network, eliminating intermediaries and reducing overall transaction costs.</p><p>In a Proof of Work system, a network of mining nodes maintains the system alongside other types of nodes. The mining nodes use specialized hardware, such as ASICs, to attempt to solve complex cryptographic problems. On average, a new block is mined every ten minutes. Only when a miner manages to find the solution to a block he can add a new block to the blockchain. In other words, a miner must complete a proof of work to receive newly created coins and all transaction fees for that block. However, this process comes at a high cost because it requires a lot of energy and leads to numerous failed attempts. Additionally, ASIC hardware is quite expensive.</p><p>Despite efforts to maintain the system, questions about the extent to which a PoW system can be applied persist, particularly concerning scalability (which has a very limited amount of transactions per second). Nonetheless, PoW blockchains are deemed the most secure and reliable and are the standard for a fault-tolerance solution.</p><h2>Proof of Stake</h2><p>Proof of Stake is the most common alternative to Proof of Work consensus algorithm. PoS was designed to solve the inefficiencies and problems commonly associated with PoW-based blockchains, particularly those related to the high costs of mining. PoS systems rely on a deterministic approach to secure the blockchain, where the validation of new blocks is dependent on the number of coins being staked. This means there is no mining in these systems, and the more staking coins a person holds, the higher their chances of being picked as a block validator (also known as minter or forger).</p><p>One of the advantages of PoS systems is that they use internal investments (i.e. the cryptocurrency itself) to secure the blockchain, as opposed to external investments such as power consumption and hardware used in PoW systems. Furthermore, PoS makes it more costly to attack a blockchain, as a successful attack would require ownership of at least 51% of the total existing coins. Failed attacks would result in huge financial losses. Despite these advantages, PoS systems are still in their early stages and have yet to be tested on larger scales.</p><h2>Delegated Proof of Stake</h2><p>DPoS is a consensus algorithm created by Daniel Larimer in 2014, which is currently used by several cryptocurrency projects including Bitshares, Steem, Ark, and Lisk.</p><p>DPoS is designed to enable stakeholders to outsource their work to a third party through a voting system. Delegates, also known as witnesses, are elected by users to secure the network and achieve consensus during block generation and validation. The number of coins held by a user determines their voting power, and rewards are proportionally shared with electors. Each delegate presents an individual proposal when asking for votes. The reputation of a delegate is important in the DPoS algorithm, and any misbehaving or inefficient delegate is quickly replaced.</p><p>Compared to PoW and PoS, DPoS blockchains are more scalable and can process more transactions per second (TPS). The DPoS voting system is directly dependent on the reputation of its delegates, which ensures the system remains secure and efficient.</p><h3>DPoS vs PoS</h3><p>DPoS and PoS share the concept of stakeholding, but DPoS offers a distinct democratic voting process for selecting block producers. As DPoS networks are supported by the voters, the delegates have the incentive to be honest and productive, otherwise, they risk losing their position. Furthermore, DPoS-based blockchains generally provide faster transaction processing than PoS systems.</p><h3>DPoS vs PoW</h3><p>The DPoS consensus algorithm was developed to streamline the block production process, which enables DPoS-based blockchains to process larger amounts of transactions faster. Unlike PoW and PoS, DPoS limits staking to the election of block producers, who are responsible for block generation and validation in a predetermined, rather than competitive, process. Although DPoS incorporates stakeholder voting to select delegates or witnesses, it differs substantially from PoW and PoS. Some even consider it a form of Proof of Authority system.</p><p>Despite its differences, DPoS utilizes stakeholder voting to motivate honest and efficient delegates. The actual block production process is efficient, making DPoS-based blockchains capable of processing more transactions per second. Nevertheless, PoW is still regarded as the most secure consensus algorithm and is used for most money transmittance, while PoS is faster than PoW and has potential use cases.</p><h2>Conclusion</h2><p>Delegated Proof of Stake is a consensus algorithm that has gained popularity in the cryptocurrency world due to its scalability and democratic voting process. Compared to Proof of Work and Proof of Stake algorithms, DPoS allows for faster transaction processing and is more environmentally sustainable. By outsourcing work to third-party delegates elected by users through a voting system, DPoS ensures that the system remains secure and efficient. While PoW is still regarded as the most secure consensus algorithm and PoS has potential use cases, DPoS offers a promising alternative for blockchain projects seeking a more democratic and efficient system.</p>