Decred (DCR) Overview
A guide to understanding Decred in less than 10 minutes
WHAT IS DECRED?
Decred is a cryptocurrency that aims to improve some of the major shortcomings of Bitcoin, namely governance and funding. Today in Bitcoin anyone can contribute, but it’s a small group of developers who decide what changes get merged into the Bitcoin Core repository which arguably gives this subset of programmers the majority of control. In order to fix this problem Decred has implemented on-chain governance, which is the process of allowing all stakeholders to vote on improvements such as technical proposals and project spending.
The cryptocurrency unit is called Decred (DCR) and the governance process is two-fold, an on-chain consensus voting system as well as an off chain system called Politeia (pronounced pole-it-ayy-uh) which periodically places anchors in the blockchain. Decred is a fork of btcsuite which is a from scratch Bitcoin implementation written in Go. It has a hybrid Proof-of-Work and Proof-of-Stake architecture and has on-chain governance which enables voting.
In 2013, part of Decred’s founding team, then working at a company called Conformal Systems (they would later form Company 0), released btcsuite which is a version of Bitcoin written in Go. Company 0 wanted to continue making improvements to Bitcoin, but the Bitcoin community didn’t support making such changes so Company 0 decided to branch off. They went on to create their own cryptocurrency, using Memcoin2 as an inspiration.
In 2014 two individuals on Bitcointalk, who went by the aliases tacotime and _ingsoc, met with Company 0 about developing a hybrid PoW/PoS consensus protocol and by the end of 2015 Company 0 published a whitepaper outlining the motivation behind Decred. Finally in February of 2016 Decred was released on mainnet.
As of March 2019, over 64 people were being paid to work on Decred across engineering, design, community, marketing, and business development. There is also an active team of volunteers throughout the world, most concentrated in the USA and Brazil.
G2M AND PARTNERSHIPS
There was a Politeia vote to partner with PR firm Ditto that was approved in early November 2018. The goals of this partnership include refining overall position, improving strategy and marketing plan and 2019 event planning.
Decred is based on the Blake-256 hashing algorithm which was chosen specifically for security and performance. Decred is not worried about centralization and ASIC development because they have PoS validation built into consensus which diminishes the danger of centralization. Mining pool power in Decred is similar to that of Bitcoin in that 3 pools control over 50% of the hashrate, but again, recall PoS voters can invalidate blocks so concentrated mining is not much of a concern.
PROOF OF STAKE
In Decred blocks are mined through traditional PoW but then blocks are uniquely validated by stakeholders via a PoS scheme. After both of these steps, blocks are written to chain.
In Decred Proof of Stake has three purposes:
- Allowing stakeholders to vote on proposed changes to the consensus rules
- If enough stakeholders vote in support of a change, the chain will hard fork and the new feature becomes active automatically
2. Enabling holders to vote on block validity, despite conforming to consensus rules
- Stakeholders can deem blocks invalid to discourage bad behavior (i.e. empty blocks)
3. Allowing holders of Decred to lock up their funds and receive a financial reward
Comparing Decred’s hybrid model to a pure PoW scheme there are many benefits. Some benefits include:
- PoS stakers have to validate the blocks that PoW miners mine and therefore the PoW miners cannot decide to change the rules of the network without true consensus.
- When the Decred chain hardforks the old, smaller, chain will die off as a result of not being validated by the PoS component of the chain.
In Decred there are two ways to stake. According to a Decred contributor these two staking methods are equally popular and have a 50/50 split (as of October 2018).
- Staking through a stake pool:
- Users can connect to a stake pool through the Decred wallet UI. Using a stake pool does not give access to your funds but rather grants voting rights to the pool.
2. Staking through running a full node:
- Solo staking is only possible through using the Decred command line. Full nodes are normally run within a VPS and require technical knowhow to setup.
VOTING / GOVERNANCE
If a Decred holder wants to validate blocks, they must obtain voting tickets through staking DCR. Voting tickets give the holder the right to validate a block when chosen. Tickets are pseudo randomly chosen to vote based in a deterministic number generator and one ticket maps to one vote. The average time it takes for a ticket to be chosen is 28 days, but may be up to 142 days. There is a 99.5% chance a ticket will be chosen before it expires. The price of tickets changes based on supply and demand. Note that a new ticket requires 256 blocks to mature before it is entered into the pool where it can be drawn.
Tickets allow users to participate in Decred’s governance in three ways:
- Approving the work of PoW miners on-chain
- Every block, 5 tickets are chosen from the PoS ticket pool. If at least 3 of the 5 validate the previously mined block, the block is added to the chain.
2. Voting Yes/No for open rule change proposals on-chain
- Every block mined must include at least 3 votes and a proposed change must be approved by 75% of non-abstaining (voting) tickets to take effect. Ticket holders vote through their Decrediton wallet which is Decred’s wallet.
3. Voting Yes/No for Politeia proposals off-chain
- Politeia proposals are approved/rejected through “snap” voting. When proposals move to vote mode, all live tickets 256 blocks before the vote starts are eligible to vote Yes/No on the proposal. Ticket holders vote through their Decred wallet.
In June 2017, Decred was the first cryptocurrency to approve a change to its protocol through an on-chain vote by its stakeholders.
STEPS TO VOTING
BUYING A TICKET
- You can buy tickets through the command line interface of dcrctl, or more commonly through a GUI like Decrediton (Decred’s GUI wallet)
- When a ticket is purchased, it goes into a temporary ‘mempool’
- Once a ticket is mined it will move from the ‘allmempool’ pool to the ‘immature’ ticket pool. After 256 blocks, which is roughly 20 hours, the ticket will mature and go into the live ticket pool where it is eligible to be chosen to vote
USING A TICKET
- In order to use a ticket, your ticket must be chosen as stated above and that requires having your ticket online 24/7 and staking. There are two ways to stake. You can connect to a stakepool through the wallet UI or run a full node which is considered solo staking.
- In stake pools you give the pool authority to vote on your behalf so if your ticket is chosen, the pool will cast the vote for you. Then you are personally rewarded with the full reward minus the stake pool fee, which is normally 0.5–5% (depending on the pool).
- Roughly 50% of stakers stake through staking pools because it supports buying tickets and voting all out of the box and requires no devops knowledge.
- Once your ticket gets chosen as one of the five tickets for a block, you vote. Block validity voting happens continually. Governance voting happens when proposals are open. You can optionally vote on outstanding governance issues by accepting, rejected or abstaining from such agenda items.
- You get paid every time a ticket of yours gets chosen which is on average every 28 days. You can automate the buying of tickets so when a ticket is chosen, you automatically buy another ticket.
REASONS TO STAKE
The major reason to stake is to receive a financial reward which is paid regularly. If you stake DCR right now, the ROI is approximately .97%/month. That is about 10.7% on an annual compounded basis. The reward you receive is independent from the price of Decred and is specified in the documentation. The cost of a ticket to stake requires locking up a variable amount of DCR (currently roughly 114 DCR) in your wallet for up to 142 days before receiving payouts.
COIN SUPPLY AND DISTRIBUTION
Company 0 funded Decred with $300k of its own money during development. At launch, the team airdropped a total of ~8% of the total supply, 4% to early adopters who bought at a rate of $0.49 per DCR and 4% airdropped to individuals who expressed interest in joining the community.
Each block subsidy (total block reward) is broken up in the following way:
- 60% — Proof of Work miner that mined the block
- 30% — Proof of Stake voters (divided among the 5 PoS voters that certified the block)
- 10% — Project Treasury fund (holders of PoS live tickets decide how that treasury is used)
METRICS AND GROWTH
- 397k wallet downloads
- 479 stars on GitHub for dcrd
- 9k subscribers on GitHub
- 40K followers on Twitter
UPWARD PRICE CATALYSTS
- Rise of Staking
- Developers and investors are looking to stake in order to receive returns on long-term holdings. Decred is one of the major PoS projects live today and is therefore well positioned to capture the market. As staking becomes more popular and sought after, the demand forDCR could increase, and indirectly increase value.
2. Rise of Governance
- Governance is still a confusing concept for most of the community but has the potential to gain traction. As discussed governance provides stakeholders with the ability to transparently vote on changes to the protocol. If governance becomes a challenge to Bitcoin in the near future, Decred will become an obvious solution. For example, if Bitcoin hard forks again due to a split in belief systems, the benefit of governance will become more clear. If the desire for governance increases, Decred could gain popularity, increase in demand and ultimately accrue value.
DOWNWARD PRICE CATALYSTS
- Bitcoin develops a governance layer
- If Bitcoin implements governance, the benefit of Decred is greatly diminished. Although implementing governance after launch is difficult, if Bitcoin did integrate governance somehow, I would anticipate that Decred would decrease in popularity and in value.
2. Staking entities merge (or collude) with mining entities
- It is unclear if staking will be monopolized or regulated. If mining companies, such as Bitmain, monopolize the staking industry to a point where individuals and venture funds cannot profit from staking I think the appeal of Decred will decrease and ultimately perhaps the price of DCR.
Thank you Jonathan Zeppettini (jz), Alex Evans, Ron Avignon, Sid Ramesh, Max Bronstein, and Cindy Cheng for helping me develop these ideas.