Popular & Emerging Consensus Protocols in Cryptocurrencies: PoW, PoS, & DPoS

Mining, the bookkeeping of the cryptocurrency world, utilizes different consensus protocols in order to maintain a ledger. Three widely used protocols (or at least, gaining substantial momentum) are Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated Proof-of-Stake (DPoS).

Proof-of-Work (PoW)

Proof-of-Work (PoW) functions are basically what you think it would be. It validates that a certain amount of work happened.

Arguably, the most well-known instance of PoW is SHA256 — a hashing algorithm commonly used in digital signatures to verify integrity of data. Bitcoin, the first known cryptocurrency, utilizes PoW to complete transactions on its ledger.

PoW functions are designed to be difficult to break in order to prevent malicious types of activity. PoW also allows decentralization in that no single person can gain control over the order of blocks in a ledger.

The first miner that solves the block gets a mining reward, however, as more blocks are mined, the mining reward decreases…and will eventually reach zero. Once it reaches that point, miners will only receive transactions fees in exchange for their work. Further, as more blocks are added to a ledger, the difficulty level of the computing needed increases.

Mining that uses PoW requires miners to basically break this system in order to solve a math problem. Since this math problem is quite difficult, a ton of computing power is needed. The process also becomes wasteful because all of this computing power only protects the ledger from spammers.

Coming up with the computing power needed to solve a transaction that uses PoW is not only time-intensive, but the hardware to do this is expensive as well.

Proof-of-Stake (PoS)

This brings me to Proof-of-Stake (PoS). PoS is an attempt to mitigate the waste, time, and money that PoW brings to miners.

PoS chooses miners in a deterministic way, based upon the miner’s wealth, aka their stake in the matter. There is no block reward, but miners receive transactions fees just like in PoW.

In PoS, blocks are not mined, but rather, they are “forged” or “minted. Miners are known as “forgers”. Forgers are required to put their own cryptocurrency units at “stake” (as leverage) in case they validate a fraudulent transaction. This incentivizes forgers to validate correct transactions.

Most cryptocurrencies that utilize PoS also give interest to users that stake their coins. The interest is the maximum rate of inflation for a currency’s supply.

A notable downfall to PoS is that there is currently no way to handle coins when they are initially given to people. To mitigate this, one can have an ICO and give already-forged coins, or start with a PoW system and then switch to PoS later.

A large part of making a PoS system effective is choosing a good way in which forgers are chosen. Two popular methods are:

• Randomized Block Selection — finds the lowest hash value and the size of of a forger’s stake.
• Coin Age Based Selection — finds the next forger based on the ‘coin age’ of their stake.

Coin age= (# of days the coins have been held as stake) X (# of coins being staked)Some other interesting tidbits:

• A coin must have been held for at least 30 days before it can be held at stake.
• Once a forger has forged a block, their coin age becomes zero. They cannot forge another block for 30 days, but will be chosen to forge a new block within the next 90 days (max).

These features allow the system to remain decentralized, lowers hardware and electricity costs, and allows a greater number of people to become forgers.

A chain split can happen if nodes disagree with each other, just as in the case with the creation of Ethereum Classic. To help mitigate this possibility, the Delegated Byzantine Fault Tolerance (dBFT) was created.

Delegated Proof-of-Stake (DPoS)

Explaining PoS would not be complete without introducing its new cousin — Delegated Proof of Stake (DPoS). DPoS adds more democratic features to help maintain decentralization.

Users vote for witnesses to serve on a panel, of which control transaction sizes, transaction fees, and deterministically choose other witnesses to confirm blocks. “Bad” witnesses can be voted off the panel, and their influence is directly proportional to their stake in the system.

PoW Examples

• Bitcoin (BTC)
• Ethereum (ETH) — moving towards PoW/PoS then solely PoS
• Bitcoin Cash (BCH)
• Litecoin (LTC)
• Monero (XMR)
• ZCash (ZEC)
• DigitalCash (DASH)

PoS Examples

• Cardano (ADA)
• NEO — technically uses dBFT (NEO)
• Private Instant Verified TX (PIVX)
• OkCash (OK)
• Reddcoin (RDD)

DPoS Examples

• Steemit (STEEM)
• EOS (EOS)
• BitShares (BTS)

Sources: CryptoCurrencyFacts, HackerNoon, CryptoCompare, Steemit,