Delegated Proof of Stake Explained
You may have heard of Distributed Proof of Stake blockchains, but what are they and why are they so important to the Sesameseed community? Let’s look at how a blockchain network is used and some of the different ways they can maintain security and process transactions.
The Distributed Ledger
A blockchain at its heart is a decentralised, distributed ledger. This means it is a database shared across a network of participants in multiple locations. The database can be a simple set of transactions or contain more complex digital assets. Each participating ‘node’ on the network keeps an identical copy of the ledger which it can update independently. When new transactions are broadcast to the network, nodes verify them and then build them into packages called a ‘block’. When a node completes a block, it attaches it to the ‘chain’ of blocks that make up the ledger. The other nodes check whether the block is genuine and decide whether to accept it using a process known as a ‘consensus mechanism’.
Consensus Mechanism
The benefit of decentralising a database means that no individual participant has the authority to make changes. Instead the nodes must agree which version of the ledger is considered the correct one. The network usually gives the successful node a reward for creating a block. Because the nodes are not able to trust each other, every blockchain has a set of rules in place that governs which node gets the reward and updates the chain. The most common are ‘Proof of Work’ (PoW), ‘Proof of Stake’ (PoS) and ‘Delegated Proof of Stake’ (DPoS).
Sesameseed operates nodes on multiple blockchains. As the nodes earn rewards, these are passed on to those that participate in supporting Sesameseed nodes. In this way, the community benefits directly from helping to maintain and support each native blockchain network.
Let’s look at how each mechanism works.
Proof of Work
The protocol used by Bitcoin among others is called ‘Proof of Work (PoW)’. In a PoW network, the nodes compete to solve a complex cryptographic puzzle before they can ‘mine’ a block. Although this makes the blockchain very secure for the most part, it takes a significant amount of computing power and is slow and expensive to use. In order to achieve ‘finality’ of a transaction, making it irreversible, a number of confirmations are required. In Bitcoin’s case with blocks mined every 10 minutes, this can take an hour or more.
PoW based blockchains are not the ideal choice for a community project like Sesameseed as very few individuals can afford the equipment and energy costs necessary to participate. Fiat currency is required up front and miners generally need to continuously sell their mined tokens in order to pay the bills.
Proof of Stake
Though solutions have been worked on to improve the speed and cost of the Proof of Work mechanism, many newer blockchains use the Proof of Stake model. Rather than solving a puzzle, in PoS the chance of being the next to validate a block is usually determined by the number of tokens staked.
This has a few advantages over PoW mechanisms:
- Validators control a large number of the network tokens, and are therefore incentivised to help secure the chain. It is in their interest to maintain the price and there is also the threat of losing their stake if they act maliciously. In order to successfully attack the network, someone would need to hold at least 51% of existing tokens.
- Finality of a transaction is confirmed much more quickly, meaning it is no longer possible to change preceding blocks. This allows transactions to be processed at a much higher rate and lower cost.
- No large computing power is necessary, so there is less downward pressure on the token price and minimal impact on the environment. People can stake with tokens they already own at no additional cost.
The downside of PoS is that wealthy individuals take the largest percentage of rewards, whereas small holders find it hard to compete. Though it’s possible for a community like Sesameseed to pool resources to create a node, there is a newer mechanism that solves this issue and allows for a more decentralised approach.
Delegated Proof of Stake
Developed by Daniel Larimer in 2014, DPoS seeks to improve on PoS by creating a system of elected nodes. Rather than a free-for-all approach to staking, stakeholders delegate their tokens to a third-party that performs the task of block validation on their behalf. Removing the competition element, each node takes turns at block production.
- By streamlining the process of block production and validation, DPoS blockchains are more scalable and allow an even faster rate of transactions than PoS.
- Empowering even small token holders to vote for a representative, it is harder for rich individuals to take a controlling stake and reap all the rewards.
- Nodes that perform badly or dishonestly will be removed as votes naturally move to a different representative.
- The node earns rewards from the chain, which it can then choose to distribute to the stakeholders that support it.
DPoS blockchains are where the Sesameseed model can really shine. Individual token holders on DPoS networks, currently TRON, Ontology and Harmony, can stake their tokens for Sesameseed and earn daily rewards in the form of SEED. SEED tokens are like a diversified portfolio in a single token, as they are backed by rewards from all of the chains. The tokens backing SEED are re-staked, so that each SEED continues to participate on multiple chains and compound the rewards. An extra portion of each days rewards are added directly to the backed amount, ensuring a constant and steady growth in value against the native chains.
Staking DPoS tokens costs little or nothing and your original funds are always available to un-stake and withdraw so there is no risk to participating. In fact, if you are not participating you are at risk of inflation diluting your holding. Get your coins to work for you, earn compound rewards with Sesameseed and watch your digital garden start to bloom.
This article is a featured contribution from a community member. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Sesameseed. They are meant for information purposes only, and are not intended to serve as investment advice or recommendations. They are also not intended to serve as the basis for any investment decision. All investments involve risk and you should conduct your own research when making a decision.
