Analysis on Delegated Proof of Stake

Written by Malik Corbett

In this edition of Mining Bytes we explore the innovation of Delegated Proof-of-Stake (DPoS) which is an alternative consensus protocol to the Bitcoin and Ethereum Proof-of-Work (PoW) algorithm. DPoS is an evolutionary technology that has the potential to transform the current internet. First, let’s start by defining Delegated Proof-of-Stake.

What is a Consensus Protocol?

A consensus protocol is a blockchain network algorithm that determines:

  • Who should produce the next transaction block to apply to the blockchain.
  • When should the next block be produced?
  • What transactions should be included in the block?
  • How are block producers compensated for their services?

In other words, the consensus algorithm determines how block producers are selected, and how the network agrees on a shared state of the universe. A block producer assumes a similar role as a “miner” in PoW networks.

What is a Block Producer?

In a blockchain, transactions are verified and secured by a network of computer nodes called block producers. The block producers play a very important role in that they provide the following services to the network:

  • Ensuring Censorship-less Environment
  • Tune Network Parameters (i.e. block size, fees, coin inflation, etc.)
  • Security (i.e. prevent security breaches such as Double Spend Attack)

What is DPoS?

Delegated Proof-of-Stake or DPoS is a blockchain consensus protocol that allows network token holders to be able to cast votes to elect block producers either directly or indirectly through delegation. The votes in a DPoS are weighted by the amount of tokens a voter has staked or vested into the network. The block producers (miners) with the most votes are able to produce blocks. Furthermore, staking one’s tokens, allows the participants to rent bandwidth to perform network operations and functions.

Unlike Proof-of-Stake (PoS) implementation where block producers are chosen entirely on wealth of their account, in a DPoS system, on-chain governance is built directly into the protocol. In a DPoS protocol, the algorithm provides an alternative path to becoming a block producer.  Besides having lots of capital to stake, in a DPoS protocol a block producer can be voted by the network. This innovation has opened the door to new and unique business models.

The Difficulty of Scaling a Proof-of-Work Blockchain

Scaling a blockchain is very difficult as can be seen with Bitcoin and Ethereum.

Those networks have inherent bottlenecks that make it difficult to scale the platform for widespread use. Scalability in the context of blockchain means that the blockchain can process fast transactions as well as provide low cost services to the

end user while remaining permission-less, trust-less and decentralized enough to remain secure.

Not All Blockchain Technology are the Same

When evaluating blockchain technology, it is important to ask the following questions:

• What problem is this blockchain technology solving?

• What are the tradeoffs?

• Has the lead development team built anything besides slick marketing documents and a website?

Not all blockchains are the same nor are they designed to solve the same problem. In other words, blockchain technology is not a “one size fits all” phenomena. Understanding blockchains and how they work is a complex subject with nuances and subtle differences that have an enormous impact on long-term scalability and security.

For instance, Bitcoin was designed to be a sovereign-grade digital currency which place emphasis on security and censorship-less features. Bitcoin was designed so that it would be difficult for even a nation-state to overtake the network. On the other hand, the Ethereum network is designed to be a “generalized” blockchain platform that supports decentralized applications or DApps via an Ethereum Virtual Machine (EVM).

The Benefits of DPoS

Delegated Proof of Stake was invented by Dan Larimer with the introduction of the decentralized exchange (DEX) BitShares. Mr. Larimer invented DPoS with scalability in mind. We will touch upon some of the unique innovations of DPoS which are:

• Scalability

• On-Chain Governance

Blockchain Scalability & On-Chain Governance

Blockchain scalability refers to the transaction rate, which is the number of transactions processed per unit of time. As mentioned above, not all blockchains are the same nor are they designed to solve the same problem. For example, Bitcoin is built to withstand large scale Byzantine attacks. But this security comes with a price: the speed at which the network can process transactions is very limited. In fact Bitcoin turns out to be more of

a settlement system then a global currency, but that is a subject for another analysis at a later time.

However, not all systems require that much level of security and can be unnecessary for decentralized social media networks or any applications that need real-time or near real-time transactions. So in a DPoS consensus protocol, Mr. Larimer made a trade-off of a less decentralization of block producers by limiting the amount of (trusted) block producers that secure the network so that transactions can be verified quickly.

Furthermore, unlike Bitcoin and Ethereum Proof-of-Work consensus algorithm, where block producers compete to produce blocks by being the first to solve mathematical puzzles using legions of powerful computer hardware, in DPoS block producers work in concert. Every block interval a single producer is elected by the network to produce the next block, while all other producers verify consensus. In the case of EOS that means that transactions become irreversible in only 1 second. In Bitcoin and Ethereum, by contrast, many services wait for multiple blocks to be confirmed (20-50 blocks) before considering a transaction to be irreversible.

Source: https://Blockivity.info as of 4/22/19

Zero Transaction Cost

Transaction cost would be unacceptable in the context of a social media website. Imagine if for every tweet, authored post, liked post or content shared, you were charged money. Social networks built on top on Proof-of-Work blockchain networks such as Ethereum are subject to such fees because block producers are compensated per transaction in a PoW consensus implementation.

Instead, DPoS takes a revolutionary approach to compensating block producers and guarding against network spam. In addition to providing fees to miners, in PoW networks transaction fees are designed to increase the cost of spamming the network to an unfeasible level. Because transaction fees are zero, the designers of DPoS took a different route to defend against spam. Specifically, in a DPoS network users must stake their tokens to rent a portion of the total network bandwidth. Users with excess bandwidth may rent this to other users lacking the capital to purchase the resources directly.

On-Chain Governance

Crypto governance is a hotly debated subject beyond the scope of this analysis. However, DPoS provides a highly transparent hierarchical structure that is enabled and centered around the digital token.  In many ways DPoS is a digital representation of a global delegative democracy. For example in a DPoS system, users can either vote for a block producer directly or delegate their vote to someone else to vote on their behalf. In many ways DPoS is a digital representation of a global delegative democracy.

Conclusion

My opinion is that DPoS is a robust and practical solution for scaling blockchain network. DPoS’s innovative properties such as on-chain governance, zero transaction fees, high throughput and low latency are strong factors that can potentially see EOS as the first blockchain technology capable of replacing a large scale centralized web application. Additionally, its networking capabilities, if taken to their logical conclusions could see DPoS blockchains replacing fundamental pieces of internet technology such as authenticated communications networks, API gateways, and even cloud computing as we know it today.

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