Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is a more efficient version of the Proof of Stake (PoS) mechanism. Essentially, DPoS introduces a system of ‘democracy’ into the block validation process. Instead of all cryptocurrency holders participating directly in the validation (as in classic PoS), they vote for a limited number of “delegates” who will then be responsible for validating transactions and creating new blocks.

How does Delegated Proof of Stake (DPoS) work?

  1. Token Holders (voters): Any person who holds tokens in the DPoS network has the right to vote. Each user’s voting power is proportional to the number of tokens they hold (i.e., the more tokens you have, the more your vote counts).
  2. Electing delegates: Token holders vote for candidates to become delegates. These candidates nominate their services, and the voters elect those they consider most trustworthy, competent and acting in the best interests of the network.
  3. Delegates (block producers/markers): a fixed or variable number of delegates, usually between 20 and 100, are elected to produce blocks. These delegates then take on the role of:
    • Verify transactions: ensure that all transactions are valid and there is no double spending.
    • Create new blocks: Aggregates verified transactions into new blocks.
    • Ensure consensus: Bring consensus to the network, confirming that new blocks are correct.
    • Hold accountable: If a delegate attempts to validate fraudulent transactions or fails to fulfill their duties, they can be voted out and replaced by other candidates.
  4. Rewards and distribution: Delegates who successfully validate blocks receive rewards (transaction fees and/or newly created tokens ). A portion of these rewards is often distributed to the voters who elected them, providing a financial incentive for participating in the voting process. This encourages token holders to elect high-performing delegates.

Advantages of Delegated Proof of Stake (DPoS)

  • Scalability and speed: Because only a limited number of delegates participate in the consensus, DPoS networks can process a much higher number of transactions per second than Proof of Work (PoW) or even classic PoS. This makes them suitable for applications that require speed.
  • Energy efficiency: Unlike PoW (which consumes a lot of energy by mining), DPoS is much more environmentally friendly as it does not involve solving complex cryptographic puzzles.
  • “Democratic” governance: Delegates are accountable to voters.
  • Low participation costs: ordinary users don’t need expensive equipment or a huge amount of tokens to participate in securing the network; they can simply delegate their vote.

Disadvantages of Delegated Proof of Stake (DPoS)

  • Potential for centralization: Even if “decentralized” by voting, the small number of active delegates can lead to some centralization of power. If these delegates colluded, they could manipulate the network.
  • Abstaining from voting through lack of involvement: If a large number of token holders do not vote, power could be concentrated in the hands of a small group of delegates who are supported by few voters.
  • Security: Compared to PoW or PoS, a smaller number of validators could make the network more vulnerable to targeted attacks if those validators are compromised.

Examples of blockchains using Delegated Proof of Stake (DPoS)

Several notable blockchains utilize DPoS, including:

Delegated Proof of Stake (DPoS) is an interesting approach that attempts to strike a balance between security, decentralization and scalability, providing an efficient consensus method for blockchain networks with high transaction volume.

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