Delegated Proof of Stake (DPoS) Explained

Delegated Proof of Stake (DPoS) Key Takeaways

Delegated Proof of Stake (DPoS) is considered more efficient and more democratic than Proof of Stake (PoS) systems. To understand how Delegated Proof of Stake works, you first need to understand the basics of the Proof of Work and Proof of Stake algorithms.

Because Proof of Work (PoW) systems require a lot of external resources by design, Proof of Stake and Delegated Proof of Stake are used as alternatives to the Proof of Work consensus algorithm.

The Proof of Work algorithm uses a large amount of computing resources to maintain an immutable, decentralized, and transparent distributed ledger. Proof of Stake and Delegated Proof of Stake, on the other hand, require fewer resources and are structurally more sustainable and eco-friendly.

This article is a translation of Binance Academy's Delegated Proof of Stake Explained.

Proof of Work (PoW)

Most crypto asset systems run on a decentralized ledger called a blockchain. Proof of Work was the first consensus algorithm and was implemented as a core component of the Bitcoin protocol. The Bitcoin network uses the Proof of Work algorithm to create new blocks and keeps the network secure through the mining process.

Bitcoin was proposed as an alternative to the existing centralized and inefficient global monetary system. Proof of Work introduced a protocol that allows funds to be transferred over a P2P network without a centralized entity. Now, Bitcoin network participants can make payments in a decentralized way, without intermediaries.

Proof of Work is maintained by a network of mining nodes that use specialized hardware (ASICs) to solve complex cryptographic puzzles. A new Bitcoin block is mined about every 10 minutes on average, and only the miner who finds the solution for that block can add the new block to the blockchain. In other words, a miner can only successfully complete the mining process after completing the proof of work, and in return receives the newly created bitcoin (BTC) and transaction fees as a reward. However, this process requires a lot of computing resources, and ASIC hardware is also quite expensive.

Proof of Stake (PoS)

The Proof of Stake consensus algorithm was launched as an alternative to Proof of Work. Proof of Stake systems were designed to solve the inefficiencies and new problems that arise in Proof of Work-based blockchains. In particular, they address the high costs (electricity and hardware) required by Proof of Work.

Basically, Proof of Stake blockchains maintain security in a deterministic way. There is no mining in a Proof of Stake system; new blocks are created and validated through a process called staking. The more coins you stake, the higher your chances of being selected as a block validator and receiving rewards.

While Proof of Work systems depend on external electricity and hardware, Proof of Stake blockchains maintain their security through internal investment.

Proof of Stake systems are also more effective at defending against blockchain attacks, because to carry out a 51% attack, you would first have to buy the coin in question. If the attack fails, the attacker could suffer huge losses.

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake was developed by Daniel Larimer in 2014. Steem, Ark, and Lisk are well-known crypto asset projects that use Delegated Proof of Stake.

Delegated Proof of Stake-based blockchains involve a process in which participants elect representatives by voting. Participants elect representatives who will secure the network on their behalf. These representatives are called witnesses, and they are responsible for creating and validating new blocks. Voting power depends on the number of coins each user has staked.

As a result, a Delegated Proof of Stake system forms a voting system based on the reputation of the delegates. If an elected node misbehaves or is not efficient, it can be voted out and replaced by another node.

In terms of performance, Delegated Proof of Stake blockchains are faster and more scalable than Proof of Work and Proof of Stake.

Delegated Proof of Stake vs. Proof of Stake

Proof of Stake and Delegated Proof of Stake are similar in that both involve a staking process. However, Delegated Proof of Stake offers a new, democratic voting system for electing block producers. Because a Delegated Proof of Stake system is maintained by its voters, witnesses are incentivized to act honestly and efficiently. Delegated Proof of Stake blockchains are also faster than Proof of Stake.

Delegated Proof of Stake vs. Proof of Work

If Proof of Stake aims to fix the shortcomings of Proof of Work, Delegated Proof of Stake aims to streamline the block creation process. Delegated Proof of Stake can quickly process a larger volume of blockchain transactions. However, Proof of Work is still considered the most secure consensus algorithm to date. Delegated Proof of Stake uses staking power to elect block producers, and unlike the competitive Proof of Work system, blocks are created by witnesses determined in advance.