Delegated-Proof-of-Stake as an altrnative to PoW and PoS: comparison and perspectives (p. 2)

Evolution of consensus algorithms in blockchain systems

The first consensus algorithm involved in the blockchain system was Proof-of-Work (PoW). Bitcoin blockchain is based on PoW. The idea of such an algorithm was first described in 1993 in the scientific work by Cynthia Duard and Monie Naor about the method of dealing with email-spam.

Proof-of-Work is a function that is difficult to calculate, but the results of calculations are easy to verify. In the case of spam, the computer allows you to send hundreds of thousands of messages every day. According to Duard and Naor, if you need to spend 10 seconds on each message, it will not be possible to send more than 8640.

The very term Proof-of-Work appears for the first time used in the work of Marcus Jacobsson and Ari Jewels 1999 dedicated to computing puzzles in security protocols.

The PoW algorithm gained wide popularity after the publication of whitepaper bitcoin in 2008. There PoW is an obstacle to the double spending of coins. To create a new transaction block, a participant needs to find a number by selection, which, together with information about this block, will give the SHA256 hash function appropriate to the network rules. That is, the speed of production of new Bitcoins - mining - depends entirely on computing power and good luck. Initially, bitcoin mining was carried out by enthusiasts on home computers, but with the popularization of the first cryptocurrency, whole companies began to work on its mining. In terms of energy consumption, the Bitcoin network caught up with the Czech Republic.

In 2012, Sanny King and Scott Nadal from the Peercoin project presented the Proof of Stake (PoS), an alternative to PoW and a solution to the problem of high electricity costs for mining Bitcoin. However, the idea of PoS was mentioned in 2011 on the Bitcointalk forum. Instead of mining in PoS, network members freeze a certain number of tokens in their wallets. After this, the algorithm selects the next block producer among the participants, depending on the size of the bet. Thus, the participants reinforce the good faith not with the cost of computation, but directly with assets within the network.

Nevertheless, the problem of Nothing at Stake is relevant for PoS. In the case of a fork, participants can act as validators in both chains at no additional cost. Because of this, the probability of frequent forks in the system increases, which devalues the cryptocurrency and discredits the system.

The algorithms of PoW and PoS left space for monopolies. Participants with more processing power in PoW and participants with a larger supply of tokens in PoS receive more revenue and power over the systems.

In 2013, Daniel Larimer developed Delegated-proof-of-stake (DPoS) - a variety of PoS, similar in principle to the representative democracy of modern countries. In DPoS systems, participants use their tokens to select validators that check and add blocks for a fee. The algorithm was used by Larimer in his blockchain projects: BitShares, then in Steem and EOS.

Let's see what those algorithms are, as exampled by choosing a meeting point among a company of friends.

With the PoW algorithm, anyone who wants to offer their own variant of leisure begins to squat. Whoever sits down first 50 times, he chooses, and all the others agree with his decision. After all, no one will be so tortured to offer a bad option.

With PoS decision is made by someone who is willing to put more money on the fact that everyone will like his option. However, if the rest of the friends are disappointed, they will return the bid, because the only motivation to choose is good - the desire to maintain a good mood in the company.

With DPoS, your friends will select by voting a few of the most experienced friends, who throughout the month will alternately choose an institution for the entire company. If someone’s option turns out to be bad, another person will be chosen in his place, and the old one will remain with a stain on his reputation.