Delegated proof-of-stake (DPoS), explained

The emergence of a delegated proof-of-stake (DPoS) consensus mechanism

As a seasoned blockchain enthusiast with over a decade of experience, I have watched the evolution of consensus mechanisms with keen interest. In my journey, I’ve seen many come and go, but DPoS has always intrigued me for its unique blend of speed, security, and scalability.

The development of blockchain technology, similar to the early days of the internet, has progressed from Proof of Work (PoW) to Proof of Stake (PoS) in order to address inefficiencies. While PoS offered improvements, it also presented its own challenges. In the year 2014, Delegated Proof-of-Stake (DPoS) was introduced, addressing these issues by striking a balance between efficiency, decentralization, and security.

Despite being more than ten years old, the idea of blockchain technology remains quite new and innovative.

Ponder for a brief moment on the concept of the internet – it’s worth noting that the initial version might be considered as ARPANET, which went live in 1969. In essence, this was the first functional network to use packet switching technology.

Over time, the technology underwent numerous transformations. During the 1970s, novel protocols emerged. Notably, the Transmission Control Protocol (TCP) and Internet Protocol (IP) allowed for a more distributed and expandable network infrastructure.

The development of the technology necessary for the World Wide Web spanned more than two decades. Similarly, blockchain technology is currently evolving and developing further. A point of contention among developers regarding this technology is how transactions should be validated within the blockchain, a process often referred to as “consensus.

Bitcoin introduced a novel consensus mechanism, called proof-of-work (PoW), where miners compete to encode transaction details in a manner that fits a specific hash length criteria.

It wasn’t surprising that the high-energy consumption, costly nature, and barriers for new participants prompted a quick reassessment of the consensus mechanism in modern blockchain systems.

In the year 2012, Peercoin implemented a system known as proof-of-stake (PoS). Unlike traditional methods where miners compete to mine new blocks, PoS operates by allowing the network itself to choose validators based on their significant investment or commitment within the network. This high stake serves as a deterrent for malicious behavior.

However, PoS still had issues surrounding centralization, scalability and security.

2014 saw the introduction of delegated proof-of-stake (DPoS), a novel consensus mechanism that aimed to rectify the issues found in both Proof of Stake (PoS) and Proof of Work (PoW).

One could think of it as the new tires on an old wheel.

What is DPoS?

In 2014, Daniel Larimer introduced Delegated Proof of Stake (DPoS), a system where token holders elect delegates to confirm transactions. This setup minimizes energy consumption and potential centralization problems observed in Proof of Stake. Networks such as BitShares, Steemit, EOS, and Tron utilize this method.

As an analyst, I’d rephrase it as: In Proof-of-Stake (PoS) systems, one validator is randomly selected to construct a block, unlike the energy-intensive and prolonged process required by numerous miners in Proof-of-Work (PoW) systems. A validator secures their commitment to the network by binding a stake – a specific amount of cryptocurrency – which they risk losing if they participate in any harmful activities within the system.

The issue comes with the idea of “pseudo-randomness.” In traditional proof-of-stake networks, there ought to be an incentive to lock up a higher stake. As such, those with higher stakes are chosen more often than those with lower stakes. 

Consequently, it results in a higher level of control being concentrated, as those who have the greatest investments tend to carry out most of the mining operations, thus earning the majority of the benefits.

DPoS is a consensus mechanism that aims to solve this. 

Instead of every token holder individually verifying transactions, they elect representatives (delegates) to perform this task. This system not only conserves energy but also promotes a more balanced distribution of power. The chosen delegates work diligently to swiftly validate transactions, making Delegated Proof of Stake (DPoS) a scalable option for contemporary blockchain uses.

Consider it as if the community selects individuals to oversee the administration of a town. These chosen ones are responsible to the token holders who elected them, making sure their actions prioritize the network’s welfare. If they don’t, these representatives can be removed from office and replaced by new ones, maintaining a flexible and adaptive system.

The journey of DPoS commenced in 2014, spearheaded by Daniel Larimer and the introduction of the BitShares blockchain. BitShares prospered, and in its wake, other blockchain platforms like Steemit, EOS, and Tron emerged, choosing to employ DPoS as their operational system.

Larimer’s invention significantly enhanced the effectiveness and adaptability of the blockchain sphere, establishing a fresh benchmark for consensus algorithms.

How does DPoS work?

In a Delegated Proof-of-Stake (DPoS) system, participants known as voters possess tokens that allow them to elect delegates. These delegates are responsible for verifying transactions and creating new blocks within the blockchain. The voting process is continuous, and these delegates receive compensation in the form of newly minted tokens and transaction fees. Their primary motivations are financial incentives and maintaining a good reputation. Meanwhile, full nodes play a crucial role by verifying the integrity of the blockchain.

In this blockchain network, the decision-making process (consensus mechanism) depends on two categories of token holders, each holding the native digital currency: those who vote and those who act as delegates.

What are voters in DPoS? 

In a Delegated Proof of Stake (DPoS) system, participants, often referred to as stakeholders or token holders, are those who possess the tokens. A crucial role these individuals play is actively engaging in the network’s management through a voting process, where they select delegates.

As a researcher studying decentralized networks, I find it fascinating how tokenholders can exercise their influence directly or assign it to other representatives. The importance of their vote is contingent upon the number of tokens they own, meaning that those with larger investments carry more substantial sway in the network’s decision-making processes.

As a crypto investor, I’ve come to appreciate the flexibility of the DPoS (Delegated Proof of Stake) system, which isn’t just a one-time affair. Instead, it’s an ongoing process that allows me, as a token holder, to adjust my votes whenever I see fit. This dynamic voting mechanism keeps delegates on their toes, ensuring they stay accountable to the community. If a delegate underperforms or exhibits questionable conduct, they can be quickly replaced by another candidate through a vote, preserving the integrity of the system.

In several Delegated Proof of Stake (DPoS) networks, a system exists where a piece of the rewards earned by delegates is given to those who backed them during elections. This setup encourages voters to actively engage in the voting or election process as they stand to financially benefit from it.

In some cases, networks grant staking rewards to token holders solely for taking part in the decision-making process (voting), regardless of how well their chosen delegates perform. This way, every participant is compensated for their contribution.

What are delegates in DPoS? 

As a researcher, I’d like to point out that the term ‘delegates’ refers to individuals or entities who are elected by token holders in a network, tasked with verifying transactions and generating new blocks. The number of delegates can fluctuate across networks but often falls within the range of 21 to 101.

In a systematic way, participants sequentially generate fresh blocks, following a rotating system known as round-robin. This organized method guarantees a consistent and orderly procedure for block development. Each participant is tasked with creating and appending new blocks to the chain within a defined time span, called a block interval. If a participant fails to produce a block within their assigned time, the next one in line steps up, ensuring uninterrupted block production.

Of course, delegates are given a share of freshly minted tokens as compensation for constructing blocks, much like miners receive rewards in Proof-of-Work systems. Notably, apart from block rewards, delegates also accumulate transaction fees that users pay for processing their transactions. These fees get incorporated into the blocks that the delegates produce.

In some cases, networks may incentivize participants (delegates) based on their performance indicators like uptime and block production success rate. Those who maintain a consistent and dependable service often receive greater compensation. On the flip side, delegates who miss deadlines for producing blocks or engage in unscrupulous behavior can face consequences such as reduced rewards or even removal by the community, should they fail to meet expectations.

Delegates are not only motivated by financial gains but also by their standing within the community. A good reputation can secure reelection and ongoing benefits, whereas poor conduct or unscrupulous actions may lead to losing their role. This incentive based on reputation encourages delegates to behave ethically and prioritize the network’s welfare.

In a Delegated Proof of Stake (DPoS) system, the role of the delegates differs from traditional validator roles in other consensus mechanisms, as they do not verify the tasks of their peers directly. Instead, they focus on independently performing their assigned tasks.

Rather than delegates, any individual can operate full nodes within the network, responsible for downloading and verifying every block. These nodes scrutinize the legitimacy of the transactions contained in each block and make sure the block producer adheres to the agreed-upon consensus rules.

Advantages of DPoS

DPoS (Delegated Proof of Stake) provides quick transaction processing, strikes a balance between decentralization and centralization, consumes less energy, and boosts security by relying on community accountability.

• Efficiency: Through the use of a fixed number of elected delegates who produce blocks in a predictable, orderly manner, DPoS networks achieve fast transaction times and high throughput. 
• Decentralization vs. centralization: DPoS strikes a unique balance between decentralization and practical centralization. While it relies on a limited number of delegates to produce blocks, these delegates are democratically elected by the community of tokenholders. 
• Energy efficiency: One of the standout advantages of DPoS is its lower energy consumption compared to PoW. 
• Security: Delegates are held accountable by the community, and those who fail to perform their duties or act maliciously can be swiftly voted out. This accountability, combined with the inherent transparency of the voting and block production process, helps maintain a secure and reliable network. 

Disadvantages of DPoS

In simpler terms, Delegated Proof of Stake (DPoS) has the risk of becoming too centralized, as it tends to give more voting power to those with larger stakes. Additionally, there can be issues in ensuring delegate accountability because of possible voter disinterest or apathy.

• Centralization risks: While DPoS aims to balance decentralization, the limited number of delegates can still lead to centralization. Indeed, if a few delegates consistently dominate the election, it can reduce the diversity of control and increase the risk of collusion or single points of failure.
• Voting power dynamics: In DPoS, the voting process can be heavily influenced by large stakeholders. Those with substantial token holdings have more voting power, which can skew the election results and potentially lead to a small number of wealthy individuals or entities exerting significant influence over the network.
• Delegate accountability: Ensuring that delegates consistently act in the network’s best interest can be challenging. While the community can vote out underperforming or malicious delegates, this process relies on active and informed participation from a broad base of tokenholders. In practice, voter apathy or lack of engagement can allow problematic delegates to remain in power longer than desired.

How to become a Tron delegate

To be selected as a Tron delegate (super representative), you’ll need to establish a trustworthy and robust server, lock in a substantial amount of TRX tokens, make your intentions known by declaring your candidacy, interact with the community, actively seek votes, and deliver excellent performance and continuous engagement if chosen for the role.

In this write-up, we’ll walk you through the process of becoming a delegate on the Tron network, using it as an example, to give you a clearer picture of how these delegates are chosen.

On the Tron network, Delegates are referred to as Super Representatives (SRs), and attaining this position isn’t straightforward. It is assumed that you must possess a deep comprehension of Tron’s technical infrastructure and have the ability to efficiently manage and secure your node.

Let’s take a look.

• Meet technical requirements: Ensure you have a robust server setup with high reliability and security. You need stable, high-speed internet and adequate computational power to handle block production and transaction validation.
• Acquire Tron (TRX) tokens: To participate in the SR election, you need to stake a significant amount of TRX (TRX) tokens. This not only shows your commitment but also allows you to participate in the voting process.
• Announce candidacy: Use Tron’s official wallet or a compatible tool to register your candidacy on the Tron blockchain. This involves submitting a proposal that includes your intentions, plans and what you aim to achieve as an SR. Also, set up and configure your node to ensure it is ready for block production. Make sure it meets the network’s requirements and is fully operational.
• Campaign for votes: Actively engage with the Tron community through social media, forums and other platforms. Share your vision, technical capabilities and how you plan to contribute to the network’s growth. Be transparent about your operations, plans and any reward sharing. Voters need to trust that you will act in the network’s best interest. You might consider offering incentives to voters, such as sharing a portion of your block rewards or running community-focused projects.
• Gather votes: Tron tokenholders vote for SR candidates by staking their TRX tokens to their preferred candidates. The 27 candidates with the most votes become SRs. Remember, voting is an ongoing process, and you need to maintain and grow your support base to remain an SR. Regularly update the community on your contributions and performance.
• Maintain performance as a super representative: Once you’re voted in, you’ll need to consistently produce and validate blocks. Ensure your node operates with high uptime and reliability. 

Maintain an active involvement and offer valuable contributions within the Tron community. Take part in making crucial decisions regarding governance and don’t hesitate to suggest and vote on potential enhancements for the network. It is essential that you consistently update the community about your work, uphold transparency throughout operations, and always prioritize the network’s well-being.

It’s a lot of effort, so you’re probably wondering, How much does a DPoS delegate earn? 

In essence, being a Tron super representative could potentially yield monthly earnings of around $40,000. Yet, it’s important to note that there are usually several hundred contenders, which means the competition for this role can be continuous and intense.

The future of DPoS

Over the past ten years, Delegated Proof of Stake (DPoS) has been challenged by emerging consensus mechanisms such as Proof of Authority (PoA), Byzantine Fault Tolerance Proof of Stake (BPoS), Proof of Stake (PPoS), and Proof of Stake (PoS) with sharding. The blockchain community is actively exploring the most effective method for achieving security, scalability, and decentralization.

Just as we saw during the early stages of the internet, blockchain technology is still in a developmental phase, constantly growing and changing.

The consensus mechanisms underpinning each blockchain are arguably the most important facets of change, as they represent the foundations of the network’s security, scalability and decentralization. As such, it’s crucial that there is an agreement on the best-suited consensus mechanism for widespread adoption.

DPoS is just one contender for the crown:

• Proof-of-authority (PoA) was introduced around 2017, supported by VeChain and Ethereum’s Rinkeby and Kovan testnets.
• Bonded proof-of-stake (BPoS) entered the public spotlight in 2019 with notable proponents like Cosmos and Polkadot.
• Pure proof-of-stake (PPoS) was adopted by Algorand, and its mainnet launch was in the summer of 2019. 
• Proof-of-stake with sharding was integrated into Ethereum’s 2020 Beacon Chain release.

Keeping in mind that more recent innovations aim to overcome the limitations of past systems, it’s crucial to bear in mind that Delegated Proof of Stake (DPoS) remains a relatively specialised consensus mechanism, which has been around for about ten years now.

Even during the ongoing competition, similar to other systems, the community continues to be split over their favored resolution.

Maybe these innovative blockchain developers are finding comfort in a potential competitor that’s hidden among their ranks, eager to disrupt the current order.