This began when we were on a lookout to find the differences and the similarities between the widely-popular used-by-Bitcoin consensus mechanism — Proof of Work, and an alteration to the Proof of Stake consensus mechanism called the ‘Delegated’ Proof of Stake. Before delving into analogies, let’s get our hands dirty with some introduction to both.
What Proof of Work is, in a nutshell
Bitcoin uses a consensus mechanism in which miners need to apply heavy computing resources (also physical components such as electricity, cooling systems, significant land area etc.) to validate the transactions in a block. The use of resources proves to be vital in attacks against the network because any malicious miner would need to possess more resources than 51% of the miners in a group, which is practically not very possible, while also considering the theory that maximum people in a group have good intentions. Proof of Work has been used by Bitcoin, Ethereum and others.
What Delegated Proof of Stake is, in a nutshell
Delegated Proof of Stake is an altercation to the Proof of Stake consensus mechanism. DPoS is basically a much democratised version of the proof of work which is faster, and more efficient:
So, in DPoS, delegates are elected based on their token holding (or, network weight). Plus, the delegates are paid for the confirmation of transactions and creation of blocks. The extent to which the delegates are paid is also decided by the stakeholders. The delegates can use these funds to pay for lobbying efforts that benefit the network as a whole.
Why Dan Larimer invented DPoS?
The chief intention behind the invention of DPoS was the drawbacks of the Proof of Work mechanism used by Bitcoin and others. Larimer felt that bitcoin mining turned into a centralised affair, which according to him was against the core concept of blockchain.
Also he wanted crypto-transactions to be somewhere comparable to what a payments solution like VISA is able to achieve today — thousands of transactions within seconds.
He recognised the immense use of energy by PoW and wanted to invent a more efficient solution that uses much less energy, is blazing fast but doesn’t compromises on security either.
In DPoS, people vote for individuals whom they want to run the network. The individuals who get the most votes are called the Witnesses, and the top few are paid for their work. Now, as the network size grows, the competition to perform grows as well and it becomes difficult to stay a paid witness. Every witness needs to up their performance and add ore value tot the network. Hence, the network benefits for sure. If any witness tries to act in a nefarious way, the people can remove their votes and the bad actor is fired, thus keeping the network democratised and decentralised.
Also, there is a popular example of the Whale vs Minnow in DPoS. If Whale has 500,000 coins of a particular cryptocurrency that uses Delegated Proof of Stake consensus mechanism, and on the other hand Minnow has merely 500 coins, Whale’s voting power would be much higher than that of Minnow and he would be having more say in who gets elected as a Witness. This is the core essence of Proof of Stake — the more the merrier.
How is DPoS different from PoS
DPoS is a variation based on the central idea behind PoS. In PoS, the entity with a high holding of a particular coin would be able to influence the network. This makes the network lose decentralisation and this influence may be based on personal preferences.
How PoW is different from PoS
Proof of Work requires a miner to validate transactions by solving a complex cryptographic problem. Highly specialised ASIC harware is used for this in case of Bitcoin and Bitcoin based mining algorithms. The first miner to validate transactions in a block is rewarded with Bitcoins. This process makes the network highly secure from attacks such as the 51%, where it is practically impossible for a miner to possess more computing resources than 51% of the miners in the group. This also protects the network from issues such as a whale having more say in the network just by the virtue of having a bigger holding of the cryptocurrency — a problem that any proof of stake consensus mechanism based blockchain faces.
Hybrid Consensus Mechanism (or, Proof of Activity)
A hybrid consensus mechanism has also been conceptualized and also brought into practice which is a combination of Proof of Work and Proof of Stake. An instance of this is, miners race to solve a cryptographic puzzle which is exactly how it happens in the traditional PoW. Here, the mined block does not contains any transactions, rather acts like a template and contains only a header and the miner’s reward address. Right after, the network switches to Proof of Stake. At this stage, based on the header, a random group of validators are chosen to sign the new block. This selection of the random group is done based on the holding that each individual has. So, again, the more the merrier.
Instances of successful uses of DPoS
BitShares is a globally distributed database that is used as a ledger to track ownership of digital assets. It is using DPoS’ block production by elected witnesses to a great advantage in the entire system.
Some more examples are Steem, EOS, Lisk et. al. These are a few blockchains which are using the Delegated Proof of Stake consensus mechanism to great advantage with its exclusive features.
An exclusive example
Proof of Work is not the worse out there, practically speaking. A blockchain may start with Proof of Work as its consensus mechanism to validate transactions in a block. But, after a certain number of blocks, it may decide to switch to Proof of Stake. Ethereum is a very prominent example of such a case. Ethereum has always used Proof of Work, until recently they planned to introduce Proof of Stake ‘partially’ to their network for validating the blocks. Vitalik’s implementation is called Casper, which is going to be used as a kind of ‘checkpoint’ every 100 blocks that will also offer further evidence that the blocks store the correct transactions — something the developers are calling ‘finality’.
Conclusively, this is a very good example where both, PoW as well as PoS are being used because both the consensus mechanisms have their fair share of merits. And, Delegated Proof of Stake is just an altercation to PoS with its own merits as well as disadvantages. A few blockchains have been able to implement it successfully as well, and it is a great piece of technology for the current scenario of blockchains.