With the backdrop of the recent Ethereum Merge, an event where Ethereum will finally make its transition from a Proof of Work blockchain to Proof of Stake, Accumulate has its own consensus transition from Proof of Authority to Delegated Proof of Stake. Like the Ethereum merge, this transition is one that will enable the Accumulate Network to become more scalable, efficient, and decentralized.
Proof of Authority
Proof of Authority (PoA) relies on a user’s identity and reputation as the primary means for achieving network consensus. Validators stake their reputations instead of staking coins.
In PoA, one or more validators are responsible for generating new blocks on the chain. These blocks can be directly accepted without verification, or through a majority vote conducted by other validators. Factom relied on heavily vetted parties, called Authority Node Operators (ANOs) to operate the protocol. All operators ran servers that may at times be in the leader set, and the follower set. All nodes double-checked the work of all other nodes in real-time.
PoA is sometimes used by private permissioned blockchains in which all users on the network have had their identities verified. Some public blockchains, like Factom, have also used PoA to run a fully distributed permissionless protocol where only operators are vetted.
While operating a network with fully verified participants that relies on reputation alone is highly scalable, it comes with much of the same risks that any centralized network is exposed to, including poor security, censorship resistance, and overreliance on trusting people over credibly neutral systems.
PoA increases the barrier for new entrants to become validators, as it takes longer for a person or entity to establish a reputation strong enough to be granted access to validate transactions. PoA has an advantage of protecting the protocol from various resource attacks. An attacker with very high hash power can execute a 51% attack against a PoW protocol, and an attacker with a huge token balance can execute a “Wealth attack” against a PoS protocol. On the other hand, vetting participants for a PoA protocol can be a very high, possibly subjective, barrier to entry for otherwise high-quality and capable operators.
Proof of Stake
Proof of Stake requires validators to stake their tokens into a smart contract in order to validate transactions. A randomized process is used to determine which validators will get to produce the next block. Validators maintain uptime on their nodes and correctly validate transactions in order to avoid having their stake slashed.
PoS is a more responsive and less energy-intensive alternative to Bitcoin’s Proof of Work consensus mechanism. With PoA and PoS there is no reliance on hardware to “mine” new cryptocurrencies. Instead, users can become validators by downloading a blockchain’s software onto their computer and then staking a minimum amount of its native cryptocurrency in order to begin validating transactions and earning rewards.
Delegated Proof of Stake
With Delegated Proof of Stake (or DPoS) users allocate their tokens into a staking pool in order to participate in the governance and operation of the protocol. The advantage of DPoS over PoS is that it further reduces the barrier to entry for users who want to participate in staking but don’t want to manage a node and risk getting their funds slashed due to the inability to maintain near 100% uptime.
Accumulate is making the transition from PoA to DPoS in an effort to promote more decentralization and inclusion in the consensus-making process while reducing the barrier to entry for onboarding new users to the network.
With the rise in staking services like Lido and the growing demand for customers on centralized exchanges to stake their tokens, it’s becoming clear that most PoS blockchains are essentially operating under a version of DPoS.
By embracing DPoS, Accumulate is actually delivering a more decentralized and censorship-resistant alternative to PoS networks where the majority of staking is done on the behalf of centralized entities. PoA still plays a role, as we will find out.
The DPoS model allows users to easily vote out delegates if they misbehave or fail to operate and manage their validator nodes properly. This is not possible for users who stake through centralized exchanges, as there is no mechanism for customers to choose an alternative validator to stake their coins on their behalf.
Accumulate incorporates Accumulate Digital Identities (ADIs) into the DPoS model, enabling validators to register an on-chain identity which validators can use to build up a reputation over time that grants them a larger share of votes. As a result, the operation of the Protocol does not depend solely on tokens, but also on proven integrity within the protocol.
This takes the best aspects of the PoA model, which relies primarily on reputation while making the process for voting or becoming a delegate open and permissionless. It also provides a safe path for enterprises and other regulated entities to participate in staking with the knowledge that other validators have built up a strong reputation even while remaining anonymous.
Whether it’s the Ethereum networks transition from PoW to PoS or Accumulate’s transition from PoA to DPoS, what’s clear is that blockchains like any form of technology must continually evolve and improve upon their core infrastructure in order to achieve scale.
In the open market of blockchain networks and their consensus mechanisms, PoS has consistently stood out as a winning solution for blockchains that seek to reduce energy consumption, minimize physical forms of censorship, or reduce barriers to entry for new participants.
While PoS seems to serve these goals better than alternatives, the process of staking as a solo validator still remains complex and risky for the average individual to pursue. As a result, centralized entities have begun to position themselves as intermediaries for users to stake their tokens in their pools and receive a portion of the rewards.
DPoS offers a more decentralized alternative to regular PoS networks that rely on exchanges and other intermediaries to onboard validators. With DPoS, the average user can vote in delegates who manage the staking pools where funds are aggregated.
These delegates can be voted out if they misbehave or fail to maintain consistent uptime for their validator nodes. This is in stark contrast to a staking service, which doesn’t allow users to democratically decide who should be the custodians of their staked capital.
For these reasons, Accumulate is embracing DPoS as the ideal consensus mechanism for creating an open, accessible, and scalable blockchain network.
To learn more about Accumulate’s phased timeline in the transition from PoA to DPoS, see this documentation.