Different types of Consensus Mechanisms - Steemit Crypto Academy Season 5 - Homework Post for Task 6

Namaste Steem Family,

I have completed the first 5 assignments from the Beginners’ Assignments list of tasks. This would be my 6th assignment task and also this is the 6th assignment in the assignment task list.

The assignment is really easy to understand and straightforward. Professor @sapwood explained the different types of consensus mechanisms used by blockchain algorithms and how they achieve the consensus for validating the blocks produced after storing the transaction made on the blockchain.

There are many consensus mechanisms but in this assignment, I have explored and talked about the two main consensus mechanisms, one of which is attracting the biggest blockchain Ethereum towards it.

We will be exploring Proof-of-Stake and Delegated-Proof-of-Stake consensus mechanisms in this assignment and we will also be going through the advantages and disadvantages of these two consensus mechanisms.

So, the question I am answering in this assignment is the second question from the original assignment post by @sapwood.

The question I am answering is:

“What is the difference between PoS & DPoS? Advantages & Disadvantages? Name a few Blockchain projects which use the DPoS consensus mechanism and indicate the scaling capacity?”

I have answered the original question in parts and therefore, you will see that I have put question numbers before every sub-question. So, let’s start with the assignment.

Before going into the details of the differences between the two consensus mechanisms, we should first understand the basics of Proof-of-Stake and Delegated-Proof-of-Stake.

Let us first understand the basics of the Proof-of-Stake consensus mechanism.

PoS (Proof of Stake) is a consensus algorithm that seeks to achieve distributed consensus in a Blockchain.

On the BitcoinTalk forum, a user called Quantum Mechanic first proposed this way of achieving consensus, and after this Sunny King and his colleagues later published an article describing the workings of the Proof-of-Stake mechanism. Consequently, the Peercoin blockchain was created on the Proof-of-Stake (PoS) principle.

The name Proof-of-Stake implies that the nodes run by users on a network stake a certain amount of cryptocurrency to become eligible candidates to validate new blocks and earn the fee for producing new blocks for the blockchain.

The algorithm selects the node which will validate the new block from the pool of candidates. In addition to considering stake (the amount of cryptocurrency locked in a user’s wallet), this mechanism also uses other factors such as coin-age selection (a selection algorithm based on the length of time a node has held tokens) and also a random selection process is used for this. The algorithm this way works to ensure the selection procedure is fair for everyone on the network.

Since proof-of-stake algorithms do not require energy-intensive computing processes, blockchain networks based on proof-of-stake algorithms are more efficient than Proof-of-Work protocols.

Now, let us understand the basics of the Delegated-Proof-of-Stake mechanism.

DPoS (Delegated Proof of Stake) is a consensus algorithm that extends the fundamental concepts of Proof of Stake.

In 2014, Daniel Larimer, founder of BitShares, Steemit, and EOS, developed a consensus algorithm known as Delegated Proof of Stake (DPoS).

In contrast to the Proof of Stake consensus mechanism, where each token holder can participate in the block production and token minting process, a DPoS (Delegated Proof of Stake) system maintains its integrity through an election system for choosing nodes that verify blocks. In the crypto world, these nodes are called witness nodes or "block producers". These witness nodes are chosen by the users of the blockchain and a number of witness nodes (usually 21-100) are selected using a voting process where users who have staked their blockchain-specific tokens cast their votes to elect the witnesses or block-producers.

Participating in the (DPoS blockchain-based tokens) staking process ensures securing data by producing blocks by specially appointed witnesses that produce blocks by validating and securely saving the data produced by users and this, in turn, ensures security using proof-of-stake algorithms.

I guess this much introduction about the mechanisms would be enough to understand the basic workings of both and would enable readers to properly understand why the differences are significant enough to talk about in an assignment post. So now, let us go through all the differences between the PoS (Proof-of-Stake) and DPoS (Delegated-Proof-of-Stake) mechanisms.

1. Different Block Producers: In the Proof-of-Stake consensus mechanism, users have to hold/stake token in their account for a longer period in order to be considered for the production of new blocks, whereas in the Delegated-Proof-of-Stake consensus mechanism, users can vote a node and place the node in the top witness list/block producers which can then produce the new blocks.

2. Transaction Speed: Since there can be many people with higher stakes in the PoS blockchains, the transaction speeds can be limited, but in the DPoS blockchains, there are only a limited number of block producers who are chosen for producing the blocks, therefore the transaction speeds are really high.

3. Starting Difficulty: PoS blockchains have to start either by using the PoW algorithms to mine the initial coins and then transition to the PoS algorithm or they have to offer their initial coins to the public through ICOs. While in DPoS blockchains, the initial coin offering may be an option but the most sorted out option is to delegate pre-mined inflationary tokens to new users so that they can start using the blockchain.

4. Energy Consumption: PoS blockchains are energy efficient in comparison to the PoW blockchains and need significantly less power to run the blockchain but the DPoS blockchains need fewer nodes to produce new blocks, they consume fairly less energy than the PoS blockchains. So, we can say that if the PoS blockchain saves 50-90% of the energy when compared to PoW blockchains, the DPoS blockchain will save 50-90% of the energy used by the PoS blockchains.

This concludes the main differences between the PoS and DPoS consensus mechanisms. Now we are going to see the advantages and disadvantages of PoS & DPoS consensus mechanisms.

Advantages of the Proof-of-Stake consensus mechanism:

Staking tokens to mine new tokens while producing blocks is more efficient energy-wise than using hardware that consumes large amounts of energy. Therefore, the PoS consensus mechanism is a great alternative to the PoW consensus mechanism.

So, let us see some benefits of the Proof-of-Stake consensus mechanism:

1. Energy Consumption: Unlike Proof-of-Work blockchains that depend on energy consumption to determine who can produce new blocks, a Proof-of-Stake blockchain determines who can produce new blocks based on multiple factors which do not consume much energy. The proof-of-work system is perceived by blockchain enthusiasts to be more efficient, but the truth is that energy consumption has recently caused people to question whether PoW blockchains like Bitcoin and Ethereum are feasible. To produce blocks efficiently without consuming a significant amount of energy, PoS only requires that the block producers be selected on the basis of the number of tokens staked by them and a few other factors (discussed above).

2. Decentralization: The main characteristic of public blockchains is decentralization, which can be accomplished by getting more and more people to use the blockchain. The PoS blockchains have lower hardware requirements than PoW blockchains, and a larger number of participants can participate in the consensus process. People who own platform-specific tokens may join the network and participate in the block production process, provided they have a stable internet connection.

3. Security Features: In blockchains that use Proof-of-Stake consensus mechanisms, the stake maintained must equal or exceed 51% of the total staked tokens by other users of the blockchain, so it would be really difficult for an attacker to gain access to this amount of tokens at a lower price and stake them for a longer period of time in order to launch an attack on the blockchain. Thus, attackers are restricted from planning attacks in a short period of time, and other users are given enough time to plan a strategy to eliminate such an attack.

4. Scalability: In the PoW consensus mechanism, scalability is a big problem since, as more and more people get their hardware to mine tokens on the blockchain, the difficulty of solving mathematical puzzles also increases. In the long term, therefore, the capacity of the blockchain to support more transactions per block doesn't change, nor does the speed at which the blocks are produced. Proof-of-Stake is a superior solution to the scalability problem faced in the PoW blockchains. By enabling users to participate in the block production process through staking, the main problem of transaction speed and energy consumption of PoW blockchains is solved in the PoS blockchains; this allows thousands of transactions to be processed each second. This solves the problem of scalability and is one of the many reasons why we have accepted the Proof-of-Stake as a better alternative to the PoW consensus mechanism.

Drawbacks of the Proof-of-Stake consensus mechanism:

1. Accessibility Limitations: The biggest hurdle for participation in PoS blockchain is that an individual needs to own blockchain/platform specific tokens for interacting with the blockchain and it becomes more important for a person to buy and stake tokens to start producing blocks and get the rewards for doing so. This is a big concern because a new user might not have enough to buy the tokens to start interacting with the blockchain. This also results in early adopters and high amount stakers becoming more rich.

2. Security: The security of a PoS consensus mechanism following blockchain is of concern because there are many examples where the early adopters of the blockchain are holding a huge amount of tokens in their wallet. Many examples of such blockchains have 2-10 wallets holding more than 30-50% of the tokens. This can be used to change the course of development in the blockchain to profit these token holders.

Advantages of the Delegated-Proof-of-Stake consensus mechanism:

1. Scalability & Speed: The blockchains using Delegated-Proof-of-Stake consensus mechanism have a higher rate of transaction speed in comparison to Proof-of-Work and Proof-of-Stake blockchains, this is because only a selected number of nodes (21-100) are used to produce new blocks and verify transactions. This helps the blockchain in onboarding an unlimited number of new users and scale the blockchain at a higher pace.

2. Better Distribution of Rewards: In DPoS blockchains, rewards are distributed among users who are constantly active and are using their tokens to delegate to a good cause or are using their staked tokens to vote for better witnesses and for voting good content on the blockchain. This makes the distribution of rewards more decentralized.

3. Real-Time Voting Behaviour Detection: A user of the DPoS blockchain can easily detect a self/spam voting/downvoting method used by another user on the blockchain and can be brought into light before they can harm the funds available on the blockchain.

4. Energy Efficiency: DPoS consensus mechanism does not require a high-end machine to mine tokens as done in PoW and does not require an unlimited number of block producers to run the blockchain. The algorithm allows only a few selected block producers to verify the transactions and thus it only needs a fraction of energy needed by PoS blockchains.

Drawbacks of the Delegated-Proof-of-Stake consensus mechanism:

1. Easier to Organize an Attack: Since only a few people are incharge of maintaining the blockchain, and verifying transactions, an organized attack on the blockchain becomes easy. Top block producers can attack if the users who have voted for their witness node are not active regularly. When the attack happens, the users who have casted vote for the witness nodes will not be available for unvoting the witnesses.

2. The Rich gets Richer: Most visible example of this drawback is seen in the Korean community where they have delegated their staked Steem to UPVU account, making them the most influential account on the Steem blockchain. Now the people who delegated the tokens to UPVU are getting more rewards than others for little or no work.

3. Delegatees could form a fund leeching cartel: Since the DPoS blockchain runs using a reward pool, which is an inflationary rewards mechanism, the people who have the most influence in the blockchain can leech funds from the reward pool after making a cartel which gives delegation to one account and then the account gives vote to all the delegators.

1. Lisk - Founders: Max Kordek, Olivier Beddows
2. Steem - Founders: Ned Scott, Daniel Larimer
3. Bitshares - Founders: Dan Larimer, Charles Hoskinson
4. EOS - Founders: Dan Larimer

My Previous Season 5 Beginners' Course Assignments:

1. Tron Ecosystem by @sapwood - Grade:
   10/10
   - Assignment Link
2. STEEM & TRON by @sapwood - Grade:
   10/10
   - Assignment Link
3. The Genesis Block by @awesononso - Grade:
   9.8/10
   - Assignment Link
4. Blockchain, Decentralization, Block Explorer by @yousafharoonkhan - Grade:
   9.7/10
   - Assignment Link
5. Bitcoin, Cryptocurrencies, Public Chains by @stream4u - Grade:
   9.3/10
   - Assignment Link

Thank you for reading this assignment

CC: @nane15, @shemul21, @dilchamo