An alternative to the Proof-of-Stake and Proof-of-Work consensus algorithms.
Proof-of-Stake (PoS) mechanisms have been developed over recent years in response to the perceived problems and limitations associated with
Proof-of-Work (PoW) — in particular, the resource-intensive nature of crypto mining at scale.
In a PoS mechanism, there is no
mining at all. Instead, the validation of new
blocks on the blockchain happens based on the number of
coins being staked. Users lock a certain number of coins as a stake — and at given moments, users with stakes are randomly assigned validation rights for the next new block.
The larger the number of coins a user stakes, the higher their chances of getting validation rights in each round. In addition to reducing the computational costs of running the
blockchain, PoS systems make a nefarious attack much more difficult as it would require the attacker to have at least
51% of the total coins on the chain.
In a Delegated Proof-of-Stake (DPoS) system, participants still stake coins. However, rather than becoming responsible for validation themselves, stakeholders outsource that work to a delegate — groups of which are then responsible for reaching consensus between themselves.
DPoS delegates are elected based on their reputation and perceived trustworthiness, and the theory amongst DPoS proponents is that the system incentivizes good behavior amongst delegates as the community has the right to vote them out and replace them at any time.
DPoS blockchains are generally faster than blockchains run on PoW and PoS systems, with a higher per-second
transaction rate. However, DPoS is in its infancy, and it is not generally considered secure enough to be the basis of money-transacting blockchains.