Delegated Proof of Stake

DPoS is related to PoS consensus, but with some critical differences. This new system is the creation of Dan Larimer of Bitshares, Steemit, and currently EOS. Both these networks and Lisk (another commonly used blockchain) are currently the only major blockchains that use this approach. In DPoS, the holders of tokens are not the ones doing block validation. Instead, they can use their tokens to elect a node to validate on their behalf—their delegate (also called a validator). It is this delegate/validator that helps operate the network. The number of available validator slots tends to be locked to a specific number, typically 21. In order to become a delegate, the owner of the node must convince the other users of the network to trust them to secure the network by delegating their share of the overall tokens on the network to them. Essentially, each token on the network acts as a vote, and the top vote holders are allowed to operate the network. Currently, only Bitshares, Steemit, EOS, and Lisk are the major blockchains that use this approach. 

In DPoS, each delegate has a limited, designated time in which to publish a new block. If a delegate continually misses their block creation times or publishes invalid transactions, the token holders using their stake can vote them out and replace them with a better delegate. The following diagram shows what this structure looks as follows:

The primary criticism of DPoS is that it is partially centralized and has no real immediate financial penalty for betraying the network. The consequence of violating network rules is to be voted out by the token holders. It is thought that the cost to reputation and the loss from campaigning for delegated shares will outweigh the financial benefit of trying to negatively influence the network. By only having a small number of delegate slots, it is easier for the token holders to pay attention to the behavior of individual validator nodes.