Spotlight on: Delegated Proof-of-Stake

Wednesday 20 April 2016

You’ve heard of proof-of-work and probably proof-of-stake - so what is ‘delegated’ proof-of-stake?

In the land of the blockchain, speed and security are king. You want money moved fast, and you want it moved safely. Unfortunately, speed and security are also opposed; the way the universe is organised means that the one is typically the enemy of the other. That’s not to say there isn’t room for optimisation over the current models of securing a network and transferring money quickly and efficiently, though. And so we have a continual evolution of consensus technologies that seek to improve on the last iteration.


In DPoS, the economic policies of those standing for election are cryptographically enforced

Proof-of-Work (PoW). The original consensus mechanism designed by Satoshi, and still viewed by many as the best. PoW involves computers calculating hashes (straightforward but computationally expensive operations) that fit a certain criterion. The first to find a hash that fits gets to validate a block of transactions, along with any mining rewards involved. Bitcoin and many other cryptocurrencies use PoW.

Proof-of-Stake (PoS). In this protocol, each coin is effectively a mining rig, and coin holders have a chance of validating a block in proportion to their stake (the number of coins they have actively ‘staking’, the PoS equivalent of mining). It’s a little like a lottery where each coin represents a ticket for the prize - more tickets means a greater chance of winning, but it’s still random. Peercoin, Nxt and others use PoS, and Vitalik Buterin has said that Ethereum will transition from PoW to PoS in due course. Because it doesn’t use specialist hardware, PoS consumes a fraction of the energy of the carbon-heavy PoW.

Delegated Proof-of-Stake (DPoS). A variation on PoS, but an important one, DPos was first implemented in Bitshares and later Crypti and other platforms. Instead of aiming to secure a block directly, each account instead votes for a set of delegates, which have the job of validating transactions. This has been compared to the difference between a direct democracy and a representative democracy. Delegates standing for election set out their terms - such as the fees they would require for validating a block.

DPoS theoretically allows for very low fees, since in vanilla PoS higher fees are required to incentivise smaller coin holders to stake. The market decides who is chosen. Thus by voting for a particular node to do the job for them, holders benefit from lower fees and faster confirmation times, plus they don’t have to run a full client. Essentially, they are trading speed, cost and convenience for the chance to earn rewards themselves - a fair swap, for many who are not able to stake themselves (either because they don’t have enough coins to make it worthwhile, or because they don’t have a computer that can be left on 24/7).

There is a potential downside in terms of security, in that DPoS somewhat centralises activity around a smaller number of nodes. However, in reality smaller holders are less likely to stake anyway, or would lease their balance (as you can in Nxt, for example) to a staking node. The equivalent in PoW is the development of mining pools - and, as we know, bitcoin can be considered as extremely centralised around a handful of powerful pools.

There are other approaches to securing a network, but PoW and PoS and variations of it have established themselves as the best and most acceptable to date. DPoS is an interesting development that allows for extremely fast blocks - BTS, for example, has block times of just a few seconds. So watch this space, because as more competitive and business-ready platforms emerge, conducting speedy transfers is going to be a major selling point.

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