The Delegated Proof of Stake (DPoS) consensus algorithm is seen by many as a more efficient and democratic version of the previous PoS mechanism. Both PoS and DPoS are used as an alternative to the Proof of Work algorithm, since the PoW system requires a large amount of external resources. The Proof of Work algorithm uses a large amount of computational work to provide an immutable, decentralized and transparent distributed ledger. In contrast, PoS and DPoS require fewer resources and are inherently more sustainable and environmentally friendly. To understand how Delegated Proof of Stake works, you first need to understand the basics of its predecessor algorithms, "Proof of Work" and "Proof of Stake".


Proof of Work (PoW)

Most cryptocurrency systems operate on top of a distributed ledger called blockchain, Proof of Work was the first consensus algorithm used. It was implemented as a core component of the Bitcoin protocol, responsible for creating new blocks and securing the network (under development). Bitcoin has been proposed as an alternative to the traditional global monetary system, which is centralized and inefficient. PoW introduced a viable consensus protocol that does not require the participation of a central authority when transferring money. It enabled decentralized settlement of payments in real time, using a peer-to-peer economic network, eliminating the need for intermediaries and reducing the overall cost of transactions.


Along with other node types, the Proof of Work system is supported by a mining network that uses specialized hardware devices (ASICs) to solve complex cryptographic problems. On average, a new block is formed every 10 minutes. A miner can only add a new block to the blockchain if he manages to find a solution for that block. In other words, the miner can only do this after completing the Proof of Work, which in turn rewards him for the newly created coins and all transaction fees for that particular block. However, the expensive cost comes from the fact that it requires a lot of energy and failed attempts. Moreover, ASIC hardware is quite expensive. Beyond the effort of maintaining the system, there are lingering issues in which a PoW system can be applied, especially regarding scalability (limited number of transactions per second). However, PoW blockchains are considered more reliable and remain the standard for a fault-tolerant solution.


Proof of Stake (PoS)

Consensus Proof of Stake is the most common alternative to Proof of Work. PoS was developed to solve some of the inefficiencies and emerging problems that PoW faced. Specifically, it looks at the costs associated with PoW development (power consumption and hardware). In principle, the Proof of Stake blockchain is secured in a deterministic way. There is no mining in these systems, and the verification of new blocks depends on the amount of coins that have been set. The more coins subjects stake, the more likely they are to be chosen as a block validator (also known as a minter or forger). While PoW systems rely on external investment (power and hardware), the Proof of Stake blockchain is secured by internal investment (the cryptocurrency itself).

Additionally, PoS systems make an attack more costly, as a successful attack would require ownership of at least 51% of all existing coins. Failed attacks will result in huge financial losses. Despite all the sides and compelling arguments in favor of PoS, such systems are still in their early stages and have yet to be tested on a larger scale.


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 this DPoS consensus algorithm.

A DPoS-based blockchain is scored using a voting system in which stakeholders submit their work to others. In other words, they can vote for multiple delegates who will support the network on their behalf. Delegates may also be called witnesses and are responsible for reaching consensus during the process of creating and validating 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 submits an individual proposal when asking for votes. As a rule, rewards collected by delegates are distributed proportionally among those who elected them.

Therefore, the DPoS algorithm creates a voting system that is directly dependent on the reputation of the delegates. If a selected node is not functioning properly or is not performing efficiently, it will be quickly removed and replaced by another.

In terms of performance, the DPoS blockchain is more scalable, allowing it to process more transactions per second (TPS) compared to PoW and PoS.


DPoS vs PoS

Although PoS and DPoS are similar in terms of stakeholders, DPoS introduces a new democratic voting system in which block producers are elected. Since the DPoS system is supported by voters, delegates are incentivized to act honestly and efficiently in order to be voted for in the future. Additionally, DPoS blockchains tend to be faster in terms of transactions per second than PoS.


DPoS vs PoW

Where PoS attempts to solve the problems of PoW, DPoS seeks to optimize the block production process. For this reason, DPoS systems are able to process larger transactions faster on the blockchain. Now DPoS is not used in the same way as PoW or PoS. PoW is still considered the most secure consensus algorithm through which most money transfers occur. PoS is faster than PoW and potentially has more use cases. DPoS limits the use of staking during block producer selection. Its actual block production is predetermined, unlike the competing PoW system. Each witness gets a turn in block production. Some argue that DPoS should be considered a Proof of Authority system.


Conclusion

DPoS is significantly different from PoW and even PoS. Its inclusion of stakeholder voting serves as a means to make decisions and motivate honest and effective delegates (or witnesses). However, the actual production of blocks is very different from PoS systems and, in most cases, provides higher throughput in terms of transactions per second.