Delegated Proof of Stake (DPoS) is a consensus mechanism that is a variation of the classic Proof of Stake (PoS) system. DPoS evolved from PoS and allows users of the network to vote in delegates who then validate blocks. In this article, we take a look at what makes it unique.
Key Takeaways:
DPoS was first conceived by Dan Larimer in 2013 and utilised in his project BitShares.
DPoS is Proof of Stake (PoS) with a slight difference: In DPoS, users vote in delegates, also known as validators, to verify and produce blocks. After they successfully produce a block, these validators may then distribute their block rewards to those who voted for them.
Pros of DPoS:
Reputation-based
Fast
Scalable/Minimal hardware requirements
Voting power
Cons of DPoS:
Malicious token holders
Lack of decentralisation
Engagement is needed
EOS, BitShares, and TRON are just a few of the projects that utilise DPoS to power their blockchains.
What is DPoS?
While Bitcoin reaches an agreement via Proof of Work (PoW), there are a few other ways blockchain networks can come to a consensus. Proof of Stake (PoS) is one of the most common consensus mechanisms.
In a PoS system, validators verify block transactions based on how many coins they have staked in the network. Instead of miners solving complex mathematical equations, like in a PoW consensus method, they stake a fixed amount of coins required by the network that allows them to validate transactions.
History of Delegated Proof of Stake (DPoS)
Proof of Stake (PoS) was first discussed in July of 2011 during a Bitcointalk forum, with the intent of finding a way to process and verify blocks more efficiently. Thereafter, Daniel Larimer conceived DPoS in 2013 and introduced it in 2014 as a modified version of the standard Proof of Stake (PoS) consensus mechanism. The first iteration of DPoS was deployed on BitShares in 2015.
How Does DPoS Work?
Users of the network vote and elect delegates, who validate blocks. Also referred to as ‘witnesses’ or ‘block producers’, only a certain number of these delegates are permitted; and they can change, as others can be voted in instead.
With DPoS, users of the networks can pool tokens into a staking pool and vote for the particular delegate they wish. When staking, users of the network do not need to send their tokens to a particular wallet; instead, there is a staking mechanism or service provider they can operate through.
Delegates are important because they ensure the transactions are accurate; and, if they validate the block correctly, they are then rewarded with the transaction fees, which can be distributed to the individuals who voted them in. The more that a user is able to stake, the larger the allotment they can receive.
A user’s reward from their delegate is related to the portion of the total stake they represent. For example, if a user only makes up 10% of the entire staking pool, they would receive up to 10% of the total reward.
Pros and Cons of DPoS
Pros
Reputation-Based— Delegates get elected through a democratic process, which allows them to build a reputation of reliability, a key motive for users to vote for them instead of just individuals with the largest investments.
Fast— DPoS reaches consensus faster because the network has a cap on how many delegates are required. Typically, there are 20 to 100 delegates, depending on the blockchain, and this limited number of delegates helps the network reach consensus quicker than more traditional PoS systems and PoW networks.
Scalable/Minimal Hardware— The DPoS consensus method is more scalable since it doesn’t require hardware for hashing power, unlike PoW. Most DPoS networks can be accessed by simply staking coins.
Voting Power— Since users who stake are able to vote in delegates as block producers, this incentivises delegates to make sure they act accordingly. Otherwise, they can be voted out. This helps ensure accountability, as only the most profitable and honest delegates get chosen or retained.
Cons
Malicious Token Holders— Because there aren’t thousands of delegates, a DPoS system runs the risk of a 51% attack, which is an attack involving at least 51% of delegates acting maliciously towards the network to essentially do what they want. These attacks can be organised more easily in DPoS blockchains, as they generally have a lower amount of delegates.
Lower Decentralisation— While not every project using DPoS faces this issue, there are some that do. Some projects have as much as 26% of the total token supply going to venture capitalists (VCs) and insiders. Since DPoS systems typically only have a certain number of delegates, the question of if it truly is decentralised arises. For example, a network having fewer than 30 delegates at a time can be seen as not being truly decentralised.
Engagement Is Needed — DPoS requires participants to vote in delegates to make sure the network can run. Because of that, it is necessary for individuals who use the network to remain active and involved; otherwise, the network will fail to run.
PoW vs. PoS/DPoS
Although Proof of Work (PoW) offers strong security, it lacks energy efficiency and scalability. With PoW, miners compete with one another in solving complex mathematical problems that require a tremendous amount of computing power to complete and validate transactions.
PoS, on the other hand, requires members to stake a number of previously determined tokens that act as collateral for the PoS system to ensure all validators act honestly. If any validators were to fail to act honestly, they would lose their validator status.
While DPoS has many similarities to PoS, the main difference is that it uses a more democratic approach and allows users who stake to vote for which delegates they want to verify blocks.
Projects That Use DPoS
EOS— A DPoS blockchain developed by Block.one, with Daniel Larimer as the architect, that is open-source and offers skills and certifications for those wishing to learn the ins and outs of its system. EOS is one of the first blockchains to use DPoS and offers scalability with low latency. EOS currently has 21 delegates for its network.
BitShares— A decentralised platform designed for global payments, this project was co-founded by Daniel Larimer in 2013 and created in 2014. A decentralised autonomous company (DAC) manages BitShares and allows holders of the BitShares token (BTS) to decide what next steps to take for the project.
TRON— A decentralised blockchain founded by Justin Sun, TRON is one of the largest projects by market cap in the cryptocurrency space that currently uses DPoS. TRON aims to provide a host of different applications to users, from decentralised finance (DeFi) to streaming services to music. TRON currently has 27 delegates, also known as Super Representatives.
Conclusion
DPoS is an opportunity for individuals to contribute to a blockchain network, even without large amounts of funds to obtain mining gear. DPoS systems, however, are not perfect and face shortcomings, such as issues surrounding decentralisation.
While no system is perfect, blockchains continue to advance and create new, improved systems. Check out our guide on Web 3.0 and how we are heading for a decentralised future.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com or other products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
