Delegated Proof of Stake (DPoS) is a blockchain consensus mechanism in which users who hold that blockchain’s coin are able to vote for “delegates.” Then, these elected delegates make important decisions for the entire network, like deciding which transactions are valid and setting protocol rules.
The mechanics of Delegated Proof of Stake are similar to Proof of Stake in that both require users to stake coins as a means of participating in consensus. The main difference is that, in a PoS network, all coin holders participate in validation and decision-making directly through staking. By contrast, only the elected delegates participate in validation on DPoS networks, while the rest of the nodes participate indirectly by voting for the delegate(s) of their choice.
In this article, we’ll look at how Delegated Proof of Stake works in more detail and outline how it has become one of the most popular blockchain consensus protocols. We’ll highlight four prominent blockchain networks that use it to maintain security. Lastly, we’ll discuss the main advantages and disadvantages of this consensus protocol.
What Is Delegated Proof of Stake?
Delegated Proof of Stake is one specific variety of consensus mechanism (also referred to as a consensus protocol) that blockchain networks use to come to agreement on which transactions should be approved and which should be rejected. While other consensus mechanisms like Proof of Work and Proof of Stake are more widely used, Delegated Proof of Stake has gained popularity in recent years.
Here’s why the Delegated Proof of Stake consensus mechanism is important and how it works at a basic level.
It’s crucial to know the basics of how blockchain consensus works before answering the question, “What is Delegated Proof of Stake?”
Blockchain networks are decentralized, which essentially means that each node (i.e. a computer or other physical device) in the network individually verifies every transaction. Because each node validates separately, the network has to find a way for all the nodes to agree on which transactions are valid and which are not. The set of rules that a network uses to come to agreement is called a “blockchain consensus protocol.” Different blockchains use different consensus protocols. Delegated Proof of Stake is just one popular variety of a consensus protocol.
How Does DPoS Work?
Blockchains that use Delegated Proof of Stake rely upon a reputation-based voting system to achieve consensus. Each user who holds a DPoS blockchain’s coins has the ability to vote on which nodes are allowed to validate transactions on the network. Voting power is based on how many coins a user stakes. Users who stake more coins have greater influence in determining which nodes are elected. These elected nodes are commonly known as delegates.
Each DPoS-based network has its own voting system. Generally speaking, each delegate candidate makes a proposal when asking for votes. Candidates will often promise, if elected, to share block rewards (coins earned for validating transactions) proportionally with users who voted for them.
The number of elected delegates varies greatly for each blockchain network. Regardless of this number, all DPoS-based networks assume that the majority of elected delegates are honest. In other words, the delegates want to keep the network secure and won’t intentionally try to validate fraudulent transactions. As long as this holds true, honest nodes will earn block rewards and dishonest nodes won’t.
Voters have a financial incentive (shared block rewards) to elect delegates who act in the best interest of the entire network. Since elections are held frequently, delegates also have a financial incentive to remain honest at all times. Otherwise, dishonest nodes will be voted out and replaced by honest nodes in the next election.
Some DPoS-based networks use real-time reputation scores to show voters the honesty level of current and previously-elected delegates. Naturally, honest nodes (ones with higher reputation scores) stand a better chance of getting elected as a delegate and earning more rewards.
Now that we understand the basics of how Delegated Proof of Stake works, let’s look at how it emerged from a theoretical concept to a full-fledged, highly popular consensus mechanism used by blockchain networks.
A Brief History Of Delegated Proof of Stake
Delegated Proof of Stake was invented as a way to address some of the flaws of previously-developed consensus mechanisms. In its short existence, this approach has quickly gained widespread adoption from numerous well-known blockchain networks.
In 2012, Peercoin launched the first Proof of Stake blockchain network. This design proved that it was possible for blockchain networks to use other consensus mechanisms besides Proof of Work. Compared to Proof of Work, Proof of Stake provides benefits such as greater energy efficiency, faster confirmation times, and higher transaction volume capacity.
While these are significant improvements, limitations still exist. Most notably, security for many PoS-based networks depends on the existence of a few wealthy stakers. Additionally, block rewards are distributed proportionally to the number of coins a user stakes. This means that wealthy stakers continue to gain a higher portion of the total coin supply over time and are increasingly responsible for maintaining the security of the network.
BitShares Implements DPoS
Daniel Larimer created Delegated Proof of Stake as a new consensus mechanism intended to improve upon the design of pure Proof of Stake. In July 2014, Larimer implemented DPoS as the consensus mechanism for the BitShares network. Although there isn’t much information available on the work that led to the creation of DPoS, we do know some of the motivations behind Larimer’s creation.
According to BitShares, Proof of Stake projects (e.g. Peercoin and Nxt) need to charge high network fees to enable all users to become validators and earn a profit from block rewards. The theory that drove the development of DPoS was that each PoS-based network has a limit to the amount of decentralization (number of stakers) that it can support. Without delegating tasks like transaction validation, issues like coin supply centralization and security vulnerabilities such as double spending attacks could arise.
DPoS avoids these issues by introducing an aspect of planned centralization from the beginning. BitShares and all other DPoS-based networks are centralized in the sense that a small group of delegates controls the transaction validation process for the entire network. DPoS-based networks are also considered to be centralized due to the fact that delegate candidates need to have access to a lot of funds. To become a delegate, users need to stake their own funds and/or gain the support of wealthy stakers. Additionally, the cost of running a DPoS node on some networks is more expensive than buying specialized cryptocurrency mining hardware required for PoW-based networks. However, DPoS-based networks remain decentralized in the sense that any user can become a delegate based on their reputation, and all non-delegates can earn block rewards.
Speed and scalability are also two major benefits of Delegated Proof of Stake that have led to increased adoption. Because a smaller number of nodes (delegates in this case) are needed for consensus, each block on the blockchain can handle more transactions. This can sometimes result in a higher number of transactions per second. Thus, a DPooS network may be able to handle more users at once without requiring higher fees or longer transaction confirmation wait times. Numerous blockchain projects such as TRON, Cosmos, Lisk, and others adopted DPoS for this reason.
It’s also important to note that the co-founders of BitShares left the project and went on to found new blockchain projects. This has been another catalyst for the widespread adoption of DPoS. In 2015, Charles Hoskinson launched the Cardano blockchain network. In 2018, Daniel Larimer launched the EOS blockchain network. These projects have now become two of the largest DPoS-based networks by market capitalization.
Popular Delegated Proof of Stake Projects
While BitShares is still operational today, it’s no longer the most popular DPoS-based network. Several other networks have adopted this consensus mechanism. Let’s look at how EOS, TRON, Cardano, and Cosmos use Delegated Proof of Stake.
On the EOS network, delegates are known as block producers (BPs). Elections are held every 2 minutes and 6 seconds. Each user can vote for up to 30 candidates by staking EOS coins. The top 21 block producer candidates are elected. Users also have the option to delegate voting power to proxy accounts which vote for BPs on their behalf.
There are a few minimum hardware requirements to become a BP. Users need to install NodeOS, which requires 8GB of RAM. They also need to provide the RAM required by the blockchain (~190.8 GB as of this writing). The size of required RAM currently grows by 1 KB with the addition of each new block. Anyone can theoretically become a block producer. In reality, voters are more likely to choose delegate candidates that are known to have the sufficient infrastructure to support the network’s continued expansion.
EOS, like many other DPoS-based networks, has questions surrounding its centralization. In November 2019, one BP named EOS New York presented evidence that suggests six BPs appear to actually be one entity.
On the TRON network, delegates are known as Super Representatives (SRs). Users can vote for up to 5 SRs per election by staking TRON coins. Elections are held every 24 hours, and the top 27 SR candidates are elected to validate transactions on the network and participate in the TRON network’s parameters proposals. SR candidates that finish from 28th to 127th in elections are known as “super partners” and are rewarded according to their voting rate. TRON recommends that SRs have at least 64 cores of CPU, 64G of RAM, 50M of bandwidth, and 20T of disk space.
According to a May 2019 statement from TRON’s former CTO Lucien Chen, the SR election process is largely controlled by TRON. Similar to the BP election process with the EOS network, it’s commonly considered to be more difficult for newer SR candidates to get elected on the TRON network.
Cardano uses an algorithm called Ouroboros. According to Cardano, this is actually a Proof of Stake system. However, many websites list Ouroboros as a Delegated Proof of Stake system. The original whitepaper also uses the term “πDPoS”.
With Ouroboros, elected delegates are known as slot leaders and are chosen every five days. Slot leaders are elected from the group of all stakers of ADA coins. However, only users who stake enough ADA coins (for example, 2% of the total stake) are able to vote in slot leader elections. Once elected, each slot leader is assigned a specific time slot for block production.
Similar to Cardano, there is some debate about whether Cosmos’ consensus mechanism should be considered DPoS or PoS. ATOM serves as the network’s staking coin, and stakers bond their ATOM coins as collateral. On Cosmos, delegates are known as Validators. Initially, only the top 100 validators are responsible for validating transactions. To increase decentralization over time, Cosmos has a ten-year plan to increase the number of validators to 300. The network also consists of non-validators called Delegators. Similar to other DPoS networks, delegators can stake their ATOM coins in support of other users who they want to select as validators.
Limitations of Delegated Proof of Stake
The continued usage of Delegated Proof of Stake by prominent blockchain projects shows that this consensus mechanism has several benefits. Of course, it does have some notable limitations, as well. All blockchain projects should consider the following drawbacks and attack vectors before implementing a Delegated Proof of Stake consensus mechanism.
Concentration of Voting Power
While DPoS removes the ability for large stakers to directly influence the network, users who stake more coins have more voting power in delegate elections. Thus, a few wealthy users still control the network, albeit indirectly. Additionally, these stakers still earn a larger percentage of block rewards that delegates distribute to their voters.
Decentralized blockchains are intended to be censorship-resistant, meaning that nodes shouldn’t be able to stop transactions from taking place unless they are invalid. DPoS-based networks are generally considered to be more centralized than networks that are PoS-based or PoW-based. Because there are only a few nodes responsible for transaction validation in a DPoS network, it’s easy for nodes (delegates in this case) to block valid transactions and freeze accounts.
Proponents of DPoS argue that this authority is only used for security reasons in extreme circumstances (e.g. blocking accounts that contain stolen funds). Detractors of DPoS argue that having fewer nodes also opens up the possibility of collusion as a way to censor specific users for no justifiable reason.
On larger DPoS-based networks, users who want to become delegates are required to have access to large amounts of funds. Although candidates don’t necessarily have to stake their own funds, they have to gain support from other users who are willing to stake the required funds for each delegate election.
Delegate candidates also need to factor in the costs of running a DPoS node that is capable of supporting transactions on a large blockchain network. Infrastructure requirements such as computational power, bandwidth capabilities, and memory are steadily growing. This means expenses for running a node are steadily increasing as the networks expands in size. Simply having the resources to run a DPoS node doesn’t guarantee that a user will get elected as a delegate or earn enough block rewards to offset the costs. For these reasons, becoming a delegate is an unattainable goal for most ordinary users.
Requires Active Participation
Having frequent delegate elections requires that users are willing to actively stake coins and participate in the voting process. It also requires that the majority of delegates elected for each voting round are honest nodes.
On larger DPoS-based networks, this is not a major security challenge since more funds are at stake and enough users are willing to participate in elections. On smaller DPoS-based networks, it’s more likely that a rogue group of stakers could pool their resources and vote for dishonest nodes that act against the best interest of the network. Without the presence of enough good actors, double spending attacks become less expensive and much easier for dishonest nodes to execute.