Exploring the Differences Between Proof-of-Stake and Delegated Proof-of-Stake Consensus Mechanisms

5tGG...kNBo
8 Dec 2023
87

Proof-of-Stake (PoS) and Delegated Proof-of-Stake (dPoS) are two popular alternatives to the Proof-of-Work (PoW) consensus mechanism used in blockchain networks. Both allow blockchain networks to validate transactions and achieve distributed consensus without the high energy costs and slow transaction speeds of PoW networks.

How Proof-of-Stake Works


Proof-of-Stake systems achieve consensus not through computing power like in PoW systems, but through staking – locking up an asset to validate transactions. In PoS networks, tokens holders can become validators by staking their tokens. The chance of a validator being selected to create the next block is proportional to the size of their stake. Validators earn transaction fees but lose part of their stake if they act maliciously.

Some examples of popular PoS blockchain networks are:

Ethereum – Ethereum is transitioning from PoW to PoS through its Beacon Chain upgrade. Instead of mining, users can stake ETH tokens to become validators. Validators take turns proposing and validating blocks, processing transactions. Their stake is slashed if they fail to properly validate a block.

Cardano – The Cardano blockchain uses a PoS system called Ouroboros to elect slot leaders to add new blocks. Cardano holders stake their ADA tokens to participate based on how much is staked. Slot leaders earn transaction fees but can lose rewards if they miss blocks.

Polkadot – Polkadot's nominated proof-of-stake (NPoS) system involves DOT holders nominating validators with a bonded stake. Nominators share rewards and punishment with their bonded validators based on their staked amounts.

Benefits of Proof-of-Stake


There are several advantages of using a PoS model rather than PoW:

Energy efficiency – PoS is far more energy efficient than PoW since it removes the need for computationally intensive mining to add new blocks. This makes it much more sustainable long-term.

Security – PoS enhances blockchain security since 51% attacks that threaten PoW would be extremely expensive to execute against a robust, decentralized PoS network.

Scalability – PoS enables greater transaction throughput than PoW since block creation is not limited by hash power and there are often shorter block confirmation times.

Incentives – Validators earn transaction fee rewards on every block created, providing recurring incentives to maintain the network compared to one-time mining rewards in PoW that decline over time.

How Delegated Proof-of-Stake Works


While PoS is more decentralized than PoW since anyone can stake tokens, it can still tend towards centralization around the largest stakers. Delegated Proof-of-Stake (dPoS) aims to solve this using a voting system to elect a fixed set of validators each period.

In dPoS blockchains, tokens holders vote to elect “witnesses” to validate transactions and secure the network. These witnesses propose and validate blocks in a rotating order based on the number of votes received. Token holders get more voting power based on the size of their stake. Some examples networks utilizing dPoS include:

EOS – Block producers on the EOS network are elected by EOS token holders staking their tokens as votes. The top 21 block producers by total approval are selected to maintain the network and process transactions.

Tron – TRX holders vote for 27 “super representatives” to validate transactions, generate blocks, and make governance decisions. Super representatives are rewarded from a pool of inflationary block rewards.

Lisk – Lisk uses dPoS to enable LSK holders to vote on 101 active delegates, as well as standby delegates in case any get malicious. The elected delegates process transactions, bundle them into blocks, and secure the network by staking LSK tokens.

Benefits of Delegated Proof-of-Stake


Delegated PoS also provides advantages over the PoW consensus method:

Speed and efficiency - Utilizing a fixed set of elected validators allows dPoS blockchains to achieve much faster block times, transaction confirmation, and higher throughput than PoW networks.

Voting rights – Giving stakeholders voting power to elect block validators enables a democratic system allowing the community to have a voice.

Liquidity – Since validators don't need to constantly run nodes, staked tokens don't need to remain locked up, enabling more liquidity in the market.

Consistent rewards – The number of elected validators receiving rewards does not fluctuate wildly like PoW mining, leading to more predictable returns.

Lower barriers to entry – Participants don't need expensive mining hardware and can earn staking rewards with even just a small number of tokens.

Differences Between PoS and dPoS


While PoS and dPoS have some similarities, there are a few key differences:

Validation Power

With PoS, every token holder could theoretically take part in validating blocks. But dPoS limits block validation to a fixed set of elected validators making it more centralized. However, the stake to become an elected validator is generally much higher than for PoS.

Number of Validators

A PoS network can have an unlimited number of validators while dPoS sets a defined number of delegates elected to validate each block. For example, Polkadot has virtually unlimited validators while Tron only has 27 super representatives.

Voting Mechanisms

Most PoS systems do not involve a voting mechanism - any token holder than stake the minimum amount needed to validate transactions. But in dPoS, stakeholders must vote for their preferred delegates to become validators.

Reward Distribution

In PoS networks, validator compensation is typically proportionate to staked value. But it's divided more equally in dPoS, with validators earning block provisions based on performance and votes received rather than a direct correlation to tokens staked initially.

Barriers to Entry

Becoming a validator in a PoS network typically requires less upfront stake than a becoming a dPoS delegate, which tends to require a more significant stake and community voting power.

For example, becoming a Lisk delegate would require a much more significant stake and voting bloc than just meeting the minimum staking threshold to validate on a network like Cardano.

Hybrid PoS Models

Some blockchain projects are implementing hybrid models combining aspects of both PoS and dPoS:

Polygon – Utilizes PoS for checkpointing while block production and validation happens through a dPoS model involving ~300 validators elected by MATIC holders.

Waves – Uses LPoS allowing anyone to lease tokens to full nodes and mine, while only full nodes can produce blocks and validate transactions.

Ark – Runs dPoS for standard block validation by 51 delegates but also allows token holders to earn staking rewards for supporting the network.

Strengths and Weaknesses of Each System


Both PoS and dPoS have certain strengths and weaknesses compared to each other:

Proof-of-Stake


Strengths

- More decentralized validation
- Allows unlimited validators
- Low barriers to entry
- Aligns incentives around staked value

Weaknesses
- Unproven long-term security model
- Potential lock up of supply
- Liquidity impacts
- Possible tendencies toward centralization

Delegated Proof of Stake


Strengths

- High transaction throughput
- Faster block times and settlement
- Energy efficiency
- Predictable, consistent rewards

Weaknesses

- More centralized validation via super nodes
- Limited number of block validators
- Higher barriers to entry for delegates
- Super nodes are points of failure
- Lower participation overall in block production

Overcoming Weaknesses


There are ways both types of networks can compensate for perceived weaknesses:

PoS
– Using lock up periods for rewards to reduce liquidity impacts
– Implementing governance controls to guide upgrades and high validator requirements to increase decentralization over time

dPoS

– Adding more standby delegates that take over if super nodes fail
– Randomizing and anonymizing block production placement each round
– Setting higher and more fair thresholds for voting and requirements for elected validators

Conclusion

In summary, both PoS and dPoS enable more scalable, efficient blockchain consensus than traditional PoW models. Pure PoS is likely more decentralized overall, but dPoS compensates with greater speed and reliability. Each model has respective advantages that could enable it to best serve different goals and use cases.

As both methods evolve, they will likely adopt innovations and best practices from one another - for example PoS networks implementing voting to elect validators or dPoS systems expanding the viable validator set. The combination of staking mechanisms with governance and voting has powerful potential to balance all of the priorities sought after in a blockchain network – security, scalability, decentralization, and community participation.

Write & Read to Earn with BULB

Learn More

Enjoy this blog? Subscribe to CapitalThink

2 Comments

B
Johnson Chau
There is always a trilemma between security, speed and decentralisation. Tradeoffs on consensus mechanisms will depend on what application you are building. For do to earn platform like BULB, speed and cost is extremely important as it is for the masses!
Billybuck420
Thank you for sharing this great article that explores the difference between proof of stake and delegated proof of stake. I learned allot from reading this.
Most relevant comments are displayed, so some may have been filtered out.