Delegated Proof of Stake (dPoS) is a cryptocurrency consensus mechanism that can be used to secure the network and prevent double-spend attacks.
dPoS can best be compared to a democratic government. Coin holders can vote to elect delegates (terminology may change from network to network) who approve transactions, vote on changes to the network and generally act as governors of the blockchain.
The idea behind dPoS is to solve a common problem with decentralized networks: lack of participation. If a blockchain network gives every coin holder a vote, history has shown that many holders will not participate and thus the network can become dominated by the vocal (and rich) few.
With DPOS coin holders just have to vote once (or as often as they like) for a delegate who will represent their interests. Delegates have a mandate to participate in network governance so there ends up being an active community of delegates managing the blockchain. That’s the theory at least, although DPOS (like every blockchain consensus mechanism) is not perfect.
*This article builds on ideas that we’ve discussed in our Proof of Stake explanation. If you’ve not yet read that article we encourage you to do so.
- Instead of voting directly, coin holders in a DPOS network vote for delegates who will represent their interests.
- DPOS attempts to solve several problems like lack of network participation as well as slow network speeds.
- DPOS is still a new technology and has not yet been proven the way Proof of Work has. That’s not to say it can’t work or that it’s broken, just that investors should be cautious as there may still be flaws in DPOS that have yet to be worked out.
Throughout this article, we’ll mainly be referencing EOS in relation to DPOS. EOS is the largest and most popular DPOS cryptocurrency as well as the originator of the technology. Their $4 billion ICO windfall was at least partly based on DPOS’s promise to solve some of the limitations of POW and POS.
There are two types of DPOS networks.
- Maintenance only – Under this model crypto holders elect delegates to govern the network. The delegates can vote on proposals like block size limits, block rewards, upgrades to the network, etc. Basically the delegate is tasked with maintaining and upgrading the network. However, delegates do not vote to approve transactions.
- Maintenance and transactions – Under this model delegates work together to maintain and upgrade the network, in addition they also vote to approve transactions. In return for voting to approve transactions the delegates receive a block reward, just as Bitcoin miners receive a block reward for securing the network.
There are a couple of advantages that come with delegates maintaining the network and approving transactions.
- Speed – With only a handful of delegates voting to approve transactions the throughput is significantly faster. For example, EOS has shown that it’s capable of reaching 4,000 TPS. That’s under ideal conditions and in the real world EOS may not be quite so fast. Nonetheless, even 500 TPS is still exponentially better than Ethereum’s 15 TPS.
- Network Participation – As mentioned, blockchain networks in general have a problem with participation. Traders and investors seem content to hold coins without participating in the community. With DPOS though the delegates have a mandate to participate and are financially incentivized to do so. If they don’t participate they can be voted out of their role of delegator.
Naturally there are also some downsides associated with DPOS.
- Collusion – DPOS networks concentrate power and if there is one taboo word in crypto it’s centralization. In EOS there are just 21 block producers (delegates) who are responsible for controlling the network. If 15 of them colluded they could “hijack” the network. However unlikely it is that those block producers would actively hurt a network that they’re financially invested in, the mere possibility of it happening is much more likely than on a POS network where there may be thousands or tens of thousands of individual stakers.
- High Barrier to Entry – Not just anyone can become a delegate in a DPOS network. In some cases there is a financial barrier, I.e. a delegate must hold a certain amount of cryptocurrency, usually tens of thousands of dollars’ worth. In other cases the barrier is technical. For example, EOS stakers must have the technical expertise to set up and maintain a node with at least 80 GB of ram. POS networks typically have a much lower barrier to entry.
When it comes to cryptocurrency consensus mechanisms there are no easy answers. Proof of Work is extremely secure but it has high energy usage and low network speeds.
Proof of Stake has a low barrier to entry but POS networks tend to suffer from low investor participation and they don’t have great speeds (at least without the addition of sidechains, sharding or other 2nd layer solutions).
Delegated Proof of Stake offers great speeds and in theory the delegates will remain active network participants. However, there are risks of collusion, centralization and becoming a delegate often requires technical expertise, capital, or both.
These risks don’t condemn Delegated Proof of Stake to irrelevance but they should be addressed if DPOS is to become a dominant technology in the future.