The Delegated Proof of Stake (DPoS) consensus algorithm is considered by many to be a more efficient and democratic version of the PoS mechanism that preceded it.

Both PoS and DPoS systems are used as an alternative to the Proof of Work consensus algorithm, since a PoW system requires a lot of external resources by design. The Proof of Work algorithm uses a large amount of computing power in order to secure a distributed ledger that is immutable, decentralized, and transparent. In contrast, PoS and DPoS require fewer resources and have a lower environmental impact by design. To understand how delegated proof of stake works, one must first understand the basics of the proof of work and proof of stake algorithms that preceded it.


Proof of Work (PoW)

Most cryptocurrency systems run on a distributed ledger called blockchain, and proof-of-work was the first consensus algorithm used. It was implemented as a core component of the Bitcoin protocol, responsible for generating new blocks and securing the network (via the mining process). Bitcoin was proposed as an alternative to the traditional, centralized and inefficient global monetary system. PoW introduced a viable consensus protocol that no longer required the transmission of funds to be directed by a central administration. It provides real-time, decentralized payment settlements on a peer-to-peer economic network, eliminating the need for intermediaries and reducing the overall transaction cost.

Also including other types of nodes, a proof-of-work system is run by a network of mining nodes, which use specialized hardware (ASICs) to attempt to solve complex cryptographic problems. On average, a new block is mined every 10 minutes. The miner can only add a new block to the blockchain if he manages to find the solution for that block. In other words, a miner can only do so after completing a proof-of-work, which earns him a reward of newly created coins as well as all the transaction fees of that specific block. However, the process comes at a high cost because a lot of energy and failed attempts are required to do so. In addition, ASIC hardware is quite expensive.

Beyond the system maintenance efforts, questions remain about the feasibility of using a PoW system, especially regarding scalability (very limited number of transactions per second). However, PoW blockchains are considered the most secure and reliable and remain the standard as a fault-tolerant processing solution.


Proof of Stake

The Proof of Stake consensus algorithm is the most common alternative to Proof of Work. PoS systems were designed to address some of the inefficiencies and emerging issues that typically arise on PoW-based blockchains. They specifically address the costs associated with PoW mining (power and hardware consumption). Fundamentally, a Proof of Stake blockchain is deterministically secure. There is no mining in these systems, and the validation of new blocks depends on the number of coins that are proven to be owned. The more coins a person has locked in “stake,” the higher the chance of being chosen as a validator (also called a minter or forger) of a block.

While PoW systems rely on external investments (energy consumption and hardware), a proof-of-stake blockchain is secured through internal investment (in the cryptocurrency itself).

Additionally, PoS systems make attacking a blockchain more expensive, as a successful attack would require owning at least 51% of the total coins in existence. Unsuccessful attacks would result in huge financial losses. Despite the benefits and compelling arguments for PoS, such systems are still in their early stages and have yet to be tested on a larger scale.


Delegated Proof of Stake

The Delegated Proof of Stake (DPoS) consensus algorithm was developed by Daniel Larimer in 2014. BitShares, Steem, Ark, and Lisk are among the cryptocurrency projects that use the DPoS consensus algorithm.

A DPoS-based blockchain is created with a voting system where stakeholders outsource their work to a third party. In other words, they can vote for a few delegates who will secure the network on their behalf. Delegates can also be called witnesses and they are responsible for reaching consensus when generating and validating new blocks. The number of votes is proportional to the number of Coins each user holds. The voting system varies from project to project, but generally, each candidate delegate presents an individual proposal when asking for votes. Usually, the rewards collected by delegates are shared proportionally with their respective voters.

Therefore, the DPoS algorithm creates a voting system that directly depends on the reputation of the delegates. If an elected node misbehaves or does not perform efficiently, it will be quickly kicked out and replaced by another one.

When it comes to performance, DPoS blockchains are more flexible, as they are able to process more transactions per second (TPS), compared to PoW and PoS.


DPoS and PoS

While PoS and DPoS are similar in the sense of participation through coin locking, DPoS introduces a new democratic voting system, whereby block producers are elected. Since a DPoS system is maintained by voters, delegates are incentivized to be honest and efficient or be voted out. Additionally, DPoS blockchains tend to be faster in terms of transactions per second than PoS transactions.


DPoS and PoW

Where PoS attempts to address the shortcomings of PoW, DPoS seeks to streamline the block production process. Because of this, DPoS systems are able to process larger amounts of blockchain transactions quickly. At the moment, DPoS is not used in the same way as PoW or PoS. PoW is still considered the most secure consensus algorithm, and as such, it is through this that the largest number of monetary transmissions occur. PoS is faster than PoW and potentially has more use cases. DPoS limits the use of coin locking to the election of block producers. Its actual block production is predetermined unlike the competition-based PoW system. Witnesses take turns in block production. Some argue that DPoS should be considered a proof-of-authority system.


Conclusion

DPoS differs significantly from PoW and even PoS. Its incorporation of stakeholder voting is a way to decide and motivate honest and efficient delegates (or witnesses). However, the actual block production is quite different from PoS systems and in most cases it offers better performance in terms of transactions per second.