This is a special consensus algorithm, which develops some of the positive aspects of the PoS algorithm. In fact - a more efficient and democratic version, which implies the delegation of their powers by a group of people to one node. In contrast to PoW, the guarantee of the quality of information is not the completed work, but the investment. This made possible to create a more efficient and stable system, which, moreover, is less demanding on the computing power of individual machines. But in order to understand the features of its work, it is generally necessary to understand the existing consensus algorithms.
Proof of Work (PoW)
The first consensus algorithm that has been applied in the context of cryptocurrency networks. Bitcoin blockchain works thanks to him. This algorithm is responsible both for the reliability of newly created blocks and for checking existing ones. Its use allowed us to get rid of the “inspection body”, entrusting all of its functions to individual participants in the peer-to-peer decentralized network.
In addition, it is he who underlies the mining process itself. The process during which the nodes must solve partially cryptographic, partially mathematical problems to confirm the reliability of the new mined block. But this only requires quite powerful hardware ASIC devices, which are not accessible to everyone. And a lot of electricity. In any case, the nodes receive a reward for the complete work. But only those who managed to get the first block first. And this process is quite long - at least 10 minutes. This algorithm is considered as the simplest and most stable, but it has a number of problems related to scalability and speed.
Proof of Stake (PoS)
The first alternative that fixes most of the problems associated with the need for a large amount of electricity and hardware capacity. This was achieved by moving away from the classical principle of mining. The reward is now received by those who personally guarantee the authenticity of the block. However, to get into the number of such guarantors, you need to deposit a certain amount into your account. The larger it is, the higher the possibility that you will be chosen as the next guarantor. Such a system does not need external investments since it works exclusively at the expense of internal ones.
In addition, it is much more resistant to external attacks. Because any unsuccessful attack is fraught with the loss of all accumulated savings, and not the completed work. There are not too many people who want to risk their hard-earned money, including during the system developing. Indeed, for the successful implementation of the “51 percent attack” you need to collect an amount in excess of half the total blockchain capitalization. However, such efficient systems are still in the process of testing to work on an especially large scale.
Delegated Proof of Stake (DPoS)
Another alternative to the classical consensus algorithm that solves its other problems. It was developed in 2014 by Daniel Larimer. At the current moment, it is the basis of the cryptocurrency projects Bitshares, Steem, Ark and Lisk.
The point is simple. Stakeholders can delegate their votes, determined by the number of coins deposited, to one delegate, who acts as a validator. In this case, the award is divided in proportion to the number of votes cast. The principle is the same as for mining pools, characteristic for systems running on the PoW algorithm. This system is very dependent on the reputation of delegates, so if a node does not manage its tasks efficiently enough, it is revoked, and the voice steak is redistributed. By reducing the number of validation requests and various checks, it turns out to speed up the process and significantly improve its scalability.
DPoS vs PoS
They work on a general principle, but DPoS is more profitable for users with a small stake. By voting for an active delegate, they receive a certain percentage of stable income. In addition, systems based on the delegated principle work much faster. And the ability to quickly eliminate the delegate, if his actions are ineffective and harmful, motivates users to act honestly.
DPoS vs PoW
The new consensus algorithm surpasses classic PoW in almost all respects. The speed is higher, plus the ability to process at the same time a large number of large money transfers, also independence from the hardware, and higher security. And even guaranteed profit for new users who have successfully invested in an active delegate.
Despite the fact that the DPoS consensus algorithm is significantly superior to the alternatives, its use in practice is still very limited. Because it is not known how this system will behave in conditions of a large number of people and with the active abuse by delegates of their powers. However, experiments are being actively conducted. And we can safely say that a cryptocurrency based on the Delegated Proof of Stake consensus algorithms has a future.