In this article, we are going to learn What is delegated proof of stake (DPoS)? and re the different usabilities of it as consensus.
Proof-of-stake works by having users stake a certain amount of their token wealth as collateral when using it to execute transaction blocks.
The more tokens one stakes, and thus commits to backing up the network, the greater chance does one has at executing and voting on that block.
What would happen if one were able to delegate someone else’s stake? This is where DPoS can play a role: through delegated proof of stake (DPoS), any user can delegate another person’s token for them as long as that other person agrees and then vote with that individual’s participation.
Read on to find out more about this new way to verify transactions and validate blocks in the blockchain ecosystem.
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What is Delegated Proof of Stake (DPoS)?
Delegated proof of stake, or DPoS, is a type of algorithm by which blockchain consensus is established. In essence, users vote to elect witnesses who then confirm transactions on the blockchain.
It has been used on a number of blockchains including Steemit and BitShares. Users don’t have to actively vote for witnesses their votes are delegated to proxies.
Voters can change their minds at any time in an open, transparent system where everyone can audit results.
Proponents of delegated proof-of-stake argue that it allows for more distributed and decentralized systems, as well as greater scalability, compared to other algorithms.
Critics contend that delegated systems will lead to centralization due to economies of scale with only large stakeholders being able to participate meaningfully, thereby compromising decentralization.
How does DPoS work?
Compared with traditional PoW and PoS protocols, DPoS relies on block producers rather than miners or stakers.
These are nodes or users that have an incentive to support an application using blockchain technology.
Block producers confirm transactions through a voting process that takes place every 21 blocks or approximately every 3 seconds faster than most cryptocurrencies.
In addition, there’s no minimum deposit requirement for becoming a producer in DPOS systems.
There are also fewer security issues associated with DPOS because its distributed nature allows it to fix bugs quickly as they arise while preserving its system integrity at all times.
What’s more, because it doesn’t use mining fees, it avoids another major flaw in PoW-based consensus mechanisms: high costs that make micropayments impossible under some models.
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Differences between DPoS, PoW, and PoS
While most people think that Proof-of-Work (PoW) and Proof-of-Stake (PoS) are both good solutions for preventing dishonest actors from confirming blocks on a blockchain.
There are some differences between these two algorithms that affect each’s security and energy consumption.
In order to understand how DPoS works, it’s important to understand how PoW and PoS work so you can see where DPoS fits in.
Both PoW and PoS allow you to use your stake in a cryptocurrency as collateral in order to mine or forge new coins. With PoW, however, miners must prove their work before they receive any rewards.
This means they have to solve complicated cryptographic puzzles using their computers before they can get any rewards and those who succeed are able to do so because of their computational power rather than because they have any special privileges or access.
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Delegated Proof of Stake (DPoS) Benefits
Although DPoS was originally designed to be a decentralized version of PoS, where stakeholders have control over transaction validation, it’s not exactly that.
The main difference lies in how these stakeholders are chosen; with PoS, anyone who owns cryptocurrency has a chance to earn block rewards when they solve complex mathematical puzzles.
In DPoS, however, transactions are only validated by those who own enough tokens to be eligible for an actual vote.
Because token holders must also stake their assets as collateral, they must also ensure that their choice will protect and grow their investment; those who choose poorly may lose significant value in doing so.
Because token owners depend on each other to reach consensus and validate transactions and because a percentage of all holdings go toward future development funding the incentive is there for everyone to do what it takes to ensure that their blockchain survives and thrives over time.
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History of DPoS
The DPoS consensus model was originally presented by Daniel Larimer in 2013 and was initially adopted by cryptocurrency exchange Bitshares.
It has since been used in a number of crypto platforms, including EOS and Steemit.
The biggest advantage of DPoS lies in its efficiency; it allows for transactions to be validated significantly faster than other protocols.
As such, it’s suitable for blockchain-based platforms operating at high speeds and large volumes.
However, there are also some concerns about DPoS being centralized as block producers can essentially control which transactions appear on the network.
Because of these downsides, most projects using DPoS have chosen to blend it with another consensus mechanism like PoW or PoS.
Several blockchains that use DPOS technology are mixtures that incorporate both PoW and PoS elements within their protocol design.
Is DPoS the Future?
DPoS was initially conceptualized to take away power from miners and redistribute it among a decentralized group.
In DPoS, block producers verify transactions instead of miners. Consensus is achieved when these block producers all agree on a transaction’s validity.
Any block producer can be voted out if they are found to be acting maliciously or in opposition to protocol rules.
This sounds good in theory, but there are some potential problems with DPoS that must be addressed.
First of all, being a block producer requires resources: you need enough money to own powerful computers or servers and you need enough votes to get elected as one of those producers.
Because anyone who holds the cryptocurrency has voting rights for delegates (hence delegated), wealth disparities could become incredibly polarizing.
Poorer voters could find themselves powerless and disenfranchised due to a lack of funds for voting.
DPoS Use Cases
Blockchains that use DPoS are designed to run on low-cost hardware and eventually mobile devices.
This means they can be applied to nearly any industry, helping companies achieve their goals more quickly and effectively than their traditional counterparts.
What do you want to revolutionize in your business? What processes need improvement? Leveraging blockchain technology will help streamline those processes, reduce costs, and maximize efficiency.
Now’s a great time to learn about DPoS and its benefits for businesses in today’s digital landscape. For an informative introduction, read our quick guide on DPoS.
Advantages of DPoS
The biggest advantage to using DPoS over other protocols like Proof-of-Work and Delegated Proof-of-Stake is that it allows users to vote with their money by staking coins in a representative.
As long as your representative doesn’t act maliciously, you can rest assured that your transactions will be securely verified and validated.
This makes DPoS more secure than any other protocol without incurring unnecessarily high costs.
In addition, because there are no fees or specialized equipment required for running nodes under DPoS, anyone can participate. All that’s needed is a wallet loaded with cryptocurrency.
Disadvantages of DPoS
DPoS does have its flaws, however. For one, it’s a less decentralized system than many other consensus mechanisms.
Bitcoin can run on any computer with access to its software and a connection to the internet; by contrast, a blockchain using DPoS would need some kind of trusted setup, as in an organization controlled by people who provide voting rights and periodically collect transactions into blocks.
Here we have learned, What is delegated proof of stake (DPoS)? How does it compare to other consensus models like proof of work (PoW) and proof of stake (PoS)?
POS models suffer from a distinct lack of finality, Delegated proof-of-stake (DPOS) attempts to solve that problem by introducing finality and further improving efficiency.
As one might expect, critics allege it’s fundamentally more centralized than other solutions while proponents say they’re more competitive because they don’t use as much electricity.
Further development will help clarify which opinion is correct. In the meantime, platforms like EOS claim to have solved these problems with an innovative governance model: account holders vote on who becomes block producers, and these block producers produce blocks for tokens that have been staked into them for their continued maintenance of nodes.
Nitin is a professional data Engineer, Who has a Post Graduation in Data Science and Analytics and working in the healthcare sector. Experts in Data analysis, Machine learning, AI, blockchain, Data related tools, and technologies. He is the Co-founder and editor of analyticslearn.com