Crypto Academy Season 3 Beginners' Course - Homework Post for Task 4: DIFFERENT TYPES OF CONSENSUS MECHANISMS

WHAT IS THE DIFFERENCE BETWEEN POS AND DPOS? ADVANTAGES AND DISADVANTAGES? NAME A FEW BLOCKCHAIN PROJECTS WHICH USE THE DPOS CONSENSUS MECHANISM AND INDICATE THE SCALING CAPACITY?

WHAT IS THE DIFFERENCE BETWEEN POS AND DPOS?

POS	DPOS
POS has a lower scalability.	DPOS provides a high level of scalability.
In POS, the stakeholders that have higher stake or influence validate transactions.	In DPOS, The elected entities voted into power by the users of the network are selected to validate transactions.
There is no delegation of influence or stake to another user.	There is delegation of influence. Voters can choose to delegate their stake to another voter who will vote on their behalf.
POS is considered to be less decentralized than DPOS.	It could be said that DPOS is the most decentralized consensus possibly because it engages the social system fully.
POS is considered the second most frequently used consensus mechanism in blockchain technology after POW. So it is more popular than DPOS.	DPOS is not as popular as POS possibly because it is somehow new.

ADVANTAGES OF POS

• POS is more energy efficient because it removes the high powered computing from the consensus algorithm.
• It prevents 51% attacks. With POS, unprincipled users who want to attempt a 51% attack would need to stake at least 51% of the total amount of cryptocurrency in circulation. A validator would definitely not have it in his interest to attack a network in which he holds a major stake.
• POS consensus reduces the risks of centralization since rewards are determined by the amount of tokens held.
• POS encourages one to hold more tokens since the stakeholders with higher stake are in position to validate.
• POS is more popular because it is the likely sought out alternative to POW and also more environmentally friendly than POW.

DISADVANTAGES OF POS

• It is important to note that in POS, the only way to acquire coins is from someone who already has them. This can lead to issues with the distribution.
• There is monopoly problem. Since the more tokens you have, the more influence you have, the major stakeholders enjoys absolute oversight and power when it comes to both technical and economic aspects of the system giving rise to monopoly problem.
• Because of how the system is built, participants with higher stakes need to be properly encouraged to act in the network's best interests in order not to bring down the network, if not they can gradually turn the system into a centralized system which is in contrast to the objective of the decentralized system.
• Since the more tokens you have, the more power you have, it can lead to hoarding.

ADVANTAGES OF DPOS

• Users vote with their tokens to elect block producers who validate transactions, if they act against the community, they lose their power almost instantly as they are voted out.
• DPOS provides faster transactions than POS and POW because it allows block producers to validate transactions in a matter of seconds.
• DPOS is considered to be a more decentralized consensus algorithm in that the delegates who validate are elected through a democratic voting system, which in turn means that each token holder has a say.
• DPOS is considered to be very much energy efficient because it uses simple equipments.
• It is important to note that DPOS encourages social interaction among members and that showcases the beauty of block chain technology.

DISADVANTAGES OF DPOS

• Since validation is left in the hands of the small number of people who were elected, they could form cartels making the blockchain less decentralized and less resilient.
• Users who have more stakes, have more influence when it comes to making decision as well as accessing benefits than those who have low stakes.
• Since the liveliness of the network is in the hands of few people, it is easier to organize an attack.

FEW BLOCKCHAIIN PROJECTS THAT USE DPOS AND THEIR SCALING CAPACITY

• STEEM - Steem has a potential of 11,000 transaction per second.
• CARDANO - With Hydra, with 1000 pools, Cardano could be theoretically able to scale up to 1 million transaction per second.
• EOS.IO - It is expected that the system will have the capacity to scale to millions of transactions per second.

CONCLUSIONConsensus algorithm can ensure the fault tolerance, authenticity and security of a blockchain. The algorithms are designed to achieve reliability in a network that consist of multiple unreliable nodes.

I am grateful to professor @sapwood