Steemit Crypto Academy Season 4 Beginners' course - Homework Post for Task 6: Different types of Consensus Mechanisms

(1) What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?

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(2) What is the difference between PoS & DPoS? Advantages & Disadvantages? Name a few Blockchain projects which use the DPoS consensus mechanism and indicate the scaling capacity?

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(3) Name a few Blockchain projects which use dBFT in combination with other consensus mechanisms? Indicate the scaling capacity? Explain dBFT along with the pros and cons?

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Hello everyone. Today I'll be writing on different types of consensus mechanisms by @sapwood. Let's begin;

What is the difference between PoS and DPoS?

PoS is short for Proof of Stake. It is a consensus mechanism developed as an alternative to proof of work after the disadvantages the proof of work system presented. In the Proof of stake consensus mechanism in the blockchain, a block is validated by validators, who stake the network's tokens and then stand the chance to be chosen as a validator for a block. The higher a person stakes, the higher his chances of being chosen as a validator. Hence people stake tokens and stand a chance to earn transaction fees.

DPoS stands for Delegated Proof of Stake. This is a consensus mechanism that forked from Proof of Stake mechanism. Members of the network vote "delegates" by staking tokens in a staking pool. Voted delegates verify block transactions and rewards are shared among members of the staking pool who voted in a delegate. Members who stake higher get higher rewards.

Differences

1. Principle: Both are consensus mechanisms, but for PoS, individuals in the network are randomly chosen to validate transactions based on staked tokens in the network. Ideally, the coins an individual stakes should be higher than rewards to reduce chances of malicious attacks.
   For DPoS, it introduces the idea of "delegates". It involves a democratic process of voting delegates by staking tokens in a staking pool, then linking it to that delegate. The delegates then go ahead to validate block transactions and share rewards with members of the staking pool which voted him. DPoS is therefore, a more democratic process than proof of stake.

2. Withstanding malicious attacks:
   In the PoS system, it is designed that people with higher stakes have more chances of being chosen to validate transactions. This is a security measure taken so that a person with such high stake in the network wouldn't want to behave maliciously and lose his staked tokens.
   For the DPoS system, the "delegates" who validate transactions can easily be voted out if witnesses see that the person is acting in a way that may be malicious to the network, he may be voted out and his tokens, seized.

3. Finality: This means that there can be no copies of data of a chain. In a PoS system, there isn't complete finality. Validators could act maliciously and try to create a different chain. The DPos mechanism uses the Byzantine Fault Tolerance algorithm and this ensures complete finality of validated blocks. Therefore, there can be no copies of a validated block and validated transactions can't be altered.

Advantages and Disadvantages of PoS

Advantages

1. Proof of stake is environmentally friendly as compared to proof of work system. It does not require too much energy being used and does not limit the mining process to only the owners of huge computers.
2. Members of the network just need to stake their coins in their wallets and earn rewards if they get randomly chosen.
3. People with higher stakes likely get chosen to validate transactions. Since their stakes are higher, they would definitely want to see the blockchain go forward so they can earn more.
4. Transaction speed is faster than that of proof of work.

Disadvantages

1. Creating alternative chains: Some individuals in the network can afford to create alternative chains since there's no heavy computing required to create one and the PoS network doesn't have 100% finality. This is a problem.
2. People who do not have high coins staked in the network most usually don't get chosen to validate blocks, therefore, not everyone actually gets to participate.
3. The algorithm method used to select validators could be manipulated by malicious people to choose who they want.
4. Users who prefer to have their tokens stored in hardware wallets may not participate in staking as their ownership cannot be verified by the system.

Advantages and Disadvantages of DPoS

Advantages of DPoS

1. Finality: Like I stated above, alternative chains can't be formed in the DPoS system and hence malicious users can't attempt to create alternate chains. Transactions on the PoS network is final.
2. Speed in creating blocks: Because of fewer nodes, the speed of validating transactions is far better than that of proof of work and Proof of Stake mechanisms. We can see in the case of Bitshares where transactions can be validated up to ten times per second.
3. Rewards: In the long run, everyone in the staking pool who voted for a delegate gets rewarded according to the amount of staked coins. In a way, everyone gets a sense of having participated.
4. Everyone gets to have a say, either by voting delegates or being a delegate himself.
5. Once network users realize that delegates are behaving in a malicious way towards the network, they are quickly voted out hence delegates have to work right to maintain their reputation.

Disadvantages of DPoS

1. The system needs a huge number of network users to function optimally. A DPoS based network that has lukewarm members will not be able to function optimally.
2. Centralization: Users with higher tokens tend to have more say in the network and voting delegates. When users with lower tokens lose interest in voting, it could lead to decentralization.
3. Possible conspiracy of delegates: Delegates could conspire among themselves and with big token holders in the network to keep decision making processes among themselves.

Scalability of certain DPoS based blockchain projects

Scalability refers to the ability of the network to handle large volume of transactions within a short period. This is one of the major issues the DPoS mechanism attempted to solve as a lot of blockchain networks

Some blockchain projects which use the DPoS mechanism includes;
Bitshares: Bitshares uses the DPoS consensus mechanism and is one of the fastest blockchain based networks due to the efficiency of the DPoS mechanism. It can carry out up to ten transactions per second. This is relatively fast as compared to bitcoin where a new block can be mined only after ten minutes.

Steem: The steem blockchain is also based on the DPoS consensus mechanism. This also makes it highly scalable. Steem is a unique blockchain platform that is like a social media platform. It encourages creatives to put up original content on the Steemit platform and get rewarded and it is the first of it's kind. The members of the community control the community.

EOS: This is probably one of the most popular networks which use the DPoS mechanism. When it comes to scalability, it is ranked very highly and it boasts of carrying out the things Ethereum does with faster speed and no transaction charges. They have their own coin, the EOS coin and they support the development of different DApps on the network, just like Ethereum. One can easily see why the EOS is considered to be such a success.

Conclusion

The Proof of Stake and Delegated Proof of Stake consensus mechanisms both have to do with "staking" in validating transactions. The main difference is the introduction of "delegates" to solve the scalability issue. Both however, have their pros and cons and it's good for one to know all in order to make the right choice on what platform suits his needs better.