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
Delegated Proof-of-Stake (DPoS) operates differently from traditional consensus models. In DPoS, stakeholders nominate individuals, termed “witnesses,” to create and add blocks to the blockchain. Each stakeholder gets one vote per witness, and those with the highest votes are selected. While stakeholders can vote for multiple witnesses, they need to ensure that at least half of them believe the system is sufficiently decentralized based on the elected witnesses' count. Witness selection is ongoing, motivating them to maintain excellence, or they risk losing their spot. To aid stakeholders in evaluating witnesses, there's a reputation system in place.
In some cryptocurrencies employing DPoS, there's a routine witness rotation, like daily or weekly. Every chosen witness gets a designated block creation time. If they miss it, they're bypassed and potentially receive a reputation hit.
There's also a role called “delegates.” Voted similarly to witnesses, these delegates oversee network upkeep and can suggest modifications, ranging from block sizes to witness compensation or transaction charges. After they put forth changes, stakeholders vote on their adoption. The incentive structures for delegates might differ based on the specific DPoS version in use.
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.
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:
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.