As the Proof of Stake consensus mechanism gains popularity (often displacing the Proof of Work consensus mechanism), blockchain developers have innovated on the traditional Proof of Stake mechanism, resulting in the Delegated Proof of Stake mechanism. This post will analyze the differences between traditional Proof of Stake and Delegated Proof of Stake consensus mechanisms.
Traditional Proof of Stake
A Proof of Stake system requires a user to put a certain number of cryptocurrency units at stake to be able to verify transactions. The creator of a new block is chosen pseudo-randomly, depending on the user’s wealth and coins at stake. In the Proof of Stake system, blocks are ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are ‘forgers’.
In most Proof of Stake virtual currencies, digital currency units are created at the launch of the currency and their number is fixed. Therefore, rather than receiving cryptocurrency units as rewards, forgers receive transaction fees. In a few cases, new currency units can be created by inflating the coin supply, and can be used to reward forgers.
To validate transactions and create blocks, a forger must first put their own coins at stake. Think of stake as an escrow account: if a forger validates a fraudulent transaction, they lose their holdings, as well as their future rights to participate as a forger. Forgers are therefore incentivized to validate only correct transactions.
The Proof of Stake system does not provide a way to distribute coins at the initial, founding phase of a cryptocurrency. So, cryptocurrencies that use this system either begin with an ICO and sell their pre-mined coins, or begin with the Proof of Work system, and switch over later.
Most Proof of Stake coins that pay a transaction fee reward for verifying transactions and creating new blocks set a target interest rate that users can expect to earn from staking their coins. For cryptocurrencies in which forgers create new coins, this rate also becomes the maximum rate at which currency supply is inflated over time.
Cyptocurrencies that currently run the proof of stake system are BlackCoin, Lisk, Nxt and Peercoin, among others.
Delegated Proof of Stake
Blockchain engineer Daniel Larimer is credited with creating the Delegated Proof of Stake (DPoS) system. DPoS seeks to by speed up transactions and block creation, while not compromising the decentralized incentive structure at the heart of the blockchain. DPoS is the next step in the evolution of consensus mechanisms. It builds on the original Proof of Stake consensus mechanism and drastically increases speed and scalability.
In the traditional Proof of Stake consensus mechanism, a user can put their coins at stake, thereby earning the right to validate transactions, forge blocks, and earn associated rewards. DPoS, a variation of the Proof of Stake consensus, seeks to reach consensus more efficiently.
In DPoS systems, users ‘vote’ to select ‘witnesses’ (other users they trust to validate transactions), and the top tier of witnesses (who have collected the most votes) earn the right to validate transactions. Users can even delegate their voting power to other users, whom they trust to vote for witnesses on their behalf.
Votes are weighed according to the size of each voter’s stake. A user need not have a large stake to enter the top tier of witnesses. Rather, votes from users with large stakes can result in users with relatively small stakes being elevated to the top tier of witnesses.
The number of witnesses in the top tier is capped at a certain number. These witnesses are responsible for validating transactions and creating blocks, and are in return awarded the associated fees.
Though witnesses in the top tier can prevent specific transactions from being included in an upcoming block, they cannot change the details of any transaction. They are thus equivalent to miners in a Proof of Work system.
Voting is a continuous process and each witness in the top tier is always at risk of being replaced by a user who gets more votes and is therefore considered more trusted. As a blockchain grows, it becomes increasingly competitive to become or remain a witness in the top tier. Users can also vote to remove a witness in the top tier who has lost their trust.
For a witness in the top tier, threat of loss of income and reputation is the primary incentive against malicious behavior.
Users in DPoS systems also vote for a group of ‘delegates’ (trusted parties responsible for maintaining the network). The delegates oversee the governance and performance of the entire blockchain protocol, but do not play a role in transaction validation and block production.
For example, the delegates can propose changing the size of a block, or the amount a witness should be paid in return for validating a block. Once the delegates propose such changes, the blockchain’s users vote on whether to adopt them.
Blockchains including Lisk, EOS, Steem, BitShares and Ark have adopted the DPoS consensus mechanism.
Summary of Differences between Proof of Stake and DPoS
1. Block creation: in Proof of Stake systems, the creator of a new block is chosen in a pseudo-random way, depending on the user’s coins at stake. In DPoS systems, users vote to elect a number of witnesses. The top tier of witnesses (typically 20) are rewarded for verifying transactions and creating blocks. DPoS is much faster due to a significantly smaller number of users verifying transactions and creating blocks; DPoS is, therefore, more scalable.
2. Governance: Proof of Stake systems have the blockchain’s rules and parameters programmed into the genesis block. Consequently, any changes mean a fork in the protocol. On the other hand, DPoS systems have an elected panel of delegates who actively govern the blockchain and can propose changes to the protocol, though the changes must be approved by the users for them to come into effect.
DPoS aims to create better incentives and a fast, scalable, more distributed and more efficient consensus mechanism.
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