In a previous article, we discussed the Satoshi-based blockchain . It supports a consensus algorithm known as Delegated Proof of Stake (DPoS), which is a newer method of securing a cryptocurrency’s network. DPoS attempts to solve the problems of Bitcoin’s traditional Proof of Work (PoW) system, as well as the Proof of Stake (PoS) systems of Peercoin and NXT.
A consensus algorithm such as PoW, PoS, or DPoS, serves as a mechanism to validate transactions on the blockchain. As new blocks of transaction data are generated in a PoW system, the security of the network is maintained by a series of nodes through a process called mining. Nodes are a series of computers that use specialized hardware to process and solve complex mathematical problems as part of their validation of new transactions.
As miners are randomly selected by the network to process randomized, complex mathematical problems, the proof of their work in solving these complex problems results in what is called a hash code that serves as a form of system-generated validation. Each miner’s validated hash combines with other miners’ hashes until there is a majority consensus, or agreement that a new transaction is valid and should be permanently added to the blockchain.
PoW is secured by what is classically known as a Byzantine Fault Tolerance. This characteristic signifies that a system can withstand any and all attempts at failures, even by brute force of bad actors conspiring to take down a system. It is a model used in the production of airplane engine systems, nuclear power plants and any other critical systems that depend on many inputs to ensure stability.
Since there is no central authority, such as a bank, to control and validate a network’s transactions in the PoW model, this level of fault tolerance is needed to ensure the integrity of the system in the event of coordinated mass hacking attempts. This is why the original cryptocurrency, Bitcoin, could never be hacked. In the PoW system, the majority of participating miners and nodes is so massive that it would essentially require a majority of the world’s computers to coordinate a simultaneous brute force attack on the network at the same time to bring down the system. Statistically speaking, the chances of a bank’s network being hacked by one or a few advanced hackers is far greater than most of the world joining a simultaneous hack.
While the PoW system supports a secure network, it requires massive resources to maintain. Each miner has an incentive to participate in validating transactions since the network rewards each one with a small cryptocurrency cash payment each time it correctly validates blockchain transactions. However, many miners are needed to make this system work and each miner uses major computer processing power to solve complex math problems while validating blocks. Having so many massive computer systems working 24/7 takes a major toll on the environment.
And so, the PoS system was developed to maintain and expand the level of security of PoW, with greater efficiency. In PoS, there are no miners. Rather, node participants place cryptocurrency funds in a holding account known as a wallet through a process called staking. Locking cryptocurrency in a wallet for staking allows one to be randomly selected by the network to validate transactions. The network also pays an incentive for each validated transaction. The more coins one stakes in a wallet, the higher the chances of being randomly selected. This is a much less resource intensive process, since participants don’t create validating blocks based on their systems solving hash challenges. Instead, the blocks are created by staking coins they are holding. So, no advanced environment-crushing computers are needed to sustain this system.
It is also even more secure than PoW, since participants who stake their coins can risk losing massive amounts of their own money if they try to hack the system. The incentive to do good is therefore stronger than in the PoW system.
This brings us to DPoS, which is an alternative version of PoS. DPoS enables participants to use their staked coins as votes to elect delegates, also known as witnesses, who validate transactions and secure the network on behalf of the staked coin holders. The more coins one has staked, the greater the voting power. The rewards received by witnesses are shared with their respective electors, so there is mutual reward for participating.
The voting system depends on the witnesses’ reputations. If a witness attempts to do something improper to compromise the network, then that witness is immediately expelled from the network and a replacement is automatically put in place. Besides being more technologically democratic with its voting system and delegates, DPoS is also much faster in terms of transactions per second than PoS, and certainly much faster than PoW systems.
Security is also enhanced with the additional layer of delegates or witnesses. This enhanced security, combined with higher performance and cost efficiency of maintaining the network are what make DPoS a superior system, and why META 1 Coin operates on a DPoS network.