Delegated Proof of Stake is a method for securing a cryptocurrency network, processing transactions and achieving a distributed consensus regarding the ownership of funds without the need for a central authority.
It is a variant of the Proof of Stake system, which itself was developed in order to reduce the cost and inefficient electricity usage associated with Proof of Work systems such as the one used by Bitcoin.
The DPoS method was first implemented by the Bitshares blockchain, having been developed by Bitshares’ lead developer Daniel Larimer, aka Bytemaster. Since then other digital currencies, such as Crypti, have implemented similar DPoS systems.
The difference between a regular PoS system and a DPoS system can be compared to the difference between direct democracy and representative democracy. In regular proof of stake every wallet which contains coins is able to ‘stake’ – which means to participate in process of validating transactions and forming the distributed consensus and to earn coins in return. In a Delegated Proof of Stake system every wallet which contains coins is able to vote for delegates, and it is these delegates (101 in the Bitshares implementation) who perform the function of validating transactions and maintaining the blockchain and take the transaction fees as profit.
In Bitshares’ DPoS potential delegates can set a ‘pay rate’ when standing for elections. A 90% pay rate, for example, would mean that the delegate would keep 90% of the fees from transactions they process and burn 10%. Burning coins means destroying them, which decreases the supply and (presuming the total network value to remain the same) increases the value of all remaining coins – it is therefore equivalent to paying the fees as a dividend to every single coin holder in proportion to the number of coins they own.