What is Delegated Proof of Stake (DPoS)

Published in

Concordium

4 min readNov 18, 2021

The Delegation Series | Part 1

Blockchains are designed to allow a network to work together to achieve common goals without trusting one another. How do you do that in a way that not only makes sense, but works effectively? Welcome to the consensus algorithm, one of the core inventions of blockchain technology which enables the nodes in a blockchain network to make decisions in a decentralized fashion.

The first blockchain consensus algorithm was called Proof of Work, as defined in the Bitcoin whitepaper. Over time, however, new consensus algorithms have been developed to improve upon and provide alternatives to the Proof of Work algorithm. One of these is called the Delegated Proof of Stake (DPoS) consensus algorithm.

This article is the first in a new, three-part series exploring DPoS — and why it matters. In this article, we’ll introduce the concept of Delegated Proof of Stake. Later articles will explore the various ways in which this concept can be implemented, as well as Concordium’s unique implementation.

Blockchain Consensus and Proof of Stake

Put simply, blockchain consensus algorithms are designed to balance blockchains’ need for decentralization and a shared digital ledger. The goal of consensus is to choose a creator for each block in a fully decentralized way.

Blockchain accomplishes this by using a scarce asset to represent control over the blockchain. The more of that scarce asset a particular party controls, the greater their probability of being selected to create a block and — therefore — reap the associated rewards. Since this asset is scarce, it becomes prohibitively expensive for a single party to buy it all, keeping the blockchain decentralized.

Different blockchain consensus algorithms use different scarce resources to maintain decentralized control. Proof of Stake’s scarce resource is the blockchain’s cryptocurrency. Blockchain users can “stake” their cryptocurrency (promising not to spend it) in exchange for the chance to be selected to forge new blocks. In a Proof of Stake system, a user’s probability of being selected to forge a block is roughly equivalent to the percentage of staked assets that are under their control.

What is Delegated Proof of Stake?

Unlike in Proof of Work, Proof of Stake systems do not require active participation to be selected to create a block. Instead, the selected forger of each block is selected based upon an algorithm that every node in the system can run independently and reach the same result.

However, to actually create a block and claim their reward, the selected forger must realize that it is their turn and create a valid block within the set window. As a result, potential block forgers need to continually monitor the state of the blockchain to earn rewards. This requires time, effort, and knowledge that potential forgers might not be willing to commit.

Delegated Proof of Stake (DPoS) helps solve this problem by allowing stakers to passively earn rewards from their staked cryptocurrency, while still maintaining some control over the blockchain. This is done by delegating their cryptocurrency to a node runner who participates in creating new blocks.

This delegation is selected via a nomination. Thus, the delegated cryptocurrency is not transferred to the node runner, but the node runner obtains the right to include the delegated stake and add it to its own stake. This way the node runner increases its rewards, and parts of this additional earning are returned to the delegating user.

The need to keep delegating users happy incentivizes node runners to behave fairly and correctly.

The Benefits of Delegated Proof of Stake

DPoS builds on Proof of Stake and provides several benefits to the blockchain and its users, including:

● Abstraction: With DPoS, blockchain users who stake cryptocurrency are not directly responsible for block creation. By delegatin, these users can still exert power over the state of the blockchain using their stake but can take a more hands-off approach to the underlying mechanics of the blockchain.

● Decentralization: DPoS offers more control to users with small stakes than a Proof of Stake system. A user with a small stake has a small chance of being selected to forge a block in pure Proof of Stake but can by delegation support node runners.

● Inclusivity: DPoS allows users with extremely small stakes to make a difference and earn rewards. This creates a lower barrier to entry than other consensus algorithms.

● Speed: DPoS blockchains often offer faster block creation than Proof of Work or Proof of Stake systems. Proof of Stake is inherently faster than Proof of Work, and by delegating rather than running a node the network has fewer participants in DPoS enabling greater efficiency.

Optimizing Blockchain Consensus

Delegated Proof of Stake returns to the core principles of blockchain, creating a system that is decentralized, usable, and scalable. The use of delegation to manage block creation reduces the complexity of Proof of Stake networks while ensuring that stakers maintain control over the blockchain.

Like Proof of Stake, DPoS can be implemented in various ways. Check out the next article in this series to learn more about the pros and cons of the different implementations of this consensus algorithm. In the final article, we’ll learn about Concordium’s delegation mechanisms and the benefits that it provides to the Concordium blockchain and its users.