Consensus protocols on the Blockchain: PoS and DPoS Compared

cryptoasis (38)in #cryptocurrency • 5 years ago

A well-known problem in the blockchain community, the "blockchain trilemma" states that in engineering any blockchain a difficult choice needs to be made between the often conflicting aims of decentralization, security and scalability
Many engineers that seek to greatly improve their blockchain with regard to one of these properties, may find themselves in significant trouble in other domains. In this article, I would like to discuss the effects of implementing the consensus protocols Proof-of-Stake and Delegated Proof-of- Stake with regard to these three properties.

Consensus protocols on the Blockchain

Consensus protocols are used to enforce overall system reliability in distributed computing systems, which generally consist of independent agents. For blockchains, specifically, a consensus protocol is vital to reach definite, immutable agreement on the method to validate transactions and create new blocks.

The first technology to implement a blockchain, Bitcoin, makes use of a consensus protocol called Proof-of-Work, in which nodes connect to the Bitcoin network and solve cryptographic problems of increasing difficulty. Once a node solves a problem, the miner is rewarded, a new block is "mined" and added to the blockchain. A Proof-of-Work based blockchain is designed to increase the difficulty of subverting the protocol exponentially, since in order to edit the ledger, an attacker would have to undo all the blocks from the very beginning, which increase in difficulty as the network continues to mine new blocks. This co-operation between the Proof-of- Work protocol and blockchain technology allowed Bitcoin to securely solve the double-spending problem, the risk that a digital currency could be spent twice.

There are, however, significant drawbacks to using the Proof-of-Work protocol. The biggest one being the inherent wastefulness of Bitcoin energy consumption: nearing that of the Czech Republic. An energy consumption, that is only expected to grow as the network increases in size. In other words, the PoW protocol did not scale very well. More examples of poor scaling are the 50x increase in transfer-fees during the 2017 Bull market, and the consolidation of Bitcoin miners into "pools" causing the distribution of Bitcoin to become less decentralized, thus increasing the probability of a 51% attack on the network.

Proof-of-Stake and Decentralized-Proof-of-Stake Models

The primary aim behind the PoS and DPoS protocols is to offer a similar or greater level of security to that of PoW, while avoiding its characteristic pitfalls. Both abandon the process of mining as a block creation and validation protocol, and instead rely on a set of validators, independent agents on the network, who have demonstrated "a stake" in the network. So, when compared to PoW miners, who's contribution to the network can be measured by the amount of capital they have burned to mine, PoS consensus is reached through a process similar to majority shareholders making decisions over the future course of a company.

The primary difference between PoS and DPoS protocols is the way validators are chosen. In the PoS model, a participant on the network becomes a validator by sending a special transaction that locks the base cryptocurrency of their blockchain into a deposit, representing their "stake" in the network. The advantage over a PoW model is clear: participants who contribute into the network don't simply empty their resources into mining computations, but maintain weight in the consensus protocol that is equal to their present financial stake in the network.

A common criticism of PoS, however, is that it reintroduces the unequal centralization of the old financial world into cryptocurrencies, by allowing the wealthy to have the biggest share in blockchain networks, whereas in the starting days of Bitcoin, people had at least somewhat of an equal opportunity to mine coins. DPoS, however, seeks to challenge this problem by replacing validators with witnesses, elected and monitored by the shareholders. These witnesses have the responsibility of collecting transactions, adding them into a block: signing and broadcasting the block onto the network. The primary differences between PoS and DPoS, therefore, are socio-economical. The first represents a more meritocratic model, whereas the second a democratic model.

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