Crypto Academy Season 3 Beginners' course - Homework Post for Task 4: PoS and DPoS by @papi.mati
(2) 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?
What is PoS and what are pros and cons of that mechanism?
PoS stands for Proof-of-Stake. It is a mechanism of creating cryptocurrency which doesn't require mining rig. Users supposed to invest in their stake, as the person who has the highest stake gets the biggest chance to become the block creator/validator.
That mechanism has some particular advantages and disadvantages:
✅ Users are motivated to the constant increasing their stake, so part of the tokens are freezed. That helps on the stock, as it allows to keep the value of the token high
✅ It attracts investors who are motivated to buy the tokens with the hope to get more influence and higher income in the nearest future
✅ It's more energy efficient and, in result, eco-friendly.
✅ It doesn't require very advanced, fast computers. Instead of investing in the computers, users invest in the tokens
✅ PoS guarantees faster and cheaper transactions than PoW (1)
⛔ System is centralized, which is not a good thing. You can read about the advantages of decentralization in another publication I wrote recently. In the simplest words: rich users are getting richer very fast on that kind of platforms and there is a risk that a person who would have enough money to buy 51% of all the tokens could control it all.
⛔ It is not as secure as Proof-of-Work mechanism
⛔ In most of the cases it requires a lot of investment to get significant income
⛔ It requires to freeze part of the funds for some time
⛔ Value of the token on the stock market is very unstable. There is a risk of loosing the savings (from the other side, there is also a chance to significantly increase the amount of money we own).
That mechanism is used by DASH, NEO, TEZOS and many other cryptocurrencies. It's one of the most popular mechanism (PoS and PoW are in use in the majority of over 10 000 cryptocurrencies).
What is DPoS and what are pros and cons of that mechanism?
DPoS, which means Delegated Proof of Stake is a newer, upgraded version of Proof-of-Stake mechanism. You should know it, as the platform we are using in this moment is based on it. Basically, DPoS is based on voting - users who own the tokens votes on their representatives who become the validators. More frozen tokens (in our case, SP), means bigger influence in voting.
Number of chosen representatives varies, depends on the platform (on Steemit it's 20+1, but for example on TRON it's 27).
All advantages of PoS are at the same time advantages of DPoS. Additionally:
✅ DPoS is more democratic - if the witness is not doing a good job, can be voted out
✅ DPoS motivates user to integrate, builds connection which is necessary to get the vote from the others
✅ The mechanism is more efficient than PoS, because it allows to make more transactions per second (2)
✅ As witnesses (validators) can change with the time, income has a chance to be distributed more equally. System is partially decentralized.
⛔ Decentralization is only partial, because still there is a risk that narrow group of whales could control the platform
⛔ It's not as safe as PoW, although it's still very safe solution
⛔ It requires to freeze part of your income
⛔ Value of the token on the stock market is very unstable. There is a risk of loosing the savings (from the other side, there is also a chance to significantly increase the amount of money we own).
That mechanism is used by STEEM, HIVE, TRX, LISK, Bitshares, Ark (3) and others.
So, what's the difference?
After reading this post, differences between two mechanisms are getting clear: DPoS is a better, more democratic, faster version of PoS. It's not a perfect solution, it still has its disadvantages, but it is closer to decentralization than the traditional Proof of Stake, distributes the money more equally and motivates users to integrate, build their capital and reputation.
Thank you for reading,
@papi.mati
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