Since its conception in 2008 under the pseudonym of Satoshi Nakamoto, blockchain technology has undergone numerous innovations. It seems as though with each iteration, a new consensus algorithm is being introduced with promises of ever-increasing TPS and varying degrees of decentralization. From the growing list of consensus algorithms, we’re here to examine two that may appear exceedingly similar at a glance: DPoS and PoA.
First of all, what is PoS?
Proof of Stake (PoS) was originally developed as an alternate method to Proof of Work (PoW) in achieving consensus in a decentralized system.
Under PoS, the creators of new blocks (validators) are determined according to an algorithm taking into account the stake (the size of their native crypto deposit) each individual has in the platform. Each validator locks up an amount of the native cryptocurrency, committing to validating the next n number of blocks. The validator will then receive a reward (from the fees) proportional to the amount of native cryptocurrency they locked up if the next n blocks are added successfully. If, however, they make a mistake in the validation of blocks, the native cryptocurrency they committed will be lost. This ensures that the people with the most stake in the platform will act in its best interest, as well as earning a proportional compensation for their work in validating blocks. No computational work is required for this method, and thus, new blocks in a PoS blockchain are more often said to be “forged” instead of mined.
Similarly, with the Casper FFG protocol, “Finality” will be introduced to the currently PoW-based Ethereum. This will utilize a similar validator system, with the difference being that validators will only function to finalize the blockchain every 100 blocks or so. Once validated by ⅔ of the validators, all existing blocks until then will become immutable, guaranteeing integrity of all previous transactions. This exemplifies a hybrid PoW and PoS model.
What about DPoS?
In the traditional PoS system, any individual with a stake in the native cryptocurrency may choose to take part in the block forging process, holding a proportional chance of producing the next block according to their stake.
In a DPoS system, individuals who have a stake in the native cryptocurrency have the ability to vote for “witnesses’, along with the number of witnesses they wish to have in total. The witnesses will then lock up some of the individuals’ funds on the blockchain, and validate blocks in their place. Both the witnesses and individuals who staked their funds will be compensated with a share of the fees from the blocks added. The best interest of both the witness and platform are kept in line through a persistently voting feature, where witnesses who misbehave may be immediately voted off.
DPoS introduces the idea of staking identity (in the case of witnesses) instead of currency.
And PoA?
PoA is the consensus algorithm used by Metadium, and sports many similarities in core functionality to a DPoS consensus algorithm — one could describe it as a more cost-efficient DPoS consensus protocol. The main distinction from DPoS is in the form of automatic selection of validators (referred to as witnesses in the DPoS system) according to predefined rules. The requirements to become a validator will include personal identification such as: notary license, attested personal identification, etc. This protocol takes the identity-staking introduced in DPoS to the extreme, by placing one’s real-life credibility on the line. Once selected, the individual will be a part of a group of validators that have each gone through an identical verification process. The group will then hold a majority vote on which block to add next.
Advantages of using PoA over DPoS?
One major issue often brought up with DPoS is with regards to individuals’ relative stake in the native cryptocurrency. DPoS assumes that the individuals with the largest stake in the currency will have the greatest interest in preserving the integrity and stability of the platform. However, a greater individual holdings in a currency does not always equal greater individual stake. A ‘Whale’, or individuals with large holdings of cryptocurrency, may value a certain amount of native cryptocurrency much less than one who earn an average income. This introduces a discrepancy in stake and relative commitment towards acting in the best interest of the platform.
With PoA, it is not the currency at stake, but the validators’ identity. As a universal asset that is unequivocally anchored to the individual, real-life reputation becomes an invaluable tool to ensure integrity of the validator pool. An immaterial yet imperative asset like identity allows for an extremely cost-efficient of achieving consensus, eliminating the need for locking up native cryptocurrency stakes.
