What is a DPoS Blockchain?
A Delegated Proof Stake (DPoS) blockchain is an advanced ledger system. It is a record-keeping system that is immutable, censorship-resistant and trustless. It simply means that when a sender transfer one (1) token, another party will receive 1 token (less transaction fees) without a guarantee of an intermediary third party.
The token has no intrinsic value, as it is. There is no funds held for safekeeping on the blockchain. It is not the same as having gold bars inside a vault. The expression “funds are safe on the blockchain” means that a certain record is safe from any tampering. There are no actual fiat backing it up. This is what Satoshi is saying when he said there is no central authority that is issuing the token. This record cannot be presented to any bank, treasury or custodian for corresponding value so that it can be withdrawn and spend it. This is because a DPoS token is a utility token, a governance mechanism device. This token will be used to validate wealth by 1)electing an honest node, and 2)making sure that the node will play under the rules and will not undermine the system.
What is the value of the DPoS token recorded in a blockchain?
This can be explain by this illustration:
There were these two accountants, both recorded a transaction. They exactly presented it the same way on a piece of paper. One accountant sign his name, ABC. The other sign it DEF, CPA.
Which one do people rely with and put value on it? Obviously, the one prepared by DEF, not because he is DEF, but because he signed it professionally and attesting that he recorded the transaction based on a set of generally-accepted rules of accounting. If later on, someone will find out that he had been dishonest on the recording of the transaction, his title as a CPA could be revoked.
This is what Satoshi is implying about “honest nodes” and the “validity of his own wealth”. Nodes will continue to create wealth if it stay honest and will play by the rules. This is all forward looking statements. The supposed wealth recorded on the blockchain does not yet exists, but has to be earned from the users of the blockchain. It should be based on the future cumulative value of yet to be performed recording services by honest nodes that will play by the rules. In other words, a token represents the value of the incentives to be received in the future because of the efficient, effective and ethical prospective bookkeeping services.
Therefore, the value of a DPoS token is largely depends on the exercise of good governance of the tokenholders over their elected delegates. Such that, the validity of wealth creation or the offering of the record-keeping services largely relies on the continued operations of honest nodes that will not undermine the system or be perceived to be dishonest.
On blockchains that uses DPoS consensus*, it takes only (1) one misbehaving delegate, or (2) a perception of misbehaviour by a delegate who is not being punished for said perception to make a DPoS token without any corresponding value.
*See previous blog (The Need For Soft Infrastructures For Public Blockchains) on how DPoS consensus resolved the “trillema” of a blockchain and item 6, incentive, of the bitcoin paper.