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Getting a Voice on the Blockchain: “Delegated Proof of Stake” Interesting for Companies

Blockchain technology, which was originally developed by the anonymous developer Satoshi Nakamoto, is based on the idea of creating a decentralized database that may be used to process value transactions.

Contrary to the monetary system provided by the central banks, the “bitcoin” system developed by Satoshi no longer needs a central or trusted authority to transfer and store money. Instead, bitcoin relies on the participation of anonymous miners. These have to solve mathematical puzzles and thereby find blocks to confirm the transactions. The first miner, who solves the respective puzzle, is rewarded in bitcoin.

Representative democracy on the blockchain

As mining requires enormous investments in hardware and power, other cryptocurrencies besides bitcoin have started implementing other technologies to drive their blockchain. One of these is the “Delegated Proof of Stake”.

In a DPoS, the network elects so-called delegates. The ballot is democratic. However, every blockchain participant has not just one vote, but usually a lot more. Every participant of the network has as many votes as he has tokens of the respective cryptocurrency. As a consequence, those who have a greater amount of tokens have a greater say than those who have less tokens.

Delegates get reward

The delegates elected in this way, then take over the miners’ tasks by confirming blocks and transactions. The hardware required to this end must be sufficiently stable and fast. However, the requirements are not nearly as great as they are for conventional mining.

The delegates in turn get a reward in the respective cryptocurrency. Contrary to miners, however, the delegates have to share their reward with their voters – depending on how much they promised before the election.

Companies should gain experience and help shape the technology early on

Contrary to mining, Delegated Proof of Stake generally does not require large initial investments. A candidate only needs to secure a sufficiently large number of votes to attain the profitable position of a delegate.

For companies this provides an opportunity to gain experience in the pioneering blockchain technology and, at the same time, to influence its development. This allows companies to live and experience digitalization, which in any event will be inescapable. We will be very pleased to provide you with legal and practical assistance in participating in a Delegated Proof of Stake procedure.

Continue reading:
Cryptocurrencies: How Will Mining be Taxed in Germany?
Legal and Tax Problems surrounding Cryptocurrencies

Benjamin Kirschbaum

Attorney Benjamin Kirschbaum, based at our Berlin office, mainly works on matters relating to blockchain and cryptocurrencies. In this field, he offers our clients comprehensive advice on all aspects of tax law, financial supervision, and civil law. In addition, Benjamin Kirschbaum works on matters relating to general civil law, administrative law, canon law and the law on religions.

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