What Is Delegated Proof-of-Stake (DPoS)?
|— Delegated Proof-of-Stake (DPoS) is a variation of the classic Proof-of-Stake (PoS) consensus mechanism.
— In DPoS, participants elect delegates who validate blockchain blocks.
— DPoS offers an accessible, scalable, and democratic way to validate transactions within a blockchain network.
A consensus mechanism is the core of every blockchain. It refers to how all the nodes in a decentralized network agree on the state of a blockchain. While there are different kinds of consensus mechanisms, they primarily fall into two main categories: Proof-of-Work (PoW) and Proof-of-Stake (PoS).
PoS evolved as a low-cost, low-energy consuming alternative to the PoW algorithm. This system incentivizes users to confirm data and ensure network security by rewarding them with native tokens. Now, it powers some of the most innovative and popular blockchains today, such as Ethereum.
But not all PoS blockchains work the same.
The specific implementations and workings of PoS can differ significantly between different blockchains. While the fundamental principle of PoS in different blockchains remains the same, their specific rules, protocols, and mechanisms can vary.
This is where Delegated Proof of Stake (DPoS) comes into the picture!
DPoS is a specific type of PoS consensus mechanism that features a voting and delegation mechanism to make the process more democratic. So, let’s understand it in detail!
What Is Delegated Proof of Stake (DPoS)?
Delegated Proof of Stake is a blockchain consensus mechanism where network users vote and elect delegates to validate the next block. Like a traditional proof-of-stake mechanism, DPoS uses a collateral staking system. However, it also uses a specific democratic process designed to address POS’s limitations. This allows it to offer a more affordable, efficient, and fair way to validate transactions.
The History of DPoS
Tracing the origins of the PoS consensus mechanism takes us back to the early days of cryptocurrency development. In 2012, Peercoin debuted as the first functioning implementation of the PoS mechanism. Fast forward to 2013, Daniel Larimer conceived the idea of DPoS, and subsequently, in 2014, DPoS was introduced as a modified version of the standard PoS algorithm. Then, the first iteration of Delegated Proof-of-Stake, BitShares, launched in 2015.
How Does Delegated Proof of Stake Work?
So now you know its history, what about how DPoS works to secure blockchain networks? Put simply, the Delegated Proof-of-Stake consensus mechanism works using a democratic process. To explain, the network users vote to delegate the block validation rights to delegates, also called witnesses or block producers.
There is a limit on the number of delegates chosen for each block, and it differs for each blockchain using this consensus mechanism. This means the delegates of one block might not be the delegates of the next.
Now, to choose these delegates, users vote on them by pooling their tokens into a staking pool and linking those to a particular delegate. The delegate with the most tokens may then validate a block, and receive the corresponding transaction fees as a reward. Next, the delegate distributes the rewards to users who supported them based on each user’s stake.
It is important to note that voters maintain control over the system. So, users can also vote out delegates if they make malicious attempts on the network. As such, delegates with a strong reputation are usually elected as witnesses.
Networks That Use Delegated Proof of Stake
PoS is currently the most popular consensus mechanism used by prominent networks, including Ethereum (ETH), BNB, and Avalanche (AVAX). However, Delegated Proof-of-Stake is a little more specific and less-widely used. Some of the most popular networks using this consensus mechanism include:
EOS – Created by Daniel Larimer and Block.one, EOS is an open-source blockchain that offers scalability with low latency. It has 21 delegates who validate transactions and add new blocks.
Tron – Founded by Justin Sun, Tron is a cost-effective platform where delegates are called Super Representatives (SRs). Users stake TRX to vote for five SRs at every election, and the top 27 candidates that get selected are nominated as witnesses.
Sui – Developed by former Meta engineers, Sui is a decentralized blockchain that offers unrivaled speed at a low cost. It has a fixed set of validators who SUI holders select based on their share of the total stake.
Other Delegated Proof-of-Stake implementations include Steem, Tezos, Lisk, Elastos, Hive, Ark, and Credits.
Advantages of DPoS
This popular evolution of the PoS concept has several advantages:
Accessibility: Because there is no need for specialized and expensive equipment, anyone can become a delegate.
Democracy: The low barrier to entry allows more people to engage in a consensus process, making it democratic and financially inclusive.
Scalability: Due to the network having a limited number of delegates, it allows for faster consensus, which means improved performance.
Environmentally Friendly: It doesn’t require much power to run the network, making it more sustainable.
Disadvantages of DPoS
Despite its significant advantages, Delegated Proof-of-Stake also has its fair share of limitations.
To start with, while DPoS aims to mitigate the problem of centralization, it doesn’t really manage to do so. This is because DPoS involves a limited number of delegates for every new block, creating concerns about the network becoming concentrated in the hands of a small group.
With only a few delegates holding a considerable amount of power, this further makes DPoS vulnerable to vote buying. Not to mention, these select few delegates can easily collude to push through malicious transactions.
A cap on the number of delegates and their ability to conspire, as mentioned above, means a DPoS system runs the risk of a 51% attack where the majority of delegates act maliciously to do as they want with the network.
By allowing token holders to delegate their voting power, DPoS can also have malicious actors bribe delegates to gain control of the majority of the network and manipulate it for their own advantage, even including pushing malicious updates to the whole network.
Dependent on Delegators
DPoS requires a large number of interested and well-informed delegators who remain active. This means researching the delegates you plan to vote for and dividing your delegation among several delegates to distribute your risks. Users with a smaller stake may even refuse to take part in the voting, seeing their vote as insignificant.
DPoS Vs NPoS: What’s the Difference?
So now you know all about delegated proof of stake, you might have noticed its similarities to another consensus mechanism: Nominated proof of stake. Despite their similarities, these two methods differ slightly.
But firstly, let’s explore what they share. For example, validation in both NPoS and DPoS blockchains revolve around two different network users, the participation of which is centered around voting. In NPoS the participant chosen to validate blocks is named a “Nominator”. In DPoS, this participant is named a Delegator, and they have an almost identical role. However, with NPoS, both nominators and validators put up a stake as collateral. This means that both nominators and validators may be punished for bad behavior. A good example of a blockchain using this mechanism is Polkadot.
In DPoS, however, only validators receive punishment for bad behavior. Meaning in a DPoS system, delegators are not punished for the actions of malicious validators.
Understanding Consensus Mechanisms: Does It Matter?
Today, there is a vast diversity of blockchain projects, with some more centralized than others. They all are leveraging different forms of consensus mechanisms, including DPoS, which has the potential to offer a lot of benefits to a blockchain.
But even Delegated Proof-of-Stake has shortcomings, especially issues surrounding decentralization.
And the crux of the matter is decentralization. It is the spirit of blockchain technology — the foundation on which the crypto industry is built.
This is also why it is critical for crypto users to opt for non-custodial wallets that give them complete control over their funds than custodial wallets controlled by single entities.
Here, a hardware wallet like Ledger can help you keep your crypto funds safe. The device stores your private keys offline, ensuring only you are in control of your funds as well as safe from online threats like hacking or malware attacks.
Not only does a Ledger device allow you to be your own bank, but it also enables you to interact with the popular dApps and Web3 platforms through third-party integrations. So, make sure you are fully secured while exploring the vast crypto ecosystem!