Why is LPoS better than (D)PoS?

In this article, Inal Kardanov, Waves developer advocate, discusses the LPoS consensus algorithm’s main differences from PoS and DPoS.

A number of consensus algorithms are currently used, including Proof of Work, Proof of Stake, Proof of Authority, and even Proof of Burn and Proof of Elapsed Time. All of them have their advantages and drawbacks.

In the Waves protocol, the consensus algorithm Leased Proof of Stake (LPoS) is used, which has performed quite well but isn’t very common. Waves is the largest blockchain in terms of capitalization to use this consensus algorithm. Let’s find out the main differences between LPoS and other consensus algorithms.

How LPoS works

Just like in all other Proof of Stake (PoS) consensus algorithms, a miner’s chance of generating the next block is proportionate to the number of coins they hold. Unlike Proof of Work, PoS doesn’t require significant computational capacities or energy, also making a possible attack on the network unprofitable for miners.

LPoS differs from PoS in that regular users can take part in block generation by leasing out their WAVES tokens to generating nodes in exchange for an award. The funds remain under the token holder’s full control as leasing can be canceled at any time.

Basically, a user transfers to a node the right to generate blocks using their balance rather than actual tokens. That makes the user confident of their funds’ security. Leasing can be canceled at any time, and tokens will immediately become available for transfer and trading.

Difference between leasing and staking

Some blockchain protocols offer staking — a process that is similar to leasing but has some specifics. The main differences between staking from leasing are:

• In most protocols, the staking period has to be set at the time of fund transfer and staking either cannot be canceled at any time at all or can only be canceled with a fine. This has a negative impact on user experience.
• In most PoW protocols, miners are subject to punishment for improper activities or unavailability. As a result, users leasing out tokens to a node could lose their funds alongside the node owner. A situation of that kind recently occurred in the Polkadot network — https://cointelegraph.com/news/controversial-new-proposal-would-forgive-slashed-polkadot-validator

Delegated Proof of Stake

When I spoke about LPoS at conferences, the question I was asked most often was: “In what way is it different from Delegated Proof of Stake?”

Delegated Proof of Stake is a version of PoS consensus algorithm, in which token holders vote for a list of “delegates” — block validators/generators. A user’s vote’s weight is proportionate to the number of coins they are holding.

Specifics of voting systems differ from project to project, but, normally, users are entitled to part of the awards collected by the delegate they voted for. Thus, a delegate’s inefficiency or improper behavior leads to the deletion of their node.

All existing protocols using DPoS stipulate the maximum number of nodes allowed to generate blocks. For instance, the EOS network has only 21 block generators.

Unlike DPoS, LPoS has no restrictions on the number of generating nodes. For instance, in the Waves network, the only condition for block generation is a balance of at least 1,000 WAVES in own or leased tokens.

According to dev.pywaves.org, over the past month, 122 unique generators have created blocks in the Waves network.

Technically, the Waves network can have up to 103,000 nodes with a minimum required balance of 1,000 WAVES that can generate blocks. Every day, eight new block generators can be added.

Thus, LPoS combines PoS’s main advantages, such as energy efficiency and security, with a more user-friendly leasing process, also offering more decentralization than DPoS.

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