Hello everyone, I have put this together to demonstrate the difference between DPoS and PoS Consensus mechanisms. I have chosen TRON DPoS as an examples for two main reasons; one, I have held TRX in the past and have staked on their platform, and two, due to recent events resulting from Justin Sun’s purchase of Steemit Inc which qualifies It as a perfect example of how Centralised Delegated Proof-of-Stake is. I hope you will find this information useful; If you would like a PDF Presentation, you can get a copy from my website www.decentrafied.com
Why Proof-of-Stake?
The most important thing about picking a Proof of Stake (PoS) algorithm over a Proof of Work (PoW) algorithm (as adopted by Bitcoin), is the energy consumption considerations. Running the bitcoin protocol is a very expensive endeavour which uses large amounts of energy. It is estimated that 3 to 4 American households can be powered for a day by the energy that is spent to generate one Bitcoin transaction. These energy requirements for running the Bitcoin protocol continue to grow as more and more Bitcoin miners sink money into mining. In addition, more energy is needed as the difficulty of the problems that their computers or mining rigs, encounter increases.
To put things into perspective, as of 2019, 81% of the Bitcoin hashing power came from China. In 2016, the overcapacity from Hydro-power Stations in Sichuan and Yunnan amounted to 45.6 Terawatt hours of Bitcoin electricity usage. The entire US generated 4,100 Terawatt hours of electricity in the same year. This is why researchers have investigated alternative ways to reach consensus, such as using the so-called BFT (Byzantine Fault Tolerant), consensus algorithms and PoS algorithms.
What is Proof-of-Stake?
Proof of Stake is a novel approach to block generation. The core idea of Proof of Stake is that instead of wasting electricity on cracking computationally heavy problems, a node is selected to generate a new block with a probability proportional to the amount of coins this node has. If a node has positive stake, it is called a “stakeholder”. If a node eventually becomes chosen to mint a new block, it is called a “slot leader”.
TRON Delegated Proof-of-Stake (DPoS)
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TRX holders stake their coins with large node operators (AKA, Delegates, Witnesses, or Block Producers) called, Super Representatives (SR’s) who are responsible for producing blocks and packing transactions.
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TRX holders FREEZE their coins inside the wallet, ‘Tron (Voting) Power’ is automatically generated at a 1:1 ratio which they can then use to vote. Once coins are frozen, they cannot be unfrozen for a period of 3 days, during this period, frozen TRX cannot be traded; once coins are unfrozen, a voters previous votes will be completely void.
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SR elections are held once every Epoch (Every 6 Hrs); a voters total power can be split between different SR Candidates. Votes will go into effect when the next voting cycle (Epoch) starts. Voters may redistribute their votes any time they like before the next voting cycle.
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The top 27 most-voted candidates will become SR’s, while the 28th to 127th will become Super Partners. Voters may choose SR’s based on criteria such as projects sponsored by SR’s to increase TRX adoption, and rewards distributed to voters.
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Super Partners receive voting rewards but cannot produce blocks. All SR Candidates, Super Partners and SR’s (The Committee) have the right to raise proposals to modify parameters on the TRON network.
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‘The Committee’ is made up of 27 super representatives who are responsible for modifying dynamic parameters such as block rewards and transaction fees on the TRON network. Each SR, super partner and SR candidate is entitled to initiate and vote for proposals. A proposal is adopted as long as it is voted for by at least 19 SR’s. The adopted proposal will apply its changes to network parameters in the next maintenance period.
TRON’S DPoS rewards;
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The TRON network generates one block every three seconds, with each block awarding 32 TRX to Super Representatives. A total of 336,384,000 TRX is awarded annually to the 27 SR’s. One SR will take 81 seconds (3 sec x 27 SR) to produce one block.
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The 127 SR Candidates updated once every 6 hours will also share 115,200 TRX. The reward will be split in accordance to the votes each candidate receives.
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The last 2 block times of an Epoch (6 Seconds) is the Maintenance Period, during which block generating order for the next Epoch will be decided. This period of time is used to count the votes for Super Representative Candidates.
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There are 4 Epochs in 24 hours, and naturally, 4 maintenance periods. During the maintenance period, no block is generated and block generation order for the next Epoch is decided.
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TRON’s DPoS is designed in a way that block producers who fail to perform their duties can be voted out as delegates in elections.
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To secure the Super Representatives spot, Super Representatives will have to do a good job and provide incentives for the community to keep voting for them. One way to do this is to pay dividends from the block rewards they receive.
Cardano Ouroboros Proof-of-Stake (PoS)
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Cardano has created ‘Ouroboros’, a consensus mechanism based on scientific, peer-reviewed philosophy which utilises Proof-of-Stake (PoS) to achieve the same security guarantees as Bitcoin, a provably secure first generation Blockchain. Ouroboros is the first PoS protocol that has mathematically been shown to be provably secure.
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Unlike DPoS, ADA is delegated to ‘Stake Pools’ rather than used as a voting mechanism. A stake pool is a network node with a public address for users to delegate to; they are the Block Producers in Cardano. Any reliable individual or business with the knowledge and resources to run the node on a consistent basis will be able to start a pool and register it on the Blockchain. (Stake Pool Operator)
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Delegating your stake will be done within your wallet by selecting from a large network of Stake Pools. Wallets will help you to select your staking pool, sorting the pools by a metric called “Desirability”. Desirability is composed by; reliability, the pledge, saturation, pool costs and margin.
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ADA can also be staked with hardware wallets and even with paper wallets. Delegating your stake to a pool does not put your ADA at risk. There is no requirement to send, lock-up or freeze ADA in any way, there is no minimum stake, and, you can add or remove ADA from your wallet at any time.
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You do however have to make sure to track your pools performance from time to time to make sure it performs well. Changes to delegation preferences will take effect after both, the current and next Epochs have completed. (Epoch= 5 Days)
Cardano’s (PoS) rewards
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Node’s with a positive stake are called stakeholder’s, and only stakeholder’s may participate in running the protocol. To be able to generate new blocks for the Blockchain, a Stakeholder must be elected as a Slot Leader.
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With Ouroboros, time is divided into discrete increments, called slots which last 20 Secs, and slots are grouped into longer periods, called epochs which are 5 Days and contain 21,600 slots. At the start of each epoch, a lottery determines who gets to create a block for every slot; the chances of winning for any given slot are proportional to the stake one controls.
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You can think of a Slot Leader as a miner in Bitcoin, but Ouroboros defines who will be able to mine, when and how much. The more stake delegated to a pool, the greater chance it has of being selected as a slot leader. Each time it is selected, it is rewarded, and these rewards are shared between the stake pool operator and stake pool delegates.
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The actual amount of ADA received in rewards may vary and will depend on a number of factors, including stake pool performance, which is the number of blocks a stake pool produces in a given epoch versus the number it was expected to produce. Staking rewards are distributed by the protocol, not by the pool, so you don’t need to trust a pool.
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Transaction fees generated on the network in addition to funds from the ADA reserve will form the reward payments. In the future, once the reward pot has been consumed, the network will have a sufficient number of transactions to sustain the incentive rewards through transaction fees.
Cardano Centralisation Prevention
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In order to prevent centralisation, Ouroboros sets strict Pool Saturation perimeters.
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Saturation is a term used to indicate that a particular stake pool has more stake delegated to it than is ideal for the network, and once a pool reaches the point of saturation it will offer diminishing rewards, thus encouraging delegators to delegate to different stake pools, and operators to set up alternative pools so that they can continue earning maximum rewards.
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The goal is to avoid any single pool becoming too large, thereby disincentivising delegation to other pools and receiving a disproportionate amount of the rewards. Saturation, therefore, exists to preserve the interests of both ADA holders delegating their stake and stake pool operators.
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The health of the network is partly determined by having a high number of active stake pools with a balanced amount of stake delegated to them. The more numerous and geographically diverse the network’s pools, the better.
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Exchanges can offer staking services however, due to regulatory reasons, it is difficult for them to lock up clients funds in order to vote on the networks Governance. This should decrease a great amount of ‘Exchange Voting’ which will further safeguard Cardano from Centralisation; Charles Hoskinson explains further in this short video. https://youtu.be/sBTKdiW5mcY
Thank you for reading.