Delegated Proof of Stake (DPoS), an advanced version of the core concepts of Proof of Stake, was developed in 2014 by Daniel Larimer, the founder of BitShares, Steemit, and EOS. Delegated Proof of Stake uses a voting system where users stake tokens to vote for delegates or witnesses. Delegates elected by voting are responsible for network security as well as block creation and verification. Delegated Proof of Stake is a more democratic version of the Proof of Stake (PoS) consensus mechanism. Both algorithms are used as alternatives to high-energy consuming PoW.
How Does It Work?
Network users elect delegates who verify blocks. Elected Witnesses or Delegates can only proceed with the verification process if they consistently receive votes on the network. With DPoS, network users can participate in voting and have a say in the network by staking tokens. Delegates are important to the DPoS consensus mechanism because they carry out the verification process. In return, they are rewarded with transaction fees. Delegates can share the transaction fees they earn with the users who voted for them. Thus, their chances of being re-elected may be higher. The more tokens users stake, the bigger their reward share. For example, if a user only makes up 10% of the entire staking pool, he can receive up to 10% of the total reward.
The Voting System
In the Delegated Proof of Stake consensus mechanism, users can directly vote or delegate their voting rights. An elected witness/delegate is responsible for creating the block by verifying the transactions, and will be rewarded by the platform if he verifies and signs all transactions on the block. If he cannot verify all transactions within the given time, the process will be canceled and he will not receive a reward. In this case, the reward is added to the next validator’s reward. Unfinished transactions are verified by the next witness/delegate. Unverified and transferred blocks are called “Stolen Blocks”.
Witnesses/Delegates responsible for verifying transactions and creating blocks can prevent certain transactions from being included in the block, but cannot change the information of any transaction.
The Difference Between Proof of Work and Proof of Stake/Delegated Proof of Stake
Although Proof of Work offers strong security, it has energy efficiency and scalability issues. With PoW, miners compete to decipher complex symmetric or asymmetric encryptions that require large amounts of hash rates to complete and verify transactions.
On the other hand, PoS requires staking a predetermined number of tokens that act as collateral for the PoS system to ensure that all validators act honestly. A dishonest validator loses his validator status.
Even though there are many similarities between DPoS and PoS, DPoS has a democratic approach that allows staking users to vote for delegates.