What is Delegated Proof of Stake—and what does staking have to do with it?

Attention! This article is outdated and awaiting an update

Delegated Proof of Stake (or DPoS) is a consensus algorithm created by developer Dan Larimer in 2014. Notable projects using DPoS include:

• BitShares
• Steemit
• Lisk
• Ark
• EOS

PoS resembles direct democracy, whereas DPoS resembles representative democracy. Classic PoS allows coin holders to engage in staking. A holder validates transactions and receives new coins as a reward.

Rewards in a PoS network depend on the number of coins owned by the staker. The larger the stake, the larger the reward.

PoS encourages large holders to stake and creates inequality similar to the distribution of mining power in the Bitcoin network: a miner who has invested more in equipment has a higher chance of finding a block.

Delegated Proof of Stake aims to make the distribution of coins and influence in the network more even and to provide a greater degree of decentralisation.

In DPoS blockchains, every wallet with a balance can vote for so-called delegates (Delegates, Block Producers, Validators)—special community representatives who are granted the right to produce blocks and earn transaction fees as rewards.

DPoS is resilient to attacks by a corrupt minority. If delegates harm the network or go offline, participants rerun elections and appoint new delegates until the share of honest block producers returns to 100%.

Delegates set key network rules, maintain stable blockchain operation and produce blocks. They earn transaction fees as income. Anyone can become a delegate, but only for a short time.

The network pays a delegate for producing new blocks and including transactions in them. A delegate may, at their discretion, spend these proceeds on marketing or lobbying for the community, but not for personal purposes. Token holders decide how much a specific delegate is paid. This depends on the network’s rules and the delegate’s reputation. Reputation is reinforced by user votes: using the coins in their stakes, users constantly participate in elections. A user can give only one vote to a delegate, but can vote for several candidates.

Once elected, each delegate joins a special group. Members of this group have access to the genesis account.

This is a multi-signature account through which one can change:

• the block reward;
• block time;
• block size;
• witness rewards;
• transaction fees.

Parameters within the delegates’ remit should not change too often: instability and novelty deter newcomers and investors. The genesis account can also perform standard functions: use smart contracts, receive funds and form a stake.

After important decisions are adopted, DPoS blockchains provide a short window during which new delegates can be re-elected. This is necessary if the rules set by delegates are not approved by a majority of user votes.

The number of delegates can be reduced or increased, and delegates replaced, without affecting network stability.

The list of active delegates is updated after votes are counted. The system then selects delegates at random and queues them. Each delegate gets a chance to produce a block. After all delegates have had their turn, their order is reshuffled at random.

A delegate can choose not to include transactions in a block, delaying their confirmation. Such an approach requires trust in delegates and makes the system vulnerable to manipulation.

If a delegate fails to create a block or omits transactions, the next block is generated by another delegate and will be twice as large to include the unconfirmed transactions. This neutralises a malicious attempt to block or delay block production.

In the longer term, blocking specific transactions is impossible: if a delegate abuses authority, other participants have mechanisms to remove them.

Users who stake and have a chance to become a delegate temporarily are called witnesses (Witness, Witness Node, Validator, Block Producer, as they witness transactions and simultaneously run network nodes). DPoS uses a reputation system and real-time voting to elect witnesses and delegates.

Witnesses produce and propagate blocks, confirm transactions, hold coins in stake and vote. Unlike delegates, they cannot set the network’s fundamental rules. During transaction confirmation, witnesses and delegates cannot change transaction details such as amount, sender, recipient, ID, and so on.

They also verify:

• incoming blocks and transaction signatures;
• the results of smart-contract execution;
• whether delegates have been legitimately elected;
• the propagation of users’ transactions.

Any full node can provide read access to blockchain data, making the system akin to a decentralised content-delivery network (CDN).

All coins in DPoS blockchains are split between free (in circulation) and staked. Each participant chooses the stake size, and staked coins cannot be spent. With such coins one can become a witness, vote for delegates and take part in network governance through smart contracts.

What are the advantages of staking?

• No need to invest in expensive hardware to earn new coins;
• No high energy consumption;
• A 51% attack is harder: an attacker must control at least 51% of all tokens;
• During airdrops some projects distribute coins to stakers more quickly;
• In DPoS, staking is used not only to earn but also as a tool to influence the network.

Drawbacks include:

• De-anonymisation of witnesses, as they are often public companies rather than private individuals.
• The possibility of DDoS attacks on network nodes.
• Most participants lack sufficient incentive to vote because their stakes are too small.
• The risk of centralisation: a resource-rich actor can re-elect themselves.
• Voting with one’s wallet carries high financial and political risks: voters are more likely to accept a bribe or not vote at all.
• Some implementations recommend multi-core processors for validation; otherwise a delegate may miss a block reward.
• During staking, coins are locked for a time; if the price falls sharply, you cannot sell immediately.

The noted bitcoin maximalist Nick Szabo expressed concern about one DPoS implementation:

“In EOS, a few strangers can freeze what users consider to be their money. Under the protocol you must trust a constitutional organisation made up of people you will never know personally. The EOS constitution is not socially scalable and is a security hole.”

During a vote in April 2019 to replace the interim constitution with an end-user agreement (EUA), turnout was 1.7%. Block producers had to take the decision, prompting accusations of centralisation and the immaturity of some DPoS implementations.