Delegated Proof of Stake or DPoS is a blockchain consensus mechanism designed to address the limitations of consensus protocols like Proof of Stake and Proof of Work. Considered a more democratic, affordable and efficient way to validate transactions within a blockchain network, DPoS operates via a system of collateral staking. Under the DPoS mechanism, users vote to delegate block validation rights to delegates or witnesses with high authority. Although not popularly used by cryptocurrency projects today, the solution offers an evolution of the traditional PoS.
How does Delegated Proof of Stake work?
Created by Daniel Larimer in 2014, Delegated Proof of Stake utilizes a voting system where users stake tokens to vote for delegates or witnesses. The elected delegates are responsible for block creation and verification, as well as network security.
The specific number of delegates required for block creation will vary from project to project, but in most cases, there are between 20 and 100 delegates selected for each new block. Once the block is created and the data verified, the delegate receives a reward, which is shared with the delegate’s voters.
When it comes to the voting system, the more tokens a user stakes, the stronger the voting power they have, just like in PoS. It’s important to note that voters maintain control over the system, meaning the users can also vote out delegates if they make malicious attempts on the network or work with inefficiency or dishonesty. Usually, delegates with a strong reputation are more likely to be elected as witnesses as they are more likely to genuinely protect the best interest of the network and the community.
What are the benefits of DPoS?
As a form of PoS, DPoS naturally brings to the table a number of benefits when compared to PoW. As an upgraded version of PoS, DPoS can even exceed the potential of traditional Proof of Stake. Here are the mechanism’s main advantages in more detail.
Under DPoS, blockchains can achieve a high transaction capacity, making the consensus mechanisms faster than the majority of its alternatives. In addition, it takes little time to set up block producers, which directly improves one of blockchain’s biggest challenges – scalability.
Affordability and sustainability
Delegated Proof of Stake omits the reliance on expensive and powerful equipment required in other mechanisms, like PoW, for network operation. Therefore, the expenses of maintaining the network are reduced. In addition, DPoS does not require large amounts of power, making DPoS networks sustainable.
As mentioned above, users who elect delegates for block creation and transaction verification also receive part of the rewards earned for successful validations. This motivates users to only elect delegates who are likely to perform well in order to receive higher rewards. This not only means that all parties are financially rewarded, but that the safety of the system is the main objective of all sides.
The voting system in DPoS is highly democratic, where token holders can openly share their opinions by placing a vote on a trusted and reputable delegate.
What are DPoS’s limitations?
As with any other type of consensus mechanism, there are also challenges to keep in mind.
Possibility for centralization
As noted above, there is a limited number of delegates chosen for every new block. This creates concerns about whether the consensus protocol can truly maintain the decentralized nature of blockchain. When a limited number of witnesses take part in block validation, the process can quickly turn around to resemble centralized decision-making.
Requires honesty and genuineness
In order to achieve successful decision-making and block validation, users must be truly interested in the rightful governance of the network and must vote for delegates that they believe will be able to make a contribution.
Risks of weighted voting
There are also risks related to voting power. Earlier, we explained the voting process and noted that users can vote by staking tokens. Those with smaller stakes can be demotivated to vote as their vote may appear worthless compared to the vote of another user with a larger stake.
Blockchains utilizing the DPoS consensus mechanism
Proof of Stake currently outperforms Delegated Proof of Stake in terms of popularity and use. However, there are still a number of blockchain projects who are relying on this form of consensus protocol.
EOS is arguably the most high-profile network using DPoS consensus. Hardly surprising, given that the inventor of DPoS Daniel Larimer also co-founded Block.one – the company that raised $4 billion to build the EOS blockchain.
EOS uses a small set of only 21 delegates who are tasked with signing and validating transactions and adding new blocks. The decision to rely on a small number of delegates was motivated by Larimer’s experience with his earlier DPoS project BitShares, which started with 100. According to Larimer, having a large set of delegates is detrimental to the voters attention and ability to assess the performance of the delegates.
Larimer also founded Steem, a DPoS blockchain pitched as a platform for decentraized social media apps.
TRON is one of the biggest blockchain-based platforms globally and has its own architecture for verifying transactions. In the TRON network, delegates are called Super Representatives. Users can stake TRON coins to vote for five Super Representatives at every election, considering that elections are organized every 24 hours. The top 27 candidates that have been selected during the elections are nominated as witnesses.
Considering the vast diversity of blockchain projects existent at the moment, it’s hard to say whether we will reach a point where there is a single consensus mechanism used by all. And although PoS and PoW are the two consensus forms that seem to prevail in the blockchain space today, Delegated Proof of Stake also has the potential to offer a lot to blockchain networks. We’re excited to see whether the consensus protocol will rise in popularity and whether there will be more blockchain projects based on this type of voting system.