What is Delegated Proof Of Stake (DPOS) and How it Works?

Delegated Proof Of Stake (DPOS) is a very fast consensus mechanism, most renowned for its implementation in EOS. DPOS is often referred to as digital democracy, thanks to its stake-weighted voting system.

In a Delegated Proof Of Stake system, users can stake their tokens to vote for a certain amount of delegates. The weight of their vote depends on their stake. For example, if A stakes ten tokens for a delegate and B stakes 1 token for a delegate, A’s vote weighs ten times more than B’s vote.

But what is a delegate?

A delegate is a person or organization that wants to produce blocks on the network. The delegates that receive the highest amount of votes are allowed to produce blocks and are rewarded for creating these blocks. Just like with Proof Of Stake, they are paid from the transaction fees or a fixed amount of coins, which are created through inflation. How many delegates are allowed to produce blocks depends on the design of the blockchain. Generally, this is either a fixed number or all delegates above a specific pay grade. Delegates can be changed at any time.

Instead of merely taking a pay cut to be a delegate, delegates may get voted in because they plan to use the delegate pay on other tasks such as marketing, legal work, or development. Which means they can perform some of the duties that employees in other companies would do.
This provides a strong incentive for all delegates to not just secure the network, but also to give value to shareholders in other ways.

Since delegates want to receive as many votes as possible, they are incentivized continuously to create things valuable to the community, as they are likely to receive additional votes for doing so.

The Delegated Proof Of Stake protocol is also much more efficient at processing transactions than the above protocols. For this reason, typically the cryptocurrencies with the highest number of transactions use the Delegated Proof Of Stake protocol or a variant of it. The blockchains that use the Delegated Proof Of Stake protocol are having no trouble handling all the transactions they are receiving, yet the blockchains that are using the Proof Of Work protocol have a tough time handling a relatively small amount of transactions compared to the number of transactions the bigger blockchains are handling.