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What Is DPoS, And How Does It Work?

Cryptocurrency technology first gained worldwide attention through the introduction of Bitcoin. Almost a decade later, the technology is still growing with a number of variations introduced to keep up with changes and shifting demands in the sector. Technology is an ever-changing field. Therefore, there is a great need for different protocols to be designed to cater to each tech stage. A prime example of these changes include consensus algorithms. While Bitcoin initially introduced the Proof-of-Work (PoW) model, other notable consensus algorithms such as Proof-of-Stake (PoS), and Delegated Proof-of-Stake (DPoS) have been created. This article solely focuses on the Dpos model.

Who Developed DPoS?

The Delegated Proof-of-Stake consensus algorithm was developed in 2014 by crypto-entrepreneur and programmer Dan Larimer. Dan created the DPoS system as both an alternative and an improvement upon the Bitcoin’s Proof-of-Work (PoW) system. He realized way earlier that Bitcoin’s PoW algorithm would one day be susceptible to centralization by large mining pools. Also, an extreme amount of energy is used through Bitcoin mining.

Bitcoin’s transaction speeds were also slow given its design architecture. Larimer wanted a system that was capable of faster transaction speeds, not prone to centralization, and one that used less energy during mining. This led him to invent and create a new system that used up little electricity, was extremely fast at transaction processing, and immune to centralization. He named it Delegated Proof-of-Stake, what is now commonly known as DPoS. 

What is DPoS?

DPoS is a unique consensus algorithm in that it is a representative democratic-based consensus model that makes major improvements on both the PoW and PoS models. It’s considered the most decentralized, efficient, flexible, and fastest consensus algorithm in existence today. Dan Larimer had initially invented it as a consensus framework for Bitshares, which he had also developed. Apart from validating transactions and maintaining a digital ledger of transactions, DPoS also acts as a form of digital democracy. This is further explained down below.

How DPoS works

DPoS was created in such a manner that it takes advantage of stakeholder approval voting to achieve consensus within the system. Unlike in the PoS model, in DPoS, a stakeholder is anyone who owns any amount of tokens in their digital wallet. They can vote and elect what is known as a block producer, a delegate, or a witness. Essentially, the ‘candidate’ who receives the most votes at the end of a voting round gets to be the network’s block producer.  

A maximum of 100 block Producers is allowed on the network with the top 20 block producers receiving remuneration for their services. The work of a block producer(s) is to ensure that the network runs smoothly and securely. Therefore, stakeholders must ensure that they select block producers who have the best interest of the network at heart. This makes DPoS the most decentralized consensus protocol, as all token holders influence what takes place on the network.

In some DPoS models, a block producer is required to show commitment to his or her role by depositing tokens in a locked security account. This account ensures that the block producer maintains the best interest of the network as any malicious behavior risks token confiscation.  Stakeholders can change block producers at any given time. If block producers act maliciously, their actions will be displayed publicly, and they are removed from the network.

Block Producers

As stated earlier, only the top 20 block producers will get paid for their services. This means that the top 20 spots will be hotly contended among block producers, thereby, increasing overall competition. Also as the network grows, it will become challenging for block producers to retain their positions in the network. It essentially means that voting will always be an ongoing process whereby, only the best block producers are retained while the rest are removed.    

Apart from ensuring that the network runs smoothly and securely, block producers are also tasked with:

  • Ensuring that there is no double spending.
  • Ensuring that their node is always in operation.
  • Collecting transactions across the network and converting them into blocks.
  • Validating blocks and propagating them.

Strengths of DPoS

  • Energy Efficient

Unlike the PoW model which needs an excessive amount of energy to validate blocks, the DPoS model leverages block producers who are given the task of validating blocks. Asics and mining rigs are, therefore, no longer necessary. Block producers don’t need to solve complex mathematical algorithms to approve transactions.

  • Incentivizes Decentralization

Today, Bitcoin mining takes up a lot of computing power and electricity to solve complex mathematical algorithms. Therefore, mining has been left only to those who have the technical resources to do so. This in itself is a form of centralization that can be avoided through the DPoS model.

  • Faster

The fact that the network has several active block producers ensures that blocks can be validated much faster than those on the PoW system. Bitcoin transactions take about 10 minutes to be validated. However, those on the DPoS model such as Lisk, take only 10 seconds to be validated.      

Weaknesses of DPoS

  • Lack Of Complete Decentralization

The DPoS model fails to achieve full decentralization. The DPoS system is dependent on a number of block producers who control block validation and the entire network. This in itself is a form of centralization. Furthermore, the system is designed in a way that the more tokens a stakeholder holds, the stronger their voting power.

  • Risk of Low Voter Turnout

Stakeholders with low amounts of tokens will have weak voting power compared to those with large amounts of tokens, commonly known as whales. These small stakeholders (minnows) may choose not to vote, thereby, leaving the voting influence entirely on the whales who might determine the direction of the network.

Conclusion

The DPoS blockchain consensus is a break-through technology in the fight against the traditional centralized system. While it does fail in some instances concerning decentralization, it does offer high scalability compared to the PoW model. It introduces a unique approach to organization which is returning power and decision making back to the masses.

Thanks for reading, we hope you enjoyed the article, and while you’re at it, we encourage you to check out our ERC-223 Ethereum-based token called the DinarCoin.



This post first appeared on The Fantastic Flowering Field Of Fintech, please read the originial post: here

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What Is DPoS, And How Does It Work?

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