A Guide to PoW, PoS and DPoS Blockchains

If you’ve been in the cryptocurrency space for a while you’ve probably come across terms like PoW, PoS and DPoS being thrown around. The cryptocurrency space is full of technical jargon and for beginners, it may seem quite confusing and unclear. In this article, I will go over what these different terms mean and illustrate the differences between these mechanisms.

Consensus Mechanism

Let’s start by defining what “concensus mechanisms” mean. Since blockchain systems are decentralized by design, there is no central authority that validates information and issues tokens. Instead, distributed ledgers are utilized for record keeping and to make it work an agreement on the correct state of information (“the truth”) needs to be reached between all of the ledgers. This is called consensus. These systems are designed to incentivize positive contributions from participants which secure the network and make it expensive to attack the network.
 
PoW, PoS and DPoS are the different types of consensus mechanisms used by different cryptocurrencies.

Proof of Stake (PoS)

Proof of Stake is much more energy efficient model, as it does not require a large network of computers to perform ongoing calculations. Rather, projects like the dash cryptocurrency replace miners with validators, which “lock up” a large number of coins, otherwise called “stake”. This group of validators take turns in voting on the next block in the blockchain ledger. The votes are weighted and each vote is proportionate to the stake that validator holds (vote weight). When a new block is discovered, validators place a bet on it and are rewarded when the block gets added to the blockchain. Any user that has more coins than the minimally required threshold can become a validator on the PoS network by locking up their stake.

Delegated Proof of Stake (DPoS)

The Delegated Proof of Stake mechanism is even more efficient. It combines a reputation system with real-time voting to achieve network agreement. Every community member (token holder) can vote for representatives on the network which will secure the blockchain and receive rewards. The elect validators then validate blocks using a scheduling system which cycles through them and allows a validator to add a block during the allotted time slot. Typically, the elections and votings are ongoing so that users can always vote and see a direct impact of their votes. If the validator performs poorly or “misses blocks”, the community can react to it and demote him from the position. This makes sure the network stays secure at all times. In a DPoS model, all token holders can participate in using their (stake based) votes, thus creating a self-governing system.

Summary

Since there is no central issuing authority in decentralized systems, blockchains have to rely on consensus mechanisms to determin the “true state of information” between all participating ledgers. This can be achieved in a number of ways. The first consensus mechanism that came with Bitcoin was Proof of Work. Network participants would solve cryptographic puzzles to validate incoming transactions, securing the network through computational effort. A more environmental friendly system is Proof of Stake, which allows users to become validators by locking up their tokens. Lastly, Delegated Proof of Stake is the most efficient system where validators take turns in validating blocks and are elected by token holders on an ongoing basis.
I hope this article was helpful to you. If you enjoyed reading this and would like to explore some in-depth coin analysis on popular cryptocurrencies, or helpful articles like how to buy bitcoin anonymously I invite you to visit my website CoinReviewsHub .

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