It is based on a consensus mechanism called delegated proof-of-stake (DPoS).
On a PoW blockchain like bitcoin, miners employ large amounts of computational power to solve complex mathematical equations. Once the equation is solved, the miner publishes the answer for verification by the other miners on the network, and consensus is reached. The block is then added to the chain, the miner that solved the equation collects his/her block reward, and everyone moves on to the next equation.
On a PoS network like Cardano, nodes stake an amount of tokens (essentially locking up tokens in a specific wallet address for a set period of time) for the chance of being selected to add the next block of transactions to the chain. Although the selection is random, factors such as the amount staked, the amount of time it has been staked and the reputation of the node are often taken into consideration.
Delegated proof-of-stake is a version of PoS, where instead of validators being chosen at random, they are voted for by the rest of the token holders on the network. Another difference on EOS specifically is that, instead of purely staking EOS tokens, Block Producers stake their investment in the network in the form of infrastructure, community support, development, etc. We’ll look at this more in-depth below.
These delegates are then tasked with upholding the integrity and accuracy of the network by coming to a majority consensus on data or transaction blocks that have to be added to the network.
Brendan Blumer, CEO of Block.one, the company behind EOS, describes Block Producers in the EOS.IO technology as “21 elected delegates by the token holders that are actually confirming the transactions of the network.”
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