What is Delegated Proof-of-Stake (DPoS)?

What is Delegated Proof-of-Stake (DPoS)?

Did you know that token holders can directly influence the election of delegates and network governance? Delegated Proof of Stake (DPoS) is a consensus mechanism used in the blockchain to increase efficiency and achieve high scalability. 

Learn more about the delegated proof-of-stake consensus and how it is used in voting and the delegation mechanism. We will also discuss the pros and cons of block producers, how DPoS networks work, and their differences from the traditional proof-of-stake. 

If you are looking for an efficient and scalable consensus, then the concept of DPoS is a must-read for stakers, blockchain developers, and crypto enthusiasts who want to understand the voting and delegation mechanism.    

What is Delegated Proof of Stake (DPoS)?

Delegated Proof of Stake (DPoS) is a better version of the traditional consensus mechanism called Proof of Stake (PoS). Stakeholders in DPoS can use their tokens to vote for a group of delegates called witnesses, who are in charge of maintaining the efficiency of blockchain networks and validating transactions. 

When compared to proof of stake, DPoS increases network security, transaction scalability, and speed while boosting a democratic system of governance within the network.   

History of DPoS

Daniel Larimer introduced the first iteration of DPoS in 2014 as an answer to the limitations from the classic Proof of Stake (PoS) systems and Proof of Work (PoW). Larimer aimed to develop an approach that is democratic, effective, and scalable to blockchain consensus for supporting high-performance decentralized applications.

DPoS was integrated into real-life application through BitShares, which is financial platform and decentralized exchange that was co-founded by Larimer. The success of DPoS in BitShares led to the integration of the mechanism in major crypto and blockchain projects. 

After the success of BitShares, Daniel Larimer further created Steem in 2016, a social media blockchain platform. He also created one of the most high-profile DPoS-based blockchains called EOS in 2018, which can process thousands of transactions per second (TPS).   

Over time, DPoS has been used by different blockchain networks like Lisk, TRON, and ARK, each adopting the system's strengths like energy, speed, democratic governance, and efficiency via a voting-based delegated structure.  

DPoS has since grown to become a widely recognized consensus mechanism in the blockchain world, creating a balance between performance and decentralization, particularly for applications that use fast and high-volume transaction processing.   

How Does DPoS Work?

In a DPoS system, a token holder can vote for witnesses (delegates) by putting their tokens into a staking pool connected to a particular delegate. Votes are measured based on the amount of tokens staked, meaning that stakeholders with higher token amounts have greater power in the election of delegates. 

After the election, delegates are in charge of validating transactions and creating new blocks. They are rewarded through block rewards and transaction fees. This DPoS structure aims to develop a process for blockchain validation that is democratic and effective. 

Advantages of DPoS in Cryptocurrency

1. Enhanced Scalability and Speed: DPoS systems usually have a specific number of delegates (20 to 100), which allows for higher transaction throughput and faster block production when compared to nominated proof of stake systems.  

2. Democratic Governance: Token holders can vote for delegates, boosting a type of decentralized governance. This mechanism allows the community to choose who maintains the network and validates transactions.    

3. Energy Efficiency: Unlike Proof of Work (PoW) systems that demand huge computational power, DPoS and NPoS are energy-intensive mechanisms because they depend on a smaller number of nodes for the validation of blocks.  

Disadvantages of DPoS Blockchain Consensus

1. Centralization Risks: The limited number of delegates can give rise to centralization, because a small group has huge control over the system. This power concentration may downside the decentralized ethos of blockchain technology

2. Voter Apathy: The effectiveness of DPoS depends on active engagement from token holders. Low voter turnout can lead to delegates who do not have the best interests of the community.   

3. Security Concerns: Although DPoS aims to be more efficient, the small number of validators can make the network open to attacks and collusion if malicious delegates are chosen.  

Proof of Stake vs DPoS Consensus Mechanism in Blockchain

Understanding the difference between Delegated Proof of Stake (DPoS) and Proof of Stake (PoS) is important for evaluating how current blockchains can validate and secure transactions. Here are the major differences between the two mechanisms:   

Summary

• PoS depends on wealth-based validation

• DPoS adds a democratic layer by letting stakeholders choose delegates, making it lighter, faster, and more community-driven.    

• DPoS is perfect for applications that prioritize governance, speed, and transparency, while PoS is suited for wider decentralization

Examples of DPoS Blockchains

• EOS: EOS was launched in 2018, and it uses DPoS to provide a scalable system for decentralized applications (dApps). EOS aims to offer high transaction throughput and flexibility for blockchain developers.    

• TRON (TRX): TRON uses DPoS to strengthen its mission of developing a decentralized internet. The network concentrates on high throughput and scalability to facilitate entertainment applications and content sharing.   

• Steem: Steem uses DPoS to run its social media platform, rewarding curators and content creators with cryptocurrency. The DPoS mechanism enables fee-less and quick transactions, perfect for social networking.  

DPoS vs. Traditional PoS Consensus Algorithm

Although DPoS and PoS are made to achieve consensus without depending on energy-intensive mining, they are quite different from the traditional PoS mechanism in the following ways:  

• Validator Selection: Validators in PoS are selected based on the amount of tokens they have and are willing to stake as collateral. Token holders in DPoS vote for witnesses or delegates who can be in charge of validating transactions.  

• Scalability: DPoS systems get higher transaction speeds because of their limited number of delegates, while PoS mechanisms have slower transaction times because of their large number of validators.   

• Governance: DPoS uses a more direct type of democracy by letting token holders vote for delegates, while PoS depends on the economic stake of validators without having any form of elections in the community.   

If you are a visual learner and you want to learn more about how token holders elect delegates and the differences between PoS, here is a recommended YouTube video: 

Proof of Stake vs Delegated Proof of Stake | Whiteboard Crypto

• Duration: 9:24

• Description: It breaks down PoS and DPoS with illustrations and examples, which is great for visual learners.

Conclusion on Delegated Proof-of-Stake in Crypto

Delegated Proof of Stake (DPoS) is a powerful  mechanism that was made to boost scalability, speed, and democratic engagement in network governance by letting token holders vote for credible delegates who maintain the network and validate transactions.

When compared to traditional Proof of Stake (PoS) and Proof of Work (PoW) systems, DPoS provides a more scalable and energy-efficient option. Throughout this article, we have discussed the working mechanism of DPoS, its various pros and cons, and how it compares to other consensus mechanisms. 

By understanding the principles of DPoS, you can better analyze several blockchain projects and take part in decentralized ecosystems in blockchain technology. 

You can also learn about another consensus mechanism called Proof of Burn

FAQs

1. How are delegates compensated in a DPoS system?

Delegates receive rewards through transaction fees and newly minted tokens for validating transactions and maintaining the blockchain. These rewards incentivize delegates to act in the best interest of the network. 

2. Can token holders change their delegate votes?

Yes, token holders can reallocate their votes if dissatisfied with a delegate's performance. This flexibility ensures that delegates remain accountable to the community.

3. What happens if a delegate acts maliciously?

Malicious or underperforming delegates can be voted out by the community. Additionally, some DPoS systems have mechanisms