Many consider the Delegated Proof of Stake (DPoS) consensus algorithm to be a more efficient and democratic version of the previous Proof of Stake (PoS) mechanism.

Both PoS and DPoS are used as an alternative to the Proof of Work (PoS) consensus algorithm, because the design of the PoW system requires a lot of external resources. The PoW algorithm uses a large number of calculations to secure an immutable, decentralized, and transparent distributed ledger. In contrast, PoS and DPoS require fewer resources and their design is more sustainable and eco-friendly. To understand how delegated Proof of Stake works, we need to understand the basic concept of the PoW and PoS algorithms that came before it.

Proof of Work (PoW)

Most cryptocurrency systems operate on a distributed ledger called blockchain, and the PoW algorithm was the first consensus algorithm used. This algorithm is implemented as a core element of the Bitcoin protocol, responsible for creating new blocks and maintaining the security of the network (through mining). Bitcoin is proposed as an alternative to the global monetary system, which is centralized and inefficient. PoW provides a viable consensus protocol in which money transfers do not need to be managed by a centralized authority. It enables real-time decentralized payment transactions on a peer-to-peer economic network, eliminating intermediaries and reducing overall transaction costs.

Along with other types of nodes, the PoW system is maintained by a network of miner nodes, which use specialized hardware (ASIC) to try and solve complex cryptographic problems. On average, a new block is mined every 10 minutes. A miner can only add a new block to the blockchain if he can find a solution for that block. In other words, the miner can only do it after completing a proof of work, which will give him a reward of newly created coins and the entire transaction fee of that block. However, this also comes at a cost because it uses a lot of power and failed attempts. Additionally, ASIC hardware is quite expensive.

In addition to the effort to maintain the system, there are also questions raised about the level of adoption of the PoW system – especially regarding the scalability of the system (the number of transactions per second is very limited). However, PoW blockchains are considered the most secure and reliable and continue to be the standard for a solution with failure tolerance.

Proof of Stake (PoS)

The PoS consensus algorithm is the most popular alternative to PoW. PoS systems are designed to address inefficiencies and new problems that often appear on PoW-based blockchains. It specifically addresses the costs associated with PoW mining (power and hardware consumption). Essentially, PoS-based blockchains are secured in a pre-determined manner. In these systems there is no block mining and the validation of new blocks depends on the number of coins held by the validators. The person with the larger number of coins has a higher chance of being chosen as a block validator (also known as a coin minter or coin forger).

While PoW systems rely on external investments (power consumption and hardware), PoS blockchains are secured through internal investments (the cryptocurrency itself).

Additionally, PoS systems make it more expensive to attack a blockchain, as to carry out a successful attack, the attacker must own at least 51% of all coins in circulation. Failed attacks will result in huge financial losses. Despite the positives and compelling arguments for PoS, these systems are still in their early stages and are yet to be tested at larger scales.

Delegated PoS (DPoS)

The Delegated PoS (DPoS) consensus algorithm was developed by Daniel Larimer in 2014. Bitshares, Steem, Ark, and Lisk are some of the cryptocurrency projects that use the DPoS consensus algorithm.

A blockchain that uses DPoS relies on a voting system in which stake holders delegate their work to a third party. In other words, they can elect a number of representatives to do network security work on their behalf. These representatives can be called witnesses and they are responsible for reaching consensus when creating and validating new blocks. Voting rights are proportional to the number of coins each user has. The voting system varies from project to project, but in general, each representative presents an individual proposal when requesting votes. Typically, the rewards that representatives receive are divided proportionally to those who voted for them

Therefore, the DPoS algorithm creates a voting system that depends directly on the reputation of the representatives. If an elected node misbehaves or operates inefficiently, that node is quickly evicted and replaced by another node.

Regarding performance, DPoS blockchains are more scalable, able to process more transactions per second (TPS) than PoW and PoS.

DPoS and PoS

Although PoS and DPoS are similar in that they use a form of stake, DPoS has a more democratic form of voting, and thereby chooses the creators of blocks. Since the  DPoS system is maintained by voters, elected representatives have an incentive to work honestly and effectively or else face expulsion. Additionally, DPoS blockchains appear to process faster with a larger number of transactions per second than PoS blockchains.

DPoS and PoW

While PoS attempts to solve the problems of PoW, DPoS seeks to improve the process of creating new blocks. For this reason, DPoS systems are capable of processing a larger number of transactions on the blockchain at a faster rate. Currently, DPoS is not used in the same way as PoW or PoS. PoW is still considered the most secure consensus algorithm, and as such, is where the most money transfers are made. PoS is faster than PoW and can have more usability features. DPoS only uses stakes to elect block creators. Its actual block generation is predetermined, in contrast to PoW's competition-based system. Each witness has a turn to create the block. Some people argue that DPoS should be considered a Proof of Authority system.

Conclude

DPoS is very different from PoW and even PoS. In this system, voting by stockholders is a way to find and promote honest and effective representatives (or witnesses). However, new block generation is really different from PoS systems and in the majority of cases it offers higher performance in terms of the number of transactions performed per second.