The Delegated Proof of Stake (DPoS) consensus algorithm is considered by many to be a more efficient and democratic version of the previous PoS (or Proof of Stake) mechanism.

Both PoS and DPoS are used as an alternative to the Proof of Work consensus algorithm, since a PoW system requires, by design, many external resources. The Proof of Work algorithm makes use of a large amount of computational work to ensure an immutable, decentralized and transparent distributed ledger technology. In contrast, PoS and DPoS require fewer resources and are, by design, more sustainable and eco-friendly. To understand how Delegated Proof of Stake works, you first need to understand the basics of the Proof of Work and Proof of Stake algorithms that preceded it.


Proof of work (POW)

Most cryptocurrency systems run on a larger distributed technology called blockchain, and Proof of Work was the first consensus algorithm used. It was implemented as a core component of the Bitcoin protocol, responsible for generating new blocks and keeping the network secure (through the mining process). Bitcoin was proposed as an alternative to the traditional global monetary system, which is centralized and inefficient. PoW introduced a viable consensus protocol that made the transmission of money headed by a central authority unnecessary. It provided real-time decentralized payment settlements on an economical peer-to-peer network, eliminating the need for intermediaries and reducing the overall transaction cost.

Along with other types of nodes, a Proof of Work system is maintained by a network of mining nodes, which use specialized hardware (ASICs) (or Integrated Circuit for specific applications) to address and solve complex cryptographic problems. On average, a new block is mined every 10 minutes. The miner can only add a new block to the Blockchain if he manages to find the solution for that block. In other words, a miner can only do so after completing a PoW, which in turn rewards them with newly created coins and all transaction fees for that specific block. However, this comes at a high cost because it requires a lot of energy and failed attempts. Additionally, ASIC hardware is quite expensive.

Beyond the effort to maintain the system, there are frequently asked questions about the extent to which a PoW system can be applied, especially in regards to scalability (very limited number of transactions per second). However, PoW Blockchains are considered the most secure and reliable, and remain the standard for a fault-tolerant solution.


Proof of Stake (PoS)

The Proof of Stake consensus algorithm is the most common alternative to Proof of Work. PoS systems were designed to solve some of the inefficiencies and emerging problems that commonly arise in PoW-based Blockchains. It specifically addresses the costs associated with PoW mining (power and hardware consumption). Basically, a proof-of-stake Blockchain is secured in a deterministic manner. There is no mining in these systems and the validation of new blocks depends on the number of coins that are stacked.

The more stacked coins a person has, the greater the chances of being chosen as a block validator (also known as a minter or forger).

While PoW systems are based on external investments (power and hardware consumption), a Proof of Stake Blockchain is secured through an internal investment (the cryptocurrency itself).

Furthermore, PoS systems make attacking a Blockchain more expensive, since a successful attack would require possession of at least 51% of the total existing coins. Failed attacks would result in huge financial losses. Despite the advantages and compelling arguments in favor of PoS, such systems are still in the early stages and have not yet been tested on larger scales.


Delegated Proof of Stake (DPoS)

The Delegated Proof of Stake (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 DPoS-based Blockchain has a voting system where interested parties outsource their work to a third party. In other words, they can vote for a few delegates who will secure the network on their behalf. Delegates can also be referred to as witnesses and are responsible for achieving consensus during the generation and validation of new blocks. Voting power is proportional to the number of coins each user owns. The voting system varies from project to project, but in general, each delegate presents an individual proposal when requesting votes. Generally, rewards collected by delegates are shared proportionally with their respective constituents.

Therefore, the DPoS algorithm creates a voting system that depends directly on the reputation of the delegates. If a chosen node misbehaves or does not work efficiently, it will be quickly kicked out and replaced by another one.

In terms of performance, DPoS Blockchains are more scalable, being able to process more transactions per second (TPS) (Transaction Processing System), compared to PoW and PoS.


DPoS vs PoS

While PoS and DPoS are similar in the sense of participation, DPoS features a novel democratic voting system, by which block producers are elected. Since voters maintain a DPoS system, delegates are motivated to be honest and efficient or they are excluded. Additionally, DPoS Blockchains tend to be faster in terms of transactions per second than PoS.


DPoS vs PoW

Where PoS attempts to resolve PoW failures, DPoS seeks to streamline the block production process. For that reason, DPoS systems are capable of quickly processing large amounts of Blockchain transactions. Now, DPoS is not used in the same way as PoW or PoS. PoW is still considered the most secure consensus algorithm, and as such, it is where the most money transmission occurs. PoS is faster than PoW and potentially has more use cases. DPoS limits the use of staking to the election of block producers. Your actual block production is predetermined in contrast to PoW's competition-based system. Each witness receives a turn in block production. Some argue that DPoS should be considered a Proof-of-authority (PoA) system.


Conclusion

DPoS differs substantially from PoW and even PoS. Its incorporation into the stakeholder vote serves as a means to decide and motivate honest and efficient delegates (or witnesses). However, actual block production is quite different from PoS systems and in most cases features higher throughput in terms of transactions per second.