What is Delegated Proof of Stake (DPoS)
DPoS is a system with a fixed number of elected validators (also called block producers or witnesses). Block Producers are selected to validate transactions, take alternate turns to create blocks, and secure the blockchain from malicious actors. The network’s token holders (electors) vote block producers into Validator positions. Each protocol determines the weight of votes (usually the number of tokens staked) and the number of validator candidates electors can choose per cycle. Users normally stake the tokens they own in a special wallet developed for the specific blockchain protocol. Alternatively, voters can choose to proxy their vote to another voter, who will vote for validators on their behalf. Validators receive token rewards for work performed and usually share rewards proportionately with electors who voted for them.
The threat of DPoS Validator blockchain systems to traditional finance is that they could replace an accountant, administrator, banker, or anyone tasked with determining which financial transactions are valid and in what order they should appear in the ledger. DPoS is also a decentralized governance environment that utilizes the protocol’s rules to reach a unified consensus via democratic voting. DPoS results in high transaction speeds, staking that rewards passive profits, wide scalability, and low or no transaction fees for end-users.
Examples of DPoS systems
Bitshares
Bitshares is the original DPoS consensus blockchain created by Dan Larimer using a new technology called Graphene. Built primarily to solve the problem of sovereign trading without a centralized platform, it is billed as the first Decentralized Asset Exchange (DEX). An overview of the purpose and goals of Bitshares is explained on their website as follows:
Blockchains must have high performance and scalability in order to deliver the speed required by cryptocurrency and smart contracts. Designing BitShares from the ground up means it can meet demands to process more transactions every second than Visa and MasterCard combined. Delegated Proof of Stake ensures the BitShares network can confirm transactions in an average of just 1 second, limited only by the speed of light.
To achieve industry-leading performance, BitShares borrowed lessons from the LMAX Exchange, which is capable of processing 6 million transactions per second. These were the key points:
- Keep everything in memory.
- Keep the core business logic in a single thread.
- Keep cryptographic operations (hashes and signatures) out of the core business logic.
- Divide validation into state-dependent and state-independent checks.
- Use an object-oriented data model.
By following these simple rules, BitShares is able to process 100,000 transactions per second without any significant effort devoted to optimization. (Bitshares, 2020)
ARK
Ark’s innovation is a leader in DPoS development. They lead with an emphasis on solving the blockchain trilemma, as explained on their website.
Extant blockchain platforms face a range of well-known and seemingly intractable challenges [3]. These include what is commonly known as the “blockchain trilemma,” referring to the balance that blockchains strive to attain between:
- Scalability (handling large volumes of transactions at high speed)
- Security (guaranteeing the validity of transactions and protecting data)
- Decentralization (distributing transaction validation among nodes to eliminate a central point of control and to ensure accuracy and fairness).
Development of the ARK Technology stack began with consideration of the trilemma and further reflection upon two crucially related challenges, namely:
Interoperability (enabling independent chains to exchange value and information), sustainability (creating self-sufficient and self-governing environments). (ARK.io, 2020)
Ark operates with consensus from the top 51 delegate nodes, which alternate validating blocks randomly every 7 minutes. Blocks are linked every 8 seconds. Inflation for delegates totals about 7.8 million ARK per year.
Industries of interest for ARK include supply chain management, the Internet of Things, government, and gaming. Ark also has proposals that are voted upon by the delegates for approval.
EOS
The most prominent DPoS chain originated from Block.one, which went live June 2018. Launched by the Genesis Validators, the community voted for the top 21 validators, called Block Producers. EOS.io software, also created by Dan Larimer, is open-sourced, and any developer can build upon its foundation. Primary development continues from Block.one, where Brendon Blummer, CEO, and Dan Larimer, CTO, continue to work from their 4.1 billion dollar token war chest to develop the EOSio ecosystem. The video tutorial on Coinbase gives a good overview of the EOS.io software and EOS token. (See video link below)
Lessons Learned from Dan Larimer
Below are excerpts from Dan that illustrate the expansive capabilities of blockchains built with DPoS consensus.
Dan’s overall goal with Bitshares was to create a free society or a non-violent alternative to governance. A lofty goal, but it truly undergirds all the efforts of the three highest-performing blockchains in existence. However, one problem with decentralized communities is, does everyone share such a high vision?
“My prior blog post created quite a controversy among many in the BitShares community. I cast a vision for BitShares as an non-violent alternative to government. These ideas are considered niche and a distraction by some. Today I am going to justify the raw business benefits of a vision.”
Bitshares was also the first self-sustaining blockchain with a decentralized autonomous organization (DAO) funding development from the treasury. Ironically, Dan was forced to move on from the project he created due to DAO votes not funding ongoing research & development for his team.
Dan’s next move was, in conjunction with co-founder Ned Scott, to create Steem, a content media platform that could compete with established media with no ads and peer-to-peer rewards.
However, the greater vision was always there for Dan, as Scott states:
“Steem was born out of ideas about insurance and mutual aid: it was the idea that people would be able to help each other peer-to-peer if they were struggling to solve problems or needed assistance. It quickly grew into a much larger vision and Steemit was born as a place where individuals get rewarded by a community for posting and voting on content.”
–(Scott, 2019)
Dan left the Steem project on March 15, 2017, due to conflicting visions of STEEM’s development. It seems Dan wanted Steem to expand towards smart contracts with more open-source community software development, but Ned wanted more closed development only for the media content platform. Steem recently forked after being purchased by Justin Sun of TRON. The new chain is called HIVE.
EOS is the culmination of the development of Graphene technology to encompass abilities such as DEX ready tokens, a smart contracts platform, the ability to handle social media platform demands, cross-blockchain communication, and decentralized data storage solutions. Dan and other developers continue to build a variety of use cases on this open-source platform.
DPoS Opportunities.
Developers realize the superior benefits of delegated proof of stake architecture. The blockchain trilemma of security, decentralization, and scalability is solved. Everyone involved in the ecosystem has a stake in the chain, with potential inflationary benefits while helping to secure the chain. Moreover, democratic voting for chain upgrades and customization without forks enables future-proofing as technology advances.
Opportunities to affect change through governance abound for a growing variety of DPoS ecosystems. DPoS pioneer chains such as BitShares and Steem/HIVE inspired other projects to build on the DPoS model, such as ABBC, TRON, Tezos, Lisk, Elastos, and others.
Each chain has a platform, or wallet, within which tokens are staked. However, trading exchanges are also offering staking rewards for those wanting exposure to rewards without a custom wallet. Binance pioneered the trend and Kucoin, Huobi, Kraken, and even Coinbase offer staking rewards for those who leave their tokens within exchange wallets. However, keeping cryptocurrency on exchanges excludes you from one of the most important features of DPoS, governance.
While exchange platforms control tokens, the exchange can block producers, validators, and proposals on your behalf. This currently causes Validator entrenchment, and some individual token holders believe these votes are unjust. If individuals want democratic governance over who securely validates the blockchain and votes for chain proposals, they must stake tokens within their self-custody wallets.
Beyond staking rewards and the power to vote, the next innovation is inter-blockchain communication. DPoS chains are leading development towards utilizing token-based services from one chain onto another chain. Once chain silos are broken, the decentralized universal virtual computer will become more powerful, uncensorable, and ubiquitous in every industry.
The final frontier for a fully blockchain-based universal economy is privacy. Businesses need transaction privacy, governments need documentation privacy, and most importantly, individuals need privacy for every action they want private on the blockchain. Once a middle layer, such as LiqidAPPS, is able to guarantee privacy even between blockchains, mainstream adoption follows.