What is Delegated Proof of Stake?

The Delegated Proof of Stake (DPoS) consensus algorithm is considered by many to be a more efficient and democratic version than the previous Proof of Stake (PoS) mechanism.

Since Proof of Work (PoW) by design requires many external resources, both Proof of Stake and Delegated Proof of Stake are used as an alternative to Proof of Work consensus algorithms. Proof-of-work algorithms utilize massive amounts of computation to ensure an immutable, transparent and decentralized distributed ledger. Proof of stake and delegated proof of stake, on the other hand, do not require as many resources and are more sustainable and environmentally friendly by design. To understand how Delegated Proof of Stake works, you must first have some basic knowledge of Proof of Work and Proof of Stake.

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Proof of Work (PoW)

Most digital currency systems run on a distributed ledger called a blockchain, and proof-of-work was the first consensus algorithm to be used. It forms the core of the Bitcoin protocol and is responsible for generating new blocks and securing the network (through mining). Bitcoin can replace the centralized and inefficient global traditional monetary system. Proof of Work introduces a viable consensus protocol that eliminates the need for remittances to go through a centralized institution. It provides a decentralized payment system based on a peer-to-peer network and eliminates the involvement of middlemen, greatly reducing transaction costs.

A proof-of-work system, maintained by mining nodes and other kinds of nodes, utilizes special hardware (ASIC miners) to try to solve complex cryptographic problems, mining a new block every ten minutes on average. Miners can only add new blocks to the blockchain after finding a solution to that block. In other words, miners can only do so after completing a proof-of-work, which in turn rewards miners with newly mined digital currency and all transaction fees for this block. However, this is extremely expensive because it uses a lot of energy and requires many failed attempts. In addition, ASIC hardware is also very expensive.

In addition to the cost of maintaining the system, there are a number of issues that have plagued proof-of-work systems – especially in terms of scalability (very limited transactions per second). Still, proof-of-work blockchains are considered to be the most secure, reliable, and fault-tolerant standard solutions.

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Proof of Stake (PoS)

The Proof of Stake consensus algorithm is the most common alternative to Proof of Work. Proof-of-stake aims to solve the inefficiencies and new problems that some proof-of-work blockchains present. It looks at the cost (power consumption and hardware) of proof-of-work mining. Basically, Proof of Stake secures the blockchain in a deterministic way. In these systems there is no mining, and the validation of new blocks depends on the number of coins that are staked. The more coins a person holds, the higher the probability of being selected as a block validator (also called a mint or forger).

While Proof of Work relies on external investments (power consumption and hardware), Proof of Stake underpins the security of the blockchain with internal investments (the digital currency itself).

Additionally, the proof-of-stake system makes it more expensive to attack the blockchain, as a successful attack requires possession of at least 51% of the total currency in existence. A failed attack would result in huge economic losses. Despite the compelling advantages and significant upside of proof-of-stake, the system is still in its early stages and has yet to be tested on a larger scale.

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Delegated Proof of Stake (DPoS)

The Delegated Proof of Stake (DPoS) consensus algorithm was proposed by Daniel Larimer (BM) in 2014. For example: Bitshares, Steem, Ark and Lisk are all digital currency projects that use the Delegated Proof of Stake consensus algorithm.

Delegated proof-of-stake blockchains have a voting system where stakeholders deliver their work to third parties. In other words, they can vote for a few representatives to protect the network in their place. Delegates, also known as witnesses, are required to reach consensus in the process of producing and validating new blocks. Voting power is proportional to the amount of coins each user holds. Voting systems vary from project to project, but in general, each delegate will provide a personal opinion when voting. Typically, delegates collect rewards and distribute them proportionally to their respective voters.

Thus, the Delegated Proof of Stake algorithm creates a voting system that depends directly on the reputation of the delegates. If an elected node misbehaves or does not work effectively, it will be quickly evicted and replaced by another node.

In terms of performance, Delegated Proof of Stake blockchains are more scalable and capable of processing more transactions per second (TPS) than Proof of Work and Proof of Stake.

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Delegated Proof of Stake vs Proof of Stake

While Proof of Stake and Delegated Proof of Stake are similar in the sense of shareholding, Delegated Proof of Stake proposes a novel democratic voting system to elect block producers. Since the system of Delegated Proof of Stake is maintained by voters, delegates must act honestly and efficiently or they will be voted out. Additionally, delegated proof-of-stake blockchains tend to be faster than proof-of-stake blockchains in terms of transactions per second.

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Delegated Proof of Stake vs Proof of Work

Unlike Proof of Stake, which attempts to solve the proof-of-work problem, Delegated Proof of Stake aims to simplify the block generation process. As a result, the Delegated Proof of Stake system is able to quickly process a large number of on-chain transactions. Delegated Proof of Stake is used differently than Proof of Work and Proof of Stake. Most financial flows take place here, as proof-of-work remains the consensus algorithm for the most secure consensus algorithm. Since Proof of Stake works more efficiently than Proof of Work, it has more use cases. Delegated proof-of-stake limits the use of stake in the process of electing block producers. Unlike proof-of-work systems with competing systems, the actual block generation of delegated proof-of-stake is predetermined. Each witness takes turns producing blocks. Some argue that Delegated Proof of Stake should be viewed as a proof-of-authority system.

Conclusion

Delegated Proof of Stake is very different from Proof of Work or even Proof of Stake. It incorporates stakeholder voting mechanisms to incentivize and elect honest and efficient representatives (or witnesses). However, the actual block production process is quite different from the proof-of-stake system, and in most cases exhibits higher performance in terms of transactions per second.

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