Delegated proof-of-stake (DPoS), explained

What is delegated proof-of-stake (DPoS)?

DPoS is an evolution of the proof-of-stake (PoS) consensus mechanism, designed to offer enhanced scalability, efficiency and democratic governance. 

Blockchain technology has revolutionized how we perceive and handle digital transactions, primarily through its decentralized nature and consensus mechanisms. The primary aim of these decentralized mechanisms is to ensure no central gatekeeping in managing a blockchain’s record of transactions and data. Instead, the consensus mechanisms rely on network participants to validate transactions and add them as new blocks on the chain.

Among the various consensus algorithms, one such mechanism that has gained prominence is delegated proof-of-stake. DPoS is a variation of the classic proof-of-stake consensus mechanism.

Daniel Larimer introduced the DPoS concept in 2014 as an enhancement to the traditional PoS consensus mechanism, aiming to improve efficiency and scalability. Larimer first shared his vision in a Bitcointalk forum post, which led to the practical implementation of DPoS with the launch of BitShares in 2015.

This marked the beginning of DPoS in blockchain technology, setting the stage for its adoption in other projects like Steem and Eos. Eos, in particular, brought significant attention to DPoS by leveraging the consensus mechanism to conduct one of the largest initial coin offerings (ICOs) in the cryptocurrency industry in 2017, highlighting the potential of DPoS in achieving high performance and decentralized governance.

How is DPoS different from other consensus mechanisms like PoS?

DPoS differs from traditional PoS by using a voting system to elect delegates for block validation, making the process more democratic and scalable.

The key to understanding all consensus mechanisms lies in how consensus is reached. While the Bitcoin blockchain introduced the first mechanism to reach an agreement on blockchain via proof-of-work (PoW), there are a few other ways for blockchain networks to reach a consensus. PoS was introduced in an academic paper in 2012. It is written by Sunny King and Scott Nadal as a new consensus mechanism to solve the problem of Bitcoin mining’s high energy consumption. 

PoS is one of the most common consensus mechanisms, and the Ethereum ecosystem adopted it in 2022. Gradually, various other secure iterations of PoS started emerging, including hybrid PoS-PoW, pure PoS, and, in 2014, delegated PoS.  

In a DPoS system, network users vote to delegate the block validation rights to a select group of witnesses or block producers. This democratic process aims to address some limitations of the standard PoS algorithm by ensuring that the power to validate transactions is distributed among elected representatives rather than being concentrated in the hands of a few wealthy stakeholders.

This implies that, unlike traditional PoS, where stakeholders validate transactions directly, DPoS allows tokenholders to elect delegates responsible for validating blocks.

In a DPoS system, network users vote to delegate the block validation rights to a select group of witnesses or block producers. This democratic process aims to address some limitations of the standard PoS algorithm by ensuring that the power to validate transactions is distributed among elected representatives rather than being concentrated in the hands of a few wealthy stakeholders.

With this, DPoS streamlines the block validation process, leading to faster transaction confirmation times. The limited number of elected delegates also enhances the scalability of the network.

How does DPoS work?

The core mechanism of DPoS revolves around voting, delegation and validation. 

DPoS enhances the traditional PoS system by incorporating an election mechanism where network participants vote to elect delegates responsible for verifying and creating blocks. This process involves four key participants: Voters, witnesses (or block producers), delegates and validators.

Voters

In a DPoS system, every network participant holding even the smallest amount of the native token can become a voter, with no minimum stakeholder token requirement to participate. Voters play a crucial role in the network’s governance by electing witnesses and delegates and participating in decision-making processes through governance proposals. Voting power is directly proportional to the amount of tokens held, meaning users with more tokens have greater influence.

Voters can choose to cast their own votes or delegate their voting rights to another individual. Their primary responsibility is to select witnesses or block producers, as these entities are directly involved in the block production process. Therefore, voters are incentivized to choose trustworthy and competent candidates to ensure the network’s smooth functioning and security.

Witnesses (block producers)

Witnesses, also known as block producers, are the nodes elected by tokenholders to validate transactions and create new blocks. These entities are pivotal to the operation of the blockchain, as they ensure the integrity and accuracy of transaction data. Upon verifying all transactions in a block, Witnesses receive block rewards, typically shared with the voters who supported them.

If a witness fails to validate transactions within the allotted time, they miss the block and forfeit their reward. This missed reward is usually passed on to the next witness, who successfully verifies the block. This system incentivizes voters and witnesses to act honestly: voters aim to elect reliable witnesses to maximize their rewards, while witnesses strive to maintain their integrity and reputation to attract votes.

Delegates

Voters elect delegates to oversee governance functions in DPoS. Unlike witnesses, who focus on block production, delegates are responsible for proposing improvements and changes to the network. These proposals can range from modifying block sizes to adjusting block rewards.

Once a delegate puts forth a proposal, it must be voted on by the network participants before it can be implemented. Delegates themselves do not have the authority to directly apply changes to the system; their role is to facilitate and suggest improvements that are then subject to community approval. This separation of duties helps maintain a balanced and decentralized governance structure.

Validators

Validators are full nodes that verify whether blocks created by witnesses adhere to the consensus rules. Unlike witnesses, any user can become a validator, and there is generally no direct financial incentive to perform this role. Validators play a critical part in maintaining the integrity of the blockchain by ensuring that all blocks comply with the established rules and protocols.

Incentives and governance mechanism in DPoS

The DPoS mechanism aligns the incentives of all participants to promote a secure and efficient network. Voters are incentivized to elect competent witnesses and delegates to maximize their rewards and ensure the network’s integrity. Witnesses and delegates, in turn, are motivated to maintain their reputation and act in the network’s best interest to retain their positions and continue receiving rewards.

The overall process looks as simple as:

The continuous voting process and the ability to replace underperforming or malicious actors contribute to a dynamic and resilient governance model. This system fosters a high level of community engagement and ensures that decision-making power remains distributed among stakeholders.

Advantages of DPoS

DPoS offers several benefits over other consensus mechanisms, making it a preferred choice for certain blockchain projects. 

DPoS offers several notable advantages that enhance the performance and governance of blockchain networks. One of the primary benefits is its accessibility. Unlike PoW systems, which require significant computational power and specialized equipment, DPoS allows anyone with a native token to participate in the voting process and become a delegate. This low barrier to entry promotes a more inclusive network where a broader range of participants can engage in the consensus mechanism.

Another significant advantage of DPoS is its scalability. By limiting the number of delegates responsible for block production, DPoS can achieve faster consensus, resulting in higher transaction throughput and improved network performance. Additionally, DPoS is environmentally friendly, as it does not require the extensive energy consumption associated with PoW systems. This sustainability aspect aligns with the growing demand for greener technologies.

Furthermore, the democratic nature of DPoS fosters a more decentralized governance model. The continuous voting process ensures that delegates remain accountable to the community and stakeholders can actively participate in decision-making processes. This dynamic governance structure allows for rapid adaptation and implementation of network improvements, enhancing the overall resilience and evolution of the blockchain.

Limitations of DPoS

Despite its many advantages, DPoS also has its share of limitations and challenges. 

One of the primary concerns is the potential for centralization. While DPoS aims to decentralize decision-making, the system can inadvertently concentrate power in the hands of a few delegates. 

Since the number of elected delegates is limited, there is a risk that a small group of delegates could dominate the network, leading to centralization issues similar to those seen in traditional PoS systems. This concentration of power can make the network vulnerable to collusion and malicious activities.

Additionally, DPoS requires a high level of voter engagement and awareness. For the system to function effectively, voters must be well-informed about the candidates and their performance. However, smaller stakeholders might feel that their votes are insignificant and choose not to participate, reducing the overall robustness of the consensus mechanism.

Moreover, the dependency on a limited number of delegates raises security concerns. If a majority of delegates collude or act maliciously, they could potentially execute a 51% attack, compromising the network’s security and stability. This vulnerability necessitates a vigilant and proactive community to ensure the continuous election of honest and competent delegates.

DPoS represents an evolution in blockchain consensus mechanisms. As blockchain technology evolves, DPoS aims to provide a framework for achieving decentralized governance and efficient block validation.