Many believe that Delegated Proof of Stake (DPoS) is a more efficient and democratic version of the previous Proof of Stake (PoS) mechanism.
PoW is an inflexible system that demands masses of external resources to operate, which makes it difficult to adopt in industries or situations where resources are scarce. The Proof of Work consensus mechanism requires a substantial amount of computational work to maintain a tamper-proof, decentralized, and transparent distributed ledger. In contrast, Delegated Proof of Stake and Proof of Stake are eco-friendly and resource-efficient (by design).
To understand how Delegated Proof of Stake works, one must first understand how Proof of Work and Proof of Stake protocols functioned before it.
What is Proof of Work (PoW)?
The Proof of Work was the first consensus algorithm to be used on distributed ledgers. Bitcoin was the first cryptocurrency to use a blockchain, and it implemented mining as a core component of the protocol. It was designed as an alternative to the traditional monetary system, which is centralized and inefficient.
The PoW protocol was used to generate new blocks and maintain the network secure, making it unnecessary for money to be transacted by a central authority.
Instantly decentralized payment transactions were performed on a peer-to-peer economic network, eliminating intermediaries and lowering transaction costs.
The network of mining nodes maintains a Proof of Work system, which is kept running by specialized hardware (ASICs) that attempt to solve complex cryptographic puzzles. Every ten minutes, a new block is mined. In order to add a new block to the blockchain, a miner must locate the answer to that block. Thus, miners are only able to add blocks to the blockchain once they’ve completed a proof of work, which rewards them with newly produced coins and all fees associated with the block. However, it consumes a lot of power and results in lots of mistakes. In addition, ASIC hardware is quite costly.
There are also concerns about the scalability of a PoW system (very low number of transactions per second). PoW blockchains are still the most secure and reliable fault-tolerant solution, although they are subject to limitations.
What is Proof of Stake (PoS)?
A system based on Proof of Stake (PoS) can achieve the results as one based on Proof of Work (PoW) but with less computational power and, therefore, less energy consumption.
There are a number of issues with Proof of Work blockchains that PoS systems seek to address. Among the issues are the high costs of PoW mining (power consumption and hardware).
PoS algorithms are used to secure a Proof of Stake blockchain in a deterministic fashion. Proof of Stake blockchains do not mine for coins, rather the number of coins staked is used to confirm new blocks. The higher the number of coins staked, the more likely a person is to be chosen to validate a new block (also known as minter or forger).
In PoW blockchains, external investments (power consumption and hardware) secure the network using Proof of Work. In Proof of Stake blockchains, an internal investment (the cryptocurrency itself) secures the network using Proof of Stake.
An additional benefit of PoS is that it makes attacking a blockchain more expensive, as an attack would require owning at least 51% of the existing coins. Such systems are still in the early stages and have not been adequately tested.
So What is Delegated Proof of Stake?
Bitshares, Steem, Ark, and Lisk are some of the cryptocurrencies that use the Delegated Proof of Stake (DPoS) consensus algorithm, which was created by Daniel Larimer in 2014.
A DPoS-based blockchain uses a voting mechanism in which stakeholders outsource their work to a third party. Voters select a handful of delegates who secure the network in their place.
Witnesses are responsible for reaching consensus on new blocks as they are generated and validated. The voting power is determined by the amount of coins a user holds. Each delegate issues a unique proposal when asking for votes, and rewards are usually divided between their electors.
An DPoS system relies on delegates’ reputation to function properly. If a node is poorly behaved or ineffective, it will be instantly replaced by another.
DPoS blockchains are more scalable than PoW and PoS blockchains, allowing them to process more transactions per second (TPS).
Learn more:
- What Is Delegated Proof of Stake? (Crypto.com)
- What Are Proof of Stake and Delegated Proof of Stake? (By Gemini)
DPoS vs PoS
A DPoS system employs a novel democratic voting mechanism to select block producers.
Despite the similarities between PoS and DPoS in terms of stakeholding, DPoS uses a novel democratic voting mechanism. Since DPoS blockchains are maintained by voters, block producers are either honest and efficient or they are voted out.
In addition, DPoS blockchains tend to process transactions faster than those using PoS.
Which is better, DPoS or PoW?
Block production in DPoS systems is streamlined to address the issues with PoW.
DPoS can process a lot of blockchain transactions quickly because of this. DPoS isn’t used in the same manner as PoW or PoS. Most money transfer occurs via PoW, which is still the most secure consensus protocol.
PoS is faster and has more applications than PoW. In DPoS, only block producers can be chosen through staking. Unlike PoW, block production in DPoS is predetermined. Every witness has a chance to produce blocks. Some people consider DPoS to be a Proof of Authority system.
In contrast to PoW and PoS, dPoS relies on stakeholder voting to choose and motivate efficient witnesses (or delegates). Block production, however, is substantially different from PoS systems and usually has a higher throughput in terms of transactions per second.
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