Consensus Battles: Understanding Delegated Proof of Stake

The debate about consensus models is front and center in the blockchain ecosystem these days. The debate is dominated by two main schools of thoughts: the Proof of Work(PoW) purists and the Proof of Stakes(PoS). Recently, I wrote about an hybrid consensus models as an alternative that tries to find a middle ground between the two dominant schools of thoughts. Today, I would like to explore another alternative that is behind some of my favorite blockchain projects: delegated proof of stage(DPoS).

The ideas behind DPoS can be traced back to a paper published by Dan Larimer in 2013 that explores some alternatives to address the limitations of the consensus models in PoW networks. The algorithm was originally designed to power Larimer’s work in BitShares and later perfected on Steem. Today, the protocol is powering some of the most innovative blockchain initiatives in the market including Larimer’s own EOS as well as Golos , Ark , Lisk , PeerPlays , Nano (formerly Raiblocks), and Tezos, Cosmos/Tendermint , Cardano .

DPOS?

DPoS divides the consensus model in two fundamental parts: electing a group of block producers and scheduling production. Not everyone in a DPoS network can produce blocks to validate a transaction. In the DPoS world, participants who hold tokens are able to cast votes to elect block producers; votes are weighted by the voter’s stake, and the block producer candidates that receive the most votes are those who produce blocks. From that perspective, DPoS imitates many of the concept of governance models in corporate environments in which a group of people at certain level can decide who should perform a specific task and other group of people evaluates the result of the task.

Another useful way to think about DPoS is about the role that notaries and witnesses play during the signing of a contract. Neither notaries nor witnesses are part of the contract itself but they are relevant parties that can certify the legal validity of a document. In the DPoS world, you can think as stakeholders as notaries and block producers as witnesses.

Using DPoS consensus, the stakeholders can elect any number of witnesses to generate blocks which are, essentially, a group of transactions which update the state of the database. Each account is allowed one vote per share per witness, a process known as approval voting. The top N witnesses by total approval are selected. The number (N) of witnesses is defined such that at least 50% of voting stakeholders believe there is sufficient decentralization. When stakeholders expresses their desired number of witnesses, they must also vote for at least that many witnesses. A stakeholder cannot vote for more decentralization than witnesses for which they actually cast votes. Each time witnesses produce a block, they are paid for their services. Their pay rate is set by the stakeholders via their elected delegates (to be discussed later). If a witness fails to produce a block, then they are not paid, and may be voted out in the future.

One of the most notable features of DPoS is that the number of block producers is explicitly limited. For instance, EOS keeps the number of block producers to 21. This constraint prevents all sort of potential brute force attacks in the network. Despite the limitation, DPoS implementations keep a pool of block producers available so in case existing block producers exhibit a malicious behavior.

DPoS Benefits

DPoS implementations are still in relatively early stage, although some of the them such as BitShares or Steem have achieved meaningful traction in the blockchain space. The initial implementations of DPoS have already surfaced some of key benefits of the protocol. Here are some of my favorites:

a) Separation of Concerns: DPoS separates the election of block producers from the block production itself which opens the door for more creative models to solve both problems in isolation.

b) Token Holders Control: Obviously, the election of block producers guarantee that token holders remain in control of the network which is the key principle of decentralization.

c) Scalability: Early implementations of DPoS have shown that it addresses some of the scalability limitations of traditional PoW and PoS models.

d) On-Chain Governance: The DPoS method provides the foundation for implementing interesting governance models in blockchain applications. In some sense, DPoS can be seen a form of liquid representative democracy where voting power can be allocated to other participants and votes can be changed at any time.

e) Avoid the Nothing-at-Stake Problem: DPoS addresses the famous Nothing-at-Stake problem in PoS networks in which a small group of validators can take control of the network. The fixed of number of token validators in DPoS as well as the dynamic election model prevents this issues from happening.