A quick overview of PoS variants: DPoS, LPoS, NPoS, etc.

Original title: The Proof-of-Stake Guidebook
Written by: Stakin
Compiled by: SHOU

Everyone is already familiar with Proof of Stake (PoS). In this article, we will take a look at the variants of PoS.

Part 1 — Proof-of-Stake

For those who are not familiar with Proof of Stake (PoS), let’s first take a quick look at it.

PoS is often compared to Proof of Work (PoW), which incentivizes network validators based on the number of tokens they own.

PoS was first proposed by Sunny King in 2012. This mechanism selects stakeholders to validate transactions. In PoS, the creator of the next block is selected through a lottery process. Creation of a new block and adding it to the network will be rewarded with digital assets. In PoS, the number of staked tokens determines the security of the network, while in PoW, it is the computing power that protects the network. We are very optimistic about the future of Proof of Stake (PoS) cryptocurrency because we believe it has the following advantages:

1. Less expensive than PoW: We run several staking nodes on various PoS protocols and only need a few secure VPS to do this, while PoW miners need many mining rigs.

2. Token holders can earn rewards/interest based on the inflation rate; this helps build community and incentivizes people to hold tokens.

3. Decentralization: Depending on the type of PoS adopted by the protocol, the network has the potential to be fully decentralized, which is the original intention of creating cryptocurrencies.

Next, I will introduce you to the various PoS variants, detail how they work, and then provide you with a simple summary table. For simplicity, validators are nodes that are used to secure and verify transactions on the network in exchange for token rewards. Depending on the protocol, they may also be called block producers, witnesses, or bakers.

Part 2 — Differences between different PoS

Delegated Proof-of-Stake (DPoS)

DPoS usually works through an election system where a fixed number of validators are authorized to secure the network. As a token holder, you can vote on who will validate transactions on the network, with voting power determined by your staked share. The validator with the most votes can become a delegator, validate transactions, and receive rewards.

DPoS has been implemented on protocols such as Lisk, Tron, Steem, Bitshares, and even EOS, a scalable blockchain Dapp platform created by Daniel Larimer and famous for its record-breaking $4 billion ICO. Depending on the protocol, DPoS may require validators to have significant computing power.

Delegated Proof of Contribution Protocol (DPoC)

Some may be familiar with the ICON network, a PoS blockchain that introduces a new protocol that rewards nodes and delegators directly with cryptocurrency, known as Delegated Proof of Contribution. In many ways, it is similar to DPoS, but the incentives are set up in such a way that community members are actually interested in contributing to the development of the protocol.

In DPoC, delegation (called voting) is optional and non-custodial. Additionally, tokens can be staked without voting for a node operator.

DPoC is a decentralized democratic governance protocol in which token holders exercise their governance rights by delegating token staking to those who contribute directly to the network: public representatives (P-reps). There are 22 elected primary P-Reps, with no limit on the number of deputy P-Reps, who are also incentivized to contribute. In addition, rewards are provided to other types of ecosystem participants and Dapp builders.

In the event of a major outage, P-rep and its voters risk a slashing penalty, currently a 6% fine.

DPoC is still developing rapidly and improving. Stakin is participating in the development of the next iteration of the protocol as a P-Rep and supports IISS3.0, which can bring DPoC closer to LPoS (bond-compliant) while decentralizing incentives for participant builders! ?

Liquid Proof-of-Stake (LPoS)

In LPoS, delegation is optional. Token holders can delegate validation rights to other token holders without custody of the tokens, which means the tokens remain in the token holder's wallet. In addition, only validators are penalized in the event of security failures (such as double endorsements). LPoS also has voting rights, and as a token holder, you can directly vote in protocol amendments if you run your own node.

LPoS was first introduced by Tezos. Tezos is an on-chain governance protocol created by Kathleen and Arthur Breitman and has been running smoothly on the mainnet since September 2018. Tezos' LPoS has proven to be very successful, with the current staking ratio of about 80%, distributed among 450 validators and more than 10,000 delegators. Technically, the number of delegators is limited by the minimum bond size requirement, which may be as high as 100,000 at present, with a high degree of decentralization?.

Bonded Proof-of-Stake (BPoS)

BPoS is very similar to LPoS: delegation is optional, non-custodial, and token holders benefit from voting rights on protocol amendments. Nonetheless, it is called BPoS for a reason: in the event of security or downtime, a portion of the stake of validators and delegators will be slashed. In LPoS, only validators are at risk of being slashed, while the only risk for delegators is missing out on some rewards. In this way, validators are prevented from being dishonest or inefficient.

The advantage of this BPoS mechanism is that it can provide a clear solution to the problem of staking ratio (similar to capital requirements) for validators on some LPoS protocols, which they need to try to maintain to prevent over-delegation. This also means that delegators need to do additional due diligence before delegating and keep an eye on the situation of validators.

BPoS was first introduced by projects such as Cosmos and IRISnet (based on Cosmos SDK/Tendermint). Both are very interesting cross-chain protocols. In BPoS protocols such as Cosmos and IRISnet, the number of validators is limited, and the effective validators are determined by the size of their total stake (own stake + delegation).

Nominated Proof-of-Stake

The Polkadot ecosystem introduced the Nominated Proof of Stake (NPoS) mechanism. Now many Substrate-based chains are using it, such as Polkadot, Kusama, and Edgeware. In this system, validators are automatically selected several times a day. These validators are expensive to run, such as ensuring high communication responsiveness, building a long-term reputation for reliability, and staking tokens. This is done to maintain good behavior, and when they deviate from the protocol, their interests are slashed. And, as we can see from the recent failure of the Edgeware validator, slashing operations can be performed very quickly on NPoS.

In NPoS, delegators are called nominators. Nominators nominate validators in a list of candidates and lock a certain amount of tokens to support them. In NPoS, the number of validators is limited by governance, and these validators are selected based on their total stake in the network. Unlike validators, nominators can have an unlimited number of participants. Nominators are incentivized to continuously find reliable new candidates. With these two roles, NPoS allows all token holders to continuously participate in the network. Therefore, it maintains a high level of security while keeping a limited number of validators.

Hybrid Proof-of-Stake (HPoS)

Hybrid PoS/PoW is often referred to as a mix between Proof of Work and Proof of Stake. It uses two methods together to secure the network: PoS works with the PoW system to further secure the blockchain. Typically, in this method, miners generate new blocks through PoW, and then PoS validators vote on the validity of these blocks. HPoS avoids more attacks through the power of hashing.

Among the HPoS projects, we can see Decred and Hcash. Ethereum is also upgrading to HPoS with Casper. In Decred, token holders have the ability to check blocks mined by miners and vote on changes to consensus rules.

Pure Proof-of-Stake

Another consensus algorithm introduced by Algorand is PPoS, which is a protocol with open participation, scalability, security, and transaction finality. In this algorithm, the network ties its security to the honesty of the majority.

What is different about this algorithm is that, unlike the previously mentioned DPoS, LPoS or BPoS, there is no sanction mechanism for instances where an entity misbehaves. The network would rather keep a minority from being able to cheat and allow the majority to cheat, and not slash. The protocol has evolved in such a way that as long as the 75% majority of the network is honest, it will continue to work properly.

Leased Proof-of-Stake

Leased Proof of Stake (LPoS) is a direct variant of PoS. When using this consensus protocol, leaders can participate in the generation of new blocks. Because the larger the number of leases within the network node, the higher the chance that it will be selected to create the next block.

LPoS works as follows: In order to start leasing, a token holder needs to create a leasing transaction and specify the address and the number of tokens to be leased. Waves platform adopts LPoS network.

Other projects that can be classified as PoS

The goal of this article is to provide you with a comprehensive overview of the various PoS protocols at their core. As PoS is gaining traction across the blockchain industry, we would also like to mention a few other projects that also offer staking:

• Tomochain: Proof-of-Stake Voting (PoSV)

• Dash: Masternode Staking

• Ontology: ONG "bonus" entrusted Byzantine fault tolerance

• Neo: GAS "bonus" entrusted Byzantine fault tolerance

Summarize

We believe that with the nearly limitless creativity of developers behind blockchains, we will see more PoS variants emerge in the future. It is now increasingly clear that PoS cannot be ignored as one of the best viable alternatives to other consensus mechanisms such as PoW.