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Delegated Proof-of-Stake

Last Updated: 1st November 2018

Invented by Daniel Larimer, Delegated Proof-of-Stake (DPoS) is an alternative consensus mechanism that requires coin holders to vote for “delegates”, who are then responsible for validating transactions and maintaining the blockchain. DPoS is an alternative to the more commonly known, Proof-of-Stake (PoS) model, which requires miners to put up a stake in the required cryptocurrency before they are able to process transactions and add them to the blockchain.

Process of Delegated Proof-of-Stake

The process of Delegated Proof-of-Stake varies from more traditional consensus mechanisms. In DPoS, stakeholders elect what are known as witnesses. Witnesses are responsible and rewarded for generating and adding blocks to the blockchain. Each stakeholder is only permitted one vote per witness, with witnesses with the most votes being elected. Stakeholders can vote for as many witnesses as they wish, so long as at least 50% of the stakeholders believe sufficient decentralization has been achieved through the number of elected witnesses. The voting for witnesses is a continuous process, therefore, witnesses have an incentive to carry out their function to the highest standard or they risk losing their position. A reputation scoring system exists in order to assist stakeholders in better assessing the quality of witnesses.

Depending on the cryptocurrency implementing the DPoS consensus mechanism, a chosen group of witnesses are typically replaced at a fixed time, e.g. once a day or once a week, with each witness being given a turn to produce a block. Failure to produce a block at the allocated time will typically result in a witness being skipped, as well as negatively affecting their reputation score.

In addition, there are also what are known as delegates. Delegates are elected in a similar manner to witnesses, however, delegates are responsible for maintaining the network and can even propose changes to the network. Changes such as: Block sizes, the amount that witnesses should be paid and transaction fees. Once these changes have been submitted, it is then up to the stakeholders to decide whether or not the proposed changes should be implemented. Whether or not a reward incentive system exists for delegates will vary depending on the implementation of DPoS the consensus mechanism.

Implementations of Delegated Proof-of-Stake

At this point it is important to mention that there exists numerous ways in which DPoS as a consensus mechanism can be implemented.

It then becomes important to read the documentation released by projects in order to properly understand the manner in which it is being applied.

Advantages of Delegated Proof-of-Stake

Delegated Proof-of-Stake offers advantages over the more well-known consensus algorithm, Proof-of-Work (PoW). These advantages include:

Saving on energy costs

Promotes decentralization

Savings on energy costs: In contrast to PoW, which requires large amounts of energy in-order to decide who gets to add the next block to the blockchain, with DPoS, witnesses are given a specific time schedule to do so. Therefore, the intense competition for the addition of the next block becomes impractical, which in turn reduces the energy costs for adding a single block when compared to PoW. Specialized computers known as, ASICs, are no longer necessary in-order to solve complex mathematical problems needed for PoW.

Promotes decentralization: In order to successfully mine a cryptocurrency that uses the PoW consensus mechanism, realistically, ASICs, are required in order to be competitive and increase ones chances of adding the next block. This promotes centralization of mining because only those that can afford these specialized computers will stand the best chance of finding a valid block, and thus, reap a larger proportion of the block rewards. This is in contrast with a DPoS consensus mechanism, which allows stakeholders to choose who gets to validate transactions, therefore promoting greater decentralization. An unlimited number of individual validators can be elected by stakeholders so far as they believe sufficient decentralization has been achieved.

Disadvantages of Delegated Proof-of-Stake

Despite the advantages offered by the DPoS consensus mechanism, it is still not without its faults. One such fault is:

Sufficient decentralization can never be achieved

Sufficient decentralization can never be achieved: Intuitively, it seems that the more witnesses validating blocks, the more decentralized a system will be. However, this notion fails to take into account the scalability of the network as a trade-off. In reality, a network can not have an excessive amount validators or else it risks slowing down. Therefore, a balance must be struck between the number of block producers, and the scalability of the network.

Conclusion

The use of Delegated Proof-of-Stake as consensus mechanism is growing. Whilst this is not an exhaustive list, the cryptocurrencies that currently use DPoS includes:

BitShares

Lisk

EOS

Steem

Ark

Nano

Cardano

Tezos

Delegated Proof-of-Stake is meant to solve a few of the issues that more traditional consensus mechanism have. As the cryptocurrency space continues to go grow, it is likely that other novel consensus mechanisms such as, Proof-of-Importance (PoI), will emerge in an attempt to further better the current system.