In recent topics, we have discussed things like proof of work and proof of stake. You have understood the basics of consensus and how governance in a blockchain network works. Now, we will look at a more complex facet of cryptocurrency that you need to know about.
It might seem difficult to understand but we will make it easy by explaining it perfectly.
Think of it as a technological democracy. Do you ever wish you could fire an incompetent boss? Do you ever look at someone in leadership and wish that you as the worker can just walk up to them and say ‘you are fired!?’
Well, this delegated proof of stake is all about that sort of thing. It is a little more complex than we make it sound but that is the general gist of it.
Why Was Delegated Proof of Stake Invented?
As with most of these things that make their way into the norms of the blockchain networks, necessity is the driving factor. When the currencies started, no one knew for sure what problems they would bring.
However, when problems started cropping up, it fell to users to come up with solutions that could curb misuse and other things that might negatively affect the consensus model on which most blockchains run.
Daniel Larimer realized that Bitcoin mining was wasting energy. He knew that mining would one day become centralized in a decentralized network. Giant mining pools would bring resources together and start controlling the network.
It would then lose the most attractive quality; that of a decentralized place. Daniel wanted to create a system capable of transaction speeds of about 100,000 per second. Because of some design flaws in the Bitcoin network, it was difficult to get fast transactions.
He invented and develop a new system that used little energy, worked fast and was secure at the same time. He named it the Delegated Proof of Stake or DPoS. The DPoS comprises:
- Community of people
It is just like a cryptocurrency network as we explained in previous topics. We will get into the details of how all this works to make transactions faster while also being secure and decentralized.
Here Is How DPoS Works
In the DPoS networks, the users elect people called ‘Witnesses/Delegates’. These people generate the blocks. A block as you know is a set of data containing the transactional details, added to the blockchain and made a part of the ledger distributed among the people in the network.
Each of the users in the network (regarded as a wallet) has the permission to certify their trust in one witness, who validate their transactions and generate blocks with them. A specified number of witnesses are elected by the users to make sure the decentralization is sufficient.
Most of the time, the number of witnesses is determined by votes. The number ranges between 20 and 100 people depending on what DPoS chain you are on.
These witnesses have the purview to produce blocks by verifying the transactions collected for the block. This takes a few seconds and then is chronologically added to a block. When they sign and verify the transactions in a block, they get the rewards that are shared by the ones who voted for a witness.
If a witness does not verify all the transactions in the time provided, they miss the block and all the transactions are unverified. That means the witness gets no reward. The missed block moves to the next witness and is termed as ‘stolen’.
The great thing about the system is that it can see discrepancies in the network. For example:
- Parts separation caused by internet connection problems
Because of the order of delegation/witness system combined with the small time frame, each witness gets to verify transactions, they detect major outages in the network in less than sixty seconds.
With a security mechanism that allows building blockchains that allow independent side chains, which synchronize when needed, a network like the DPoS supports more transactions and produces blocks faster.
Changes in Protocol
DPoS has two tiers of changes that the users can make in the protocol:
- Implementing changes to the settings of the current work scheme is only possible after voting, led by delegates, and can be deployed instantly after everyone approves.
- Implementing changes to the protocol itself requires a more complex mechanism to make sure that the network is never under threat.
After they change the code, a witness can propose implementation and put a signature on the changes using the special genesis wallet key. When this happens, two weeks of auditing will pass. During this time, any of the users in the network can study the proposed implementation and then voting happens.
If a consensus is clear, they implement the changes in the network. Sometimes, this could create a hard fork.
Why People Prefer DPoS
There are many reasons but the most quoted are:
- Unlike Proof of Work used in Bitcoin, transaction bandwidth in DPoS is independent of the computing power that runs the network. This makes the network more scalable.
- DPoS needs less financial input from users who want to produce blocks. This fosters more democracy and inclusion in decision making.
- The low entry threshold allows the DPoS more decentralization because more people take part in elections for a quorum to be reached.
- The DPoS is more sustainable because it does not require too much power to run the network.
- The protections against double-spending on DPoS are better than in other blockchains.
Obviously, as with anything, the DPoS has some disadvantages that people would like to address. For example;
- To operate, the network needs large numbers of interested and informed delegates to choose good witnesses and make decentralization possible
- Limited availability of witnesses can cause the network to centralize.
- The DPoS blockchain is vulnerable to problems caused by weighted voting. Users who have smaller stakes might not take part in voting because they might deem their votes insignificant.
To answer the question posed by our headline, yes, the DPoS is decentralized but is vulnerable to centralization, should certain factors change. This is a threat faced by many cryptocurrencies.
However, DPoS is undeniably better than traditional blockchain technologies. It is a matter of whether it will gain mass-appeal.