What Is Delegated Proof of Stake (DPoS)?

A blockchain protocol must work according to a consensus mechanism that is as democratic as possible, in order to remain distributed and decentralized. Bitcoin’s Proof of Work (PoW) consensus mechanism is considered the safest one, but has been criticized for being slow and energy-consuming. For this reason, a new consensus mechanism called Proof of Stake (PoS) has come about. Unlike the PoW, this mechanism is no longer based on an external resource (the high energy consumption), but on cryptocurrencies locked in staking. In addition, a third new consensus model, called Delegated Proof of Stake, has been introduced as an alternative.

What Is Delegated Proof of Stake?

Taking the ‘old’ concept of Proof of Stake to the next level, Delegated Proof of Stake makes it possible for cryptocurrency holders to vote and elect the so-called delegates (also called witnesses or block producers ), who are responsible for validating the next block and securing the network. While in the previous system this task was randomly entrusted to stakers, in this new one the responsibility for securing the network has been given to known people or groups selected according to their reputation and willingness to operate fairly and transparently. Therefore, these delegates represent the will of all the participants of the blockchain network. For this reason, according to many, the DPoS represents the most democratic consensus mechanism possible. Hence, this system is to be compared to most western democracies with one substantial difference: if one or more delegates behave incorrectly, the community can remove their vote and then dethrone them by electing new delegates.
Assuming that generally, not all cryptocurrency stakeholders want to actively participate in securing the network, it makes sense that they may choose to delegate the task to someone who is more directly involved.

How Does DPoS work?

There are numerous elements of Delegated Proof of Stake that enable the technology to validate transactions effectively and efficiently. These can be summarized in four points:

1. Voting: As already mentioned above, the novelty introduced by the DPoS is the voting method. Every user who owns one coin on the DPoS blockchain has the ability to vote for the nodes they desire to validate transactions. Most of the delegated PoS blockchains allow users to vote directly or delegate their voting power to another user. The nodes, for which users vote in a delegated proof of stake consensus, are known as witnesses.

2. Witnesses: They are in charge of protecting and legitimizing the blockchain. Even though a user does not necessarily need cryptocurrency to become a witness, they must acquire sufficient votes to be elected. Reputation is crucial for a witness in order to be elected, as in most cases the competition is very high. Transactions that are successfully completed by a witness are recorded officially on a ledger, and the witnesses receive a special reward that can then be shared with all of those who voted for that witness. The number of witnesses on a single server can fall somewhere between 21 and 101.

3. Delegates: They are also elected by user vote. Although delegates do not play a part in transaction control, they have another fundamental task within the DPoS protocols: they can propose changing size of a block, or the amount a witness should be paid in return for validating a block. In any case, these changes must be subject to a vote by the users.

4. Block validators: They are in charge of validating the blocks created by other witnesses, by making sure that these blocks comply with specific consensus rules. In order to become a block validator, a user must run a full node. Any user can become a validator, but unlike witnesses, there is no monetary incentive for validators.

Examples of Blockchains Using DPoS

There are many popular blockchain networks that use DPoS consensus. Here are some of the most important ones:

• EOS: The first version of DPoS was developed in 2014 by former EOS Chief Technology Officer (CTO) Dan Larimer. In the case of EOS, all delegates are referred to as block producers, and their maximum number cannot exceed 21 units. EOS is very similar to Ethereum in its capability of hosting dApps. In addition, it works on an ownership model where users can own and use resources proportional to their stake rather than paying for each transaction, which promotes the elimination of transaction fees. EOS is considered to be one of the most scalable blockchains of the industry.

• Tron: A blockchain-based decentralized protocol which aims to create a free digital entertainment ecosystem by leveraging p2p and blockchain network technology. Tron Network refers to delegates as Super Representatives, who are elected every 24 hours. There can be a maximum of 27 Super Representatives, and they need to run a TRON node to participate in block production. These delegates also receive block and voting rewards. Voters who vote to super representatives receive voting rewards only.

• Tezos: A smart contract platform that has an on-chain governance model that allows the blockchain to implement changes automatically without the need to perform hard forks. Tezos innovated the DPoS system, by coming up with an updated model of it: Liquid Proof of Stake (LPoS). The biggest difference between LPoS and DPoS is that delegation is entirely optional for network users. Every token holder can delegate voting rights to validators, who are known as ‘bakers’. In addition, the number of validator nodes is dynamic, as opposed to the fixed number in DPoS systems. In fact, Tezos can support up to 80,000 validators, which potentially makes it more decentralized than its competitors.

Advantages and Limitations

Delegated Proof of Stake is considered by many to be the most efficient and democratic consensus mechanism available. In fact, the blockchain protocols that use this type of consensus are distinguished by the speed in executing transactions, their cost-effectiveness, and their low energy impact. In addition, the democratic voting system for delegates and witnesses ensures that every token holder has a chance to contribute to the development of the network and, let’s reiterate it, the malicious actors can be immediately replaced.

However, there are many doubts about the security of the networks that use DPoS consent, and not all of them are unfounded.

First, the limited number of validators must be taken into consideration. Whether they are 21 or 101, the result does not change much: they may not be sufficient to guarantee distribution, and therefore, the decentralization of the network. The risk of centralizing it is too high, which would go against the philosophy of the blockchain.

Second, DPoS blockchain is susceptible to problems of weighted voting. Users with a smaller stake can refuse taking part in voting after considering that their vote is insignificant. This is a current problem, as in most cases, those who have the real voting power are the big whales (often institutions and exchanges).

Last but not least, the chance that the validators can be corrupted is a real problem. Even though most of them are well-known entities that have been rated on the basis of their reputation, the problem could lie in this small detail. Relying on the fact that the block validators are known, they could be subject to episodes of corruption, both perpetrated from within the network ( e.g. validators who agree to act only on the basis of their own interests), and from the outside (e.g. malicious actors who hold a large number of tokens). The smaller the circle of the validators, the greater the risk of the network being attacked.

Conclusion

The advent of DPoS has been an important structural innovation, which, in theory, allows blockchain protocols to work quickly and efficiently. Still, some improvements should be applied as exposure to centralization is still a very high risk and the validator nodes are exposed to corruption. Firstly, the number of nodes could be increased, with the aim to try to distribute the network more, and secondly the level of competition between them could be increased later on.

Competition is precisely one of the key points of the Proof of Work (PoW) consensus mechanism (as of the blockchain’s in general), as it pushes the active participants of the network to work harder and harder to solve the cryptographic riddle, and therefore, add the new block. As a result of this active participation, the difficulty of a successful protocol attack increases considerably. So far, there is no doubt that PoW is the safest consensus mechanism of all, taking Bitcoin as an example. Therefore, DPoS should try to achieve the same level of security in order to win the absolute trust of its users.