Delegated proof-of-stake (DPoS), explained

The emergence of a delegated proof-of-stake (DPoS) consensus mechanism

Blockchain technology, still maturing like the early internet, evolved from PoW to PoS to address inefficiencies. However, PoS had its own issues. In 2014, delegated proof-of-stake (DPoS) emerged, improving on both by balancing efficiency, decentralization and security. 

Even though it’s been around for well over a decade, blockchain technology is still a relatively novel concept.

Think about the internet for a moment — one could argue that the first iteration was ARPANET, launched in 1969. After all, this was the first operational packet-switching network.

The technology went through myriad changes. In the 1970s, new protocols were introduced. The Transmission Control Protocol (TCP) and Internet Protocol (IP) meant that the network could be sufficiently decentralized and scalable.

It took over two decades for the technology to sufficiently mature into the World Wide Web. Indeed, blockchain technology can be thought of as one that’s still maturing. One element of the technology that developers can’t seem to agree on is the way in which transactions are verified on the blockchain — also known as “consensus.”

Bitcoin brought with it the first-ever consensus mechanism, known as proof-of-work (PoW), through which miners race to encode transaction data into a format that meets a hash length requirement.

Being incredibly energy inefficient, expensive and prohibitive for new miners, it didn’t take long for the consensus mechanism to be reviewed in newer blockchains.

Peercoin introduced proof-of-stake (PoS) in 2012, where the competitive element was removed and validators were selected by the network to mine new blocks, provided their “stake,” or vested interest in the network, was high enough to disincentivize malicious activity.

However, PoS still had issues surrounding centralization, scalability and security.

This brought about the release of delegated proof-of-stake (DPoS) in 2014, a consensus mechanism designed to address the shortcomings of both PoS and PoW. 

One could think of it as the new tires on an old wheel.

What is DPoS?

DPoS, created by Daniel Larimer in 2014, allows tokenholders to vote for delegates to validate transactions, reducing energy use and centralization issues found in PoS. It’s used in networks like BitShares, Steemit, EOS and Tron.

In PoS systems, a single validator is chosen to create a block based on a pseudorandom selection process, unlike requiring numerous miners to consume vast amounts of energy over a long period in PoW systems. Validators demonstrate their commitment to the network by locking up a stake — a certain amount of cryptocurrency — that they stand to lose if they engage in any malicious activity.

The issue comes with the idea of “pseudo-randomness.” In traditional proof-of-stake networks, there ought to be an incentive to lock up a higher stake. As such, those with higher stakes are chosen more often than those with lower stakes. 

Naturally, this leads to an unwanted degree of centralization, where those with the highest stakes are doing most of the mining and, therefore, reaping most of the rewards. 

DPoS is a consensus mechanism that aims to solve this. 

In simple terms, instead of all tokenholders directly validating transactions, they vote for delegates to do the job. This system not only saves energy but also ensures that power is distributed more evenly. The elected delegates work efficiently to validate transactions quickly, making DPoS a scalable solution for modern blockchain applications.

Think of it as the community electing representatives to manage a town’s affairs. These delegates are accountable to the tokenholders who voted them in, ensuring they act in the network’s best interest. If they fail to do so, they can be voted out and replaced, maintaining a dynamic and responsive system.

The story of DPoS begins in 2014 with Daniel Larimer and the launch of the BitShares blockchain. BitShares was a success, and soon, other blockchain projects such as Steemit, EOS and Tron followed suit, adopting DPoS to power their networks. 

Larimer’s creation brought a new level of efficiency and scalability to the blockchain world, setting a new standard for consensus mechanisms.

How does DPoS work?

DPoS relies on voters and delegates. Voters hold tokens and elect delegates, who validate transactions and produce blocks. Voting is ongoing, and delegates are rewarded with newly created tokens and transaction fees. Delegates are motivated by financial rewards and reputation, while full nodes ensure the validity of the blockchain.

The DPoS consensus mechanism relies on two kinds of tokenholders who possess the native cryptocurrency of the blockchain network: voters and delegates.

What are voters in DPoS? 

Voters are individuals or entities that own tokens within the DPoS network. Their primary responsibility is to participate in the governance of the network by voting for delegates. 

Tokenholders can vote directly or delegate their voting power to other representatives. The weight of their vote is proportional to the number of tokens they hold, ensuring that those with more significant investments have a greater say in the network’s operations.

Importantly, voting in DPoS is not a one-time event. Instead, it is an ongoing process where tokenholders can change their votes at any time. This dynamic voting system ensures that delegates remain accountable to the community. If a delegate fails to perform their duties effectively or engages in malicious behavior, they can be swiftly voted out and replaced by another candidate.

Many DPoS networks implement a reward-sharing mechanism where a portion of the delegates’ rewards is distributed to the voters who supported them. This creates a direct financial incentive for voters to participate in the election process.

Alternatively, many networks provide staking rewards to tokenholders simply for participating in the voting process, independent of the delegates’ performance. This ensures that all voters are rewarded for their involvement.

What are delegates in DPoS? 

Also known as witnesses or block producers, delegates are elected representatives chosen by tokenholders to validate transactions and produce new blocks. The number of delegates can vary between networks but typically ranges from 21 to 101. 

Delegates take turns producing new blocks in a round-robin fashion. This structured approach ensures a predictable and orderly process for block creation. Each delegate is responsible for creating and adding new blocks to the blockchain within a specified time frame, known as a block interval. If a delegate fails to produce a block within their allotted time, the next delegate in line takes over, ensuring continuous block production.

Naturally, delegates receive a portion of newly created tokens as a reward for producing blocks. This is similar to the rewards miners receive in PoW systems. In addition to block rewards, delegates also earn transaction fees paid by users for processing their transactions. These fees are included in the blocks that delegates produce.

Networks may also reward delegates based on their performance metrics, such as uptime and the number of successfully produced blocks. Consistent and reliable delegates can earn higher rewards. Conversely, delegates who fail to produce blocks on time or act maliciously can face penalties, including reduced rewards or being voted out by the community.

Beyond financial incentives, delegates are driven by their reputation within the community. A positive reputation can lead to reelection and continued rewards, while poor performance or malicious behavior can result in losing their position. This reputational incentive ensures that delegates act with integrity and prioritize the network’s well-being.

In a DPoS system, delegates do not directly validate the work of other delegates in the same way that validators might cross-check each other’s work in some other consensus mechanisms.

Instead, full nodes in the network, which can be operated by anyone (including non-delegates), download and verify all the blocks. They check the validity of the transactions in each block and ensure that the block producer has followed the consensus rules.

Advantages of DPoS

DPoS offers fast transaction times, a balance between decentralization and centralization, lower energy consumption and enhanced security through community accountability.

• Efficiency: Through the use of a fixed number of elected delegates who produce blocks in a predictable, orderly manner, DPoS networks achieve fast transaction times and high throughput. 
• Decentralization vs. centralization: DPoS strikes a unique balance between decentralization and practical centralization. While it relies on a limited number of delegates to produce blocks, these delegates are democratically elected by the community of tokenholders. 
• Energy efficiency: One of the standout advantages of DPoS is its lower energy consumption compared to PoW. 
• Security: Delegates are held accountable by the community, and those who fail to perform their duties or act maliciously can be swiftly voted out. This accountability, combined with the inherent transparency of the voting and block production process, helps maintain a secure and reliable network. 

Disadvantages of DPoS

DPoS faces centralization risks, voting power imbalances favoring large stakeholders and challenges in maintaining delegate accountability due to potential voter apathy.

• Centralization risks: While DPoS aims to balance decentralization, the limited number of delegates can still lead to centralization. Indeed, if a few delegates consistently dominate the election, it can reduce the diversity of control and increase the risk of collusion or single points of failure.
• Voting power dynamics: In DPoS, the voting process can be heavily influenced by large stakeholders. Those with substantial token holdings have more voting power, which can skew the election results and potentially lead to a small number of wealthy individuals or entities exerting significant influence over the network.
• Delegate accountability: Ensuring that delegates consistently act in the network’s best interest can be challenging. While the community can vote out underperforming or malicious delegates, this process relies on active and informed participation from a broad base of tokenholders. In practice, voter apathy or lack of engagement can allow problematic delegates to remain in power longer than desired.

How to become a Tron delegate

To become a Tron delegate (super representative), set up a reliable and secure server, stake a significant amount of TRX, announce your candidacy, engage with the community, campaign for votes, and maintain high performance and community involvement if elected.

This article uses the Tron network to illustrate a step-by-step guide to becoming a delegate on the network to help you better understand how delegates are selected.

Delegates are known as super representatives (SRs) on the Tron network, and becoming one isn’t easy. Take it as a given that you’ll need to have a strong understanding of Tron’s technical architecture and be capable of managing and securing your node effectively. 

Let’s take a look.

• Meet technical requirements: Ensure you have a robust server setup with high reliability and security. You need stable, high-speed internet and adequate computational power to handle block production and transaction validation.
• Acquire Tron (TRX) tokens: To participate in the SR election, you need to stake a significant amount of TRX (TRX) tokens. This not only shows your commitment but also allows you to participate in the voting process.
• Announce candidacy: Use Tron’s official wallet or a compatible tool to register your candidacy on the Tron blockchain. This involves submitting a proposal that includes your intentions, plans and what you aim to achieve as an SR. Also, set up and configure your node to ensure it is ready for block production. Make sure it meets the network’s requirements and is fully operational.
• Campaign for votes: Actively engage with the Tron community through social media, forums and other platforms. Share your vision, technical capabilities and how you plan to contribute to the network’s growth. Be transparent about your operations, plans and any reward sharing. Voters need to trust that you will act in the network’s best interest. You might consider offering incentives to voters, such as sharing a portion of your block rewards or running community-focused projects.
• Gather votes: Tron tokenholders vote for SR candidates by staking their TRX tokens to their preferred candidates. The 27 candidates with the most votes become SRs. Remember, voting is an ongoing process, and you need to maintain and grow your support base to remain an SR. Regularly update the community on your contributions and performance.
• Maintain performance as a super representative: Once you’re voted in, you’ll need to consistently produce and validate blocks. Ensure your node operates with high uptime and reliability. 

Continue to engage with and contribute to the Tron community. Participate in governance decisions and be proactive in proposing and voting on network improvements. You’ll be expected to keep the community informed about your activities, maintain transparency in operations, and ensure you act in the network’s best interest.

It’s a lot of effort, so you’re probably wondering, How much does a DPoS delegate earn? 

Well, a Tron super representative can expect to earn up to $40,000 per month. However, the number of candidates is typically in the hundreds, so get ready for an ongoing fight!

The future of DPoS

DPoS, a decade-old consensus mechanism, faces competition from newer methods like PoA, BPoS, PPoS and PoS, with sharding as the blockchain community continues to seek the best-suited approach for security, scalability and decentralization.

As explored at the beginning, blockchain technology is still very much in its infancy. Much like the early days of the internet, this novel technology is continuously evolving.

The consensus mechanisms underpinning each blockchain are arguably the most important facets of change, as they represent the foundations of the network’s security, scalability and decentralization. As such, it’s crucial that there is an agreement on the best-suited consensus mechanism for widespread adoption.

DPoS is just one contender for the crown:

• Proof-of-authority (PoA) was introduced around 2017, supported by VeChain and Ethereum’s Rinkeby and Kovan testnets.
• Bonded proof-of-stake (BPoS) entered the public spotlight in 2019 with notable proponents like Cosmos and Polkadot.
• Pure proof-of-stake (PPoS) was adopted by Algorand, and its mainnet launch was in the summer of 2019. 
• Proof-of-stake with sharding was integrated into Ethereum’s 2020 Beacon Chain release.

In light of these newer mechanisms, designed to address the shortcomings of their predecessors, it’s important to remember that DPoS is still a fairly niche consensus mechanism, already a decade old. 

While still in the race, much like other mechanisms, the community remains divided on a preferred solution.

Perhaps solace lies with a new contender lurking in the minds of several innovative blockchain developers ready to challenge the status quo.