Consensus mechanisms are a key component of any blockchain. They are essentially instructions for how the blockchain should accomplish tasks, such as validating and processing transactions, coupled with maintaining the security of the blockchain in a decentralized manner.
There are many different consensus algorithms. For instance, Bitcoin uses Proof of Work (PoW), while Solana utilizes Proof of Stake (PoS). Each algorithm has its own advantages and disadvantages, and each blockchain typically has its own adaptation of how the algorithm specifically works on its respective chain.
While we will discuss a few of these algorithms, the main focus here is directed toward the consensus algorithm utilized by the Lisk network, which is Delegated Proof of Stake (DPoS).
Table of Contents
- What is Delegated Proof of Stake?
- How Does Delegated Proof of Stake work?
- Voters in Delegated Proof of Stake
- Validators in Delegated Proof of Stake
- DPoS Consensus for Lisk
- Delegated Proof of Stake vs Proof of Stake
- Why use Delegated Proof of Stake?
- What Does Staking Crypto Mean?
- Delegated Proof of Stake Coins
What is Delegated Proof of Stake?
Like any other consensus algorithm, DPoS is used to secure a blockchain. It was created to be a much more energy efficient, environmentally friendly alternative to PoW, while adding additional security considerations and other improvements from PoS. It is also much more democratic when compared to other consensus mechanisms, as it utilizes an advantageous voting and delegation mechanism, coupled with the ability to verify and execute transactions much faster, resulting in higher scalability.
How Does Delegated Proof of Stake work?
While each implementation of DPoS varies, they all have the same core components. Users helping to secure the network can be broken down into two types, which may also overlap: The voters and the validators.
Voters in Delegated Proof of Stake
Voting is a key component of any DPoS algorithm. A voter stakes their tokens by selecting which validator(s) they would wish to secure the network. Hence, a LSK token holder has the ability to vote for the nodes they wish to perform the transaction validations. A voter is not required to run any additional software, such as a node, in order to participate.
Validators in Delegated Proof of Stake
Validators may be called by several other names depending on the network, including delegates and witnesses. Regardless of their actual naming convention, their goal remains the same. They are responsible for processing transactions and blocks on the network. In order to do so, they have to receive the necessary votes from their respective community.
DPoS Consensus for Lisk
Since the initial launch of its mainchain in May 2016, Lisk has utilized DPoS as its consensus algorithm. The LSK token plays a key role in the Lisk network, as it acts as a governance token.
Lisk voting is the core component to selecting which delegates will secure the network. Please see the Lisk Voting Process blog post for a much more in depth explanation of how voting works in the Lisk ecosystem.
Shortly after the Lisk mainnet launch, Block Rewards were introduced for active delegates securing the network. These rewards started off at 5 LSK tokens per block. Roughly every year, these rewards were reduced by 1 LSK token at a time. Today these block rewards are 1 LSK token per block and will remain that way forever.
Lisk has 101 active delegates securing the network. This means that these delegates are the ones actively processing blocks and transactions. To be an active delegate, it is a mandatory requirement to be in the top 101 of all delegates, sorted by vote weight. Each of these 101 delegates has a turn at forging a new block before the process starts over. This can be viewed in real time by visiting Liskscan and Lisk observer, whereby it is possible to analyze and observe various parameters such as transactions, votes, and delegates, within the Lisk blockchain.
Since August 2021, Stand-by delegates, or the ones outside of the top 101 by vote weight, have a chance to forge blocks as well. For each block round, 2 delegates are selected randomly, although the more vote weight the delegate has, the greater their chances are of being selected. If they are selected, they forge a block for that round as well. This means that Lisk block rounds are now 103 blocks long.
Delegated Proof of Stake vs Proof of Stake
DPoS is often described as an improvement from PoS, although that is disputed by some. Nevertheless, while DPoS and PoS have many similarities, there are a few key differences between them.
The main difference between the two is that while voting is fundamental to selecting validators in DPoS, it is non-existent in PoS. In DPoS, voters are the ones who choose the validators that secure the network. This differs from PoS, whereby validators are chosen strictly based on how much they have staked on the network.
While the implementation of both consensus mechanisms varies greatly depending on the blockchain, in general, DPoS networks utilize fewer active validators. This is because the validators are chosen by network shareholders, rather than solely related to their own stake. This creates more competition between validators and motivation for them to act in good faith. In addition, this also results in the network being able to run faster and scale more efficiently.
|Validators selected by their own stake||Validators selected by the stake of their voters|
|Typically more active validators||Typically less active validators|
|Fast transaction times||Faster transaction times|
|Energy efficient / Environmental friendly||Energy efficient / Environmental friendly|
|Only large stakeholders can participate in securing the network||Small stakeholders may participate in securing the network|
Why Use Delegated Proof of Stake?
DPoS has many advantages when compared to other consensus mechanisms. Having fast transactions, high security, and being highly efficient and decentralized are just a few reasons why it is an excellent choice for any Web3 project.
Transactions are typically processed faster on DPoS networks when compared to both PoW and PoS. PoW by nature is energy-intensive, which results in slower processing times. PoS improves on this, as the algorithms typically have many more processing nodes than DPoS. However, as DPoS has a limited number of validators, this allows consensus to be reached much more rapidly, therefore this results in faster transaction times on DPoS chains.
Lisk’s block time is 10 seconds. This means that transactions will usually be processed in less time than that. Exceptions include the block being full of other transactions, or the delegate misses that particular block. For more information on how Lisk transactions are processed and how fees are calculated, read the blog on Lisk’s Dynamic Fee System.
In DPoS, those securing the network are incentivized to be honest and behave accordingly. If they do act in malice, as a consequence voters will be able to detect these actions and vote them out.
In Lisk, this is taken a step further with Proof of Misbehavior transactions, which will punish delegates for misbehaving almost immediately.
DPoS utilizes significantly less energy than PoW blockchains. This is due to the fact that PoW requires a significant amount of computing power, whereas DPoS does not. Not only is this more efficient, but it also allows for more scalability, coupled with being much more environmentally friendly.
Both PoW and PoS have their own issues with distributing rewards. In PoW, a large amount of computing power is required to receive rewards, whereas, in PoS, a large number of tokens are required. Both are often out of reach of the everyday user.
With DPoS, small voters may choose to stake their tokens in a delegate to secure the network. In exchange, delegates may share a portion of the rewards with the voter. This way everyone may benefit from the rewards generated by the network.
What Does Staking Crypto Mean?
Staking is the process of utilizing (sometimes locking) tokens to determine who secures the network. In DPoS, this specifically means voting with your tokens.
The term staking is more often used to refer to an optional incentive of earning rewards. In DPoS, voters are often rewarded, either by validators or the network itself, in the form of earning extra tokens from their stake. These rewards are a great incentive to actively participate in voting for honest validators on the network, especially since you typically do not need high-level technical knowledge to do so.
Delegated Proof of Stake Coins
While many blockchains utilize DPoS, there are many differences between them. Block times, rewards, and the number of validators are just a few of the items that differ between DPoS chains. Below we will briefly explore a few of the more popular DPoS chains and explain the key differences in their consensus mechanisms.
As mentioned earlier, Lisk utilizes DPoS to secure its network with 101 active and 2 stand-by delegates, all voted on by its community. A new block is forged every 10 seconds.
For another in depth look at Lisk’s consensus algorithm, which includes details on its locking mechanisms, misbehavior consequences, how vote weight is determined, and much more, see the blog post on Lisk’s DPoS LIPs.
Founded by Dan Larimer, BitShares launched in July 2014. It holds the distinction of being the first blockchain network to use DPoS as its consensus algorithm.
The Bitshares network is secured by witnesses who are voted in. One distinction with the BitShare consensus algorithm is that the number of witnesses actively securing the network are voted on by shareholders. The main limitation of the protocol is that there must be a minimum of 11 possible witnesses.
Similar to Bitshares, witnesses secure the Tron network. With Tron, the top 27 candidates with the most votes actively secure the network. TRON also produces blocks every 3 seconds.
Each TRX token, the native currency for TRON, may be used to vote for a single witness. For each block a witness produces, they receive 32 TRX as a reward.
EOS uses a two layer consensus model. The first is the asynchronous Byzantine Fault Tolerance layer (aBFT). This layer ultimately decides which blocks will be added to the network and eventually marked as final. It is not the focus of this blog post to delve into more depth with this layer, however, more information can be found on this by viewing their official consensus protocol documentation.
The second is its DPoS layer. While stakeholders may vote for up to 30 block producers in a single transaction, only the top 21 with the most vote weight will actually produce blocks. The EOS consensus algorithm also incorporates a form of vote decay, meaning more recent votes have more weight to them. This is to encourage more active voting participation.
Nano is secured by “Representatives” using a variation of DPoS that is known as Open Representative Voting (ORV). There are two types of validating nodes, Representative nodes, and Principal Representative nodes.
Representative nodes have less than 0.1% of the overall vote weight. While they will validate and vote on transactions seen on the network, they do not rebroadcast their votes.
Principal Representatives are nodes that have 0.1% or a greater vote weight. They run similarly to Representative Nodes, however their votes will be rebroadcast by other nodes, which in turn helps the network reach consensus.
Representatives do not earn rewards for securing the network, and the network boasts that transactions are free. The motivation to participate in securing the network is simply just to help maintain a network that offers zero fees.
Cardano is often described as a DPoS blockchain. This is actually not correct, as Cardano utilizes a PoS consensus algorithm, called Ouroboros.
The confusion comes from the fact that in an early white paper for Cardano, it called its consensus algorithm distributed proof of stake or DPoS for short. The identical abbreviation is what led to the confusion that still exists today.