Blockchain Governance

The process of Delegated Proof-of-Stake varies from more traditional consensus mechanisms. To get a feeling about how the blockchain governance works, we can imagine CYBEX is such a company:

All the staff hold CYB, so they are Shareholders of the company. They can cast a vote. The way the influence the businesses is elect two groups of people called Committee and Witnesses will organize and operate the community.

The first 21 active Committee Members are also what are known as Delegates. Delegates are elected in a similar manner to witnesses, however, delegates are responsible for maintaining the network and can even propose changes to the network. Changes such as: Block sizes, the amount that witnesses should be paid and transaction fees. Once these changes have been submitted, it is then up to the stakeholders to decide whether or not the proposed changes should be implemented. Additionally, they propose a protocol or business upgrade (i.e. hard fork) which can be voted on (or against) by shareholders.

Stakeholders also elect what are known as witnesses. Witnesses are responsible and rewarded for generating and adding blocks to the blockchain. Each stakeholder is only permitted one vote per witness, with witnesses with the most votes being elected. Stakeholders can vote for as many witnesses as they wish, so long as at least 50% of the stakeholders believe sufficient decentralization has been achieved through the number of elected witnesses. The voting for witnesses is a continuous process, therefore, witnesses have an incentive to carry out their function to the highest standard or they risk losing their position. A reputation scoring system exists in order to assist stakeholders in better assessing the quality of witnesses.

Depending on the cryptocurrency implementing the DPoS consensus mechanism, a chosen group of witnesses are typically replaced at a fixed time, e.g. once a day, with each witness being given a turn to produce a block. Failure to produce a block at the allocated time will typically result in a witness being skipped, as well as negatively affecting their reputation score.

The blockchain can and needs to be governed by elected individuals and businesses. The so-called committee (a set of many individuals), can change blockchain parameters such as block size, block confirmation time and others. Most importantly, though, they deal with the business plan of the blockchain and tweak costs and revenue streams (mainly transaction fees). In contrast to most existing crypto currencies, we are not hoping for a fee market to grow but instead have the committee members deal with fine-tuning of the business plan. Fortunately, the shareholders have the final say to approve the executive committee.

Delegated Proof-of-Stake offers advantages over the more well-known consensus algorithm, Proof-of-Work (PoW). These advantages include:

• Savings on energy costs:

In contrast to PoW, which requires large amounts of energy in-order to decide who gets to add the next block to the blockchain, with DPoS, witnesses are given a specific time schedule to do so. Therefore, the intense competition for the addition of the next block becomes impractical, which in turn reduces the energy costs for adding a single block when compared to PoW. Specialized computers known as, ASICs, are no longer necessary in-order to solve complex mathematical problems needed for PoW.

• Promotes decentralization:

In order to successfully mine a cryptocurrency that uses the PoW consensus mechanism, realistically, ASICs, are required in order to be competitive and increase ones chances of adding the next block. This promotes centralization of mining because only those that can afford these specialized computers will stand the best chance of finding a valid block, and thus, reap a larger proportion of the block rewards. This is in contrast with a DPoS consensus mechanism, which allows stakeholders to choose who gets to validate transactions, therefore promoting greater decentralization. An unlimited number of individual validators can be elected by stakeholders so far as they believe sufficient decentralization has been achieved.

Despite the advantages offered by the DPoS consensus mechanism, it is still not without its faults. One such fault is: Sufficient decentralization can never be achieved.

Intuitively, it seems that the more witnesses validating blocks, the more decentralized a system will be. However, this notion fails to consider the scalability of the network as a trade-off. In reality, a network cannot have an excessive amount validator or else it risks slowing down. Therefore, a balance must be struck between the number of block producers, and the scalability of the network.

Delegated Proof-of-Stake is meant to solve a few of the issues that more traditional consensus mechanism has. As the cryptocurrency space continues to go grow, it is likely that other novel consensus mechanisms, will emerge in an attempt to further better the current system.