Delegated Proof of Stake
- An extension of Proof-of-Stake algorithms is called Delegated-Proof-of-Stake (DPoS). It is used for example in BitShares, EOS, Steem, Lisk, and Tron.
- The algorithm is called DPoS because, as in PoS, the value of a vote is determined by the stake (i.e. tokens held by a user). However, there is a fixed validator set in DPoS systems. For example, in EOS, there are only 21 validators that participate in consensus. In pure PoS systems, there is no fixed validator set and the number of potential validators that can participate in the consensus mechanism is dependent on the total supply of tokens in circulation.
- In this type of consensus mechanism, so-called witnesses (those who validate transactions) are elected by the stakeholders of the network to secure the network. Afterward, several witnesses are chosen for the block creation so that they represent at least 50% of the stakeholders' votes.
- Witnesses are paid for their services, receiving fees for creating and validating blocks. This economic incentivization to become a witness also leads to competition potentially increasing with each new member, because the number of witnesses is limited.
- In case a witness misbehaves, the network's community can withdraw their votes for a single witness (i.e. they fire the witness). Witnesses that no longer hold enough votes lose their income basis.
- Alongside ascribing the role of witnesses to some participants, DPoS networks also elect delegates. Delegates are a group of participants that supervise network governance and performance, and propose changes that are then voted on by the entire network.
- Many consider DPoS algorithms superior to PoW and PoS because of their fast block creation, high degree of security, energy efficiency, level of integrity, and democratic structure. However, DPoS systems are less decentralized than PoW and PoS systems because they have fixed validator sets and higher barriers to entry.