Delegated Proof of Stake (DPoS) is a type of consensus mechanism used to secure cryptocurrencies and prevent double-spend attacks. Users vote to elect delegates who approve transactions, propose upgrades to the network, and represent the broad community interests.
Delegated Proof of Stake was developed as a type of Proof of Stake consensus mechanism. Similar to Proof of Stake being developed to remove the energy intensity of miners (found in Proof of Work). Delegated Proof of Stake was developed to make regular Proof of Stake cryptocurrencies more efficient.
First proposed in 2014 by Daniel Larimer. This new consensus mechanism requires coin holders to vote for delegates who will secure the network on their behalf. These “elected” delegates are responsible for verifying transactions, voting on proposals, and ensuring the network remains secured. This creates a voting system that is dependent on the delegates reputation.
To become a delegate, one must lock up (stake) a certain amount of cryptocurrency while being elected. In the event a delegate acts maliciously (ie. approves a fraudulent transaction), the locked up coins are taken away from the delegate and their position is revoked. This incentives the delegate to follow the consensus rules and approve legitimate transactions.
To incentivize users to become delegates, a portion of the block reward and transaction fees are granted to delegates for performing their task.
Some of the most popular cryptocurrencies currently using the Delegated Proof of Stake consensus mechanism is Bitshares, Steem, Ark, Lisk, and EOS.
Maintenance Mode – The elected delegates can only vote on proposals submitted to the network. These proposals are used to help upgrade the network. These delegates cannot approve transactions.
Maintenance and Transactions – Delegates can both upgrade and approve transactions on the network.
Speed – These specialized delegates responsible for approving transactions allows the network to process more transactions. This is commonly referred to as Throughput (TPS) and measures the number of transactions that can be processed by the network per second. Cryptocurrencies such as EOS that use a Delegated Proof of Stake mechanism are capable of processing 4,000 transactions per second. Whereas, Bitcoin using a Proof of Work mechanism is only capable of processing 3 transactions per second.
Centralization – With only a few selected delegates maintaining the network, this creates network centralization. A tenant of Bitcoin and other cryptocurrencies is to remain decentralized. Creating a more centralized network defeats the purpose of having a blockchain as bad actors can censor transactions or prevent certain people from participating on the network.
Barrier to Entry– Becoming a delegate is not easy. It requires one to hold and lock up tens of thousands worth of the cryptocurrency at a time. Furthermore, certain cryptocurrencies (ie. EOS) requires delegates to have a technical expertise to become elected. This includes making upgrade proposals and gaining feedback from the community.