What is Delegated Proof-of-Stake?

By April 20, 2017Bitcoin Business
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TheMerkle Delegated proof-of-stake

In the world of cryptocurrency, there are many different ways to secure a network. Bitcoin relies on the proof-of-work mechanism, whereas various altcoins use proof-of-stake. However, there is another solution that is well worth considering, which goes by the name of Delegated Proof-of-Stake. This concept was invented by Dan Larimer and offers some interesting changes that are well worth considering.

Delegated Proof-of-Stake Has its Merits

First of all, Delegated Proof-of-Stake and traditional Proof-of-Stake are very different. The latter option – seemingly – incentivizes large coin holders to stake their balance, yet it is not necessarily beneficial to smaller coin holders. Since the staking rewards are based on network “weight”, anyone with a small balance will often see less “stake rewards” compared to those with much larger holdings. It is not necessarily the fairest way of distributing staking rewards by any means.

Delegated Proof-of-Stake, on the other hand, works slightly differently. It is a more efficient PoS algorithm altogether, and seemingly provides more decentralization when it comes to issuing stake rewards to more people. Moreover, DPoS provides reliably confirmed transactions on the networks that implement this technology. If it were to be added to bitcoin at some point, it could potentially speed up transaction times, even though it would add inflation to the ecosystem as well.

Under the hood, DPoS uses a reputation system and real-time voting to achieve consensus. To be more specific, a panel of trusted parties has to be established, with all of its members eligible to create blocks and prevent non-trusted parties from participating. Delegates, the parties responsible for creating blocks, are unable to change transaction details. However, they can prevent specific transactions from being included in the next network block. This seemingly requires a fair bit of trust, which makes the concept look far less appealing.

However, there is a caveat. Any transaction not included in the next block – or a block failing to create – will mean the next network block is twice the size. In a way, this prevents malicious intent to block certain transactions or blocks being created in the allotted time period. All it does is perhaps slightly delay said transaction or block, but it is seemingly impossible to prevent inclusion and creation in the long run.

Moreover, anyone who behaves in a nefarious way will have their behavior exposed to the public. Community members of the DPoS-capable currencies can vote to have said person removed as a delegate altogether. It appears as if cheating under DPoS rules is not only impossible, but it is not in anybody’s best interest to do so either. It is equally possible to have more or fewer delegates as part of the network, although that may not necessarily be beneficial either. It is always possible to change the number of delegates, though, which is an important factor to keep in mind.

It is also worth mentioning delegates in a DPoS ecosystem are paid for the creation of blocks and inclusion of transactions. However, the delegates can use these funds to pay for marketing or lobbying efforts, which benefit the exposure of the cryptocurrency network as a whole. Network stakeholders determine how much delegates are paid for their efforts. All things considered, DPoS is a consensus mechanism worth looking into, and its original whitepaper can be found here.

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