Delegated Proof of Stake
Delegated Proof of Stake (otherwise known as DPoS) is a consensus algorithm maintaining irrefutable agreement on the truth across the network, validating transactions and acting as a form of digital democracy. It is the protocol of choice at Lisk and with very good reason.
Delegated proof of stake uses real-time voting combined with a social system of reputation to achieve consensus. It can be seen to be the least centralized consensus protocol compared to all others as it is the most inclusive. Every token holder can exercise a degree of influence about what happens on the network.
Active delegates are voted into their roles by token holders. The voting power that the token holder has, otherwise known as voting weight, is determined by how many of the base token the account is holding. It is important that the delegates are chosen with the best interest of the network at heart as they keep the network running smoothly and safely. In some DPoS versions, a delegate needs to show commitment by depositing his funds into a time-locked security account (which is confiscated in case of malicious behavior). This version of DPoS is often referred to as deposit-based proof of stake.
The roles of delegates revolve around:
- Ensuring their node is always up and running.
- Collecting the transactions across the network into blocks.
- Signing and broadcasting those blocks, validating the transactions.
- If there are issues in regard to consensus, DPoS allows these to be resolved in a fair and democratic way.
Delegates do not have the power to change any transaction details. However, as they are validators they could theoretically exclude certain transactions in a block. Nevertheless, this has very little effect as the next created block will include these transactions, giving the next delegate the fees associated with validating them. As such, the transactions will only be slightly delayed. Furthermore, this would inevitably lead to the dishonest delegate getting voted out by the rest of the network. In essence, a DPoS network is self-governed and policed by all of its participants ensuring the best interests of the network remain the priority.
Advantages of DPoS
Not only is DPoS a more democratic system, it is also more efficient and effective. The selection of block producers allows for the transactions to be validated in a matter of seconds, rather than the 10 minutes it takes the proof of work system employed by Bitcoin. For example, in the case of Lisk it currently only takes 10 seconds to validate a block of transactions.
Delegates are incentivized to run the nodes that process and validate the transactions going through the network with transaction fees, as well as monthly rewards for maintaining the network that, with time, are gradually reduced. There can only be a certain number of delegates at any one time (101 for Lisk) and those are determined by a competitive election system, wherein each and every Lisk holder can cast a vote for their preference to fill that role.
Whereas in a proof of work system, such as the one employed by Bitcoin, validating blocks is known as “mining”, in the case of delegated proof of stake this process is referred to as “forging”.
Lisk employs an inflationary reward system. For every block generated new LSK tokens are created to reward those who are forging. During the first year, forging rewards were set at 5 LSK per block with the reward being reduced by 1 LSK every 3,000,000 validated blocks, concluding at 1 LSK after approximately 5 years. Assuming an increase in token price over time, in year 1 receiving 5 LSK tokens that were worth $1 each meant a return of $5, whereas receiving 1 LSK token in year 5 that is worth $100 means a considerably higher return.
Debates about the most effective, efficient and secure consensus protocol are common in the blockchain space today, stimulating innovation and an advancement in these systems, the perfect consensus protocol has yet to be created. For example, at Lisk there is a dedicated Science Team working tirelessly to create the consensus protocol of the future. Blockchain technology is continuously changing, evolving and improving and we have already seen huge progress in a very short amount of time in blockchain, starting from the first protocol utilized in blockchain technology, the Proof of Work consensus protocol.