Decred: What Makes This Cryptocurrency Different? [And What Drives Its Price]


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Decred (DCR) is a cryptocurrency that was designed to provide a solution to the scalability problem that plagued Bitcoin.

The hard fork of Bitcoin and Bitcoin Cash was caused by a huge rift in the community and ended in bad blood. Decred is designed to prevent this kind of rift happening in the future by giving the community a vote on the future of the currency. It is decentralized and self-governing, so a hard fork cannot take place unless the majority of stakeholders agree to it.

This unique approach to the challenges posed by hard forks could help Decred carve a place for itself in an increasingly competitive cryptocurrency market.

Interesting Facts About Decred

  1. Decred was founded by company 0’s CEO, Jake Yocom-Piatt, and began trading on February 10, 2016 and the team contained many former bitcoin developers.
  2. Prior to the launch of Decred, there was a premine that amounted to 8% of the total supply. 4% of this was held by company 0 to compensate developers. The remaining 4% was airdropped for free to new users.
  3. Rather than fund the coin through an ICO, the developers initially funded the project from their own pockets. They were able to either purchase DCR at a rate of $0.49 per coin or exchange it for work performed at the same rate.
  4. Decred uses a combination of Proof of Work and Proof of Stake consensus methods. This is a fairly unique system designed to prevent either miners or large stakeholders from dominating the network
  5. Decred has a 10% subsidy on all block rewards. This is to pay for future improvements to the network and the fund is accessible by anybody whose ideas are accepted, not just the core team.

What Is Decred?

Decred is designed to build upon the perceived flaws of Bitcoin. Specifically that Bitcoin is at risk of becoming too centralized and that it was too easy for large mining interests to dominate the dialogue over the future of the blockchain.

One of the biggest challenges that Bitcoin has faced over recent years is how to resolve the scalability problem. This often fiery debate has led to deep rifts within the Bitcoin community.

The debate became so toxic that when Mike Hearn parted ways with Bitcoin he described the community as being in “open civil war”. This disagreement eventually led to the controversial Bitcoin Cash fork.

In order to prevent a similar problem occurring in the future, Decred gives its users the ability to vote on proposals regarding the future of the blockchain.

To ensure that both miners and ordinary users have a say in how the blockchain develops, Decred joins Dash in combining Proof-of-Work and Proof-of-Stake consensus methods.

Decred uses a decentralized lottery to select PoS miners to vote for PoW blocks. The PoS and PoW subsidies account for 60% and 30% of each block subsidy, with 10% being set aside to compensate developers for future work.

This system is similar to the Proof-of-Activity system developed by Iddo Bentov, Charles Lee, Alex Mizrahi, and Meni Rosenfeld.

To benefit from PoS mining, DCR holders need to “lock” their funds for a period of time. In return for locking their funds, they are rewarded with a ticket that represents a single vote.

Each ticket is then called upon to vote on proposals at random with a mean time of 28 days. Once a ticket has been used to vote the stakeholder receives a small reward and the return of the ticket price (the locked funds).

In order for your vote to be cast, your wallet needs to be online 24/7. If your wallet is not online and your ticket is called it gets marked as “missed” and you will not receive a reward.

Users who cannot have a voting wallet permanently turned on can take advantage of Stakepools. These allow a stakeholder to generate ticket purchase transactions that give a stakepool the voting rights for your ticket. They will vote on your behalf and usually get a small fee for participation (usually under 7%) that is taken from the PoS reward.

This method of voting has two advantages:

  • It allows users to direct the use of the development funds acquired from the 10% subsidy.
  • It allows Decred to sidestep the controversy that resulted from the Bitcoin Cash hard fork. It is impossible for a hard fork to take place without the support of the majority of the community.

It’s important to note that the Decred blockchain has two different block intervals for the voting process. There is a Stake Version interval of 2016 blocks (around 1 week) and a rule change interval (RCI) of 8064 blocks (4 weeks).

Decred uses a two-phase voting process for implementing consensus changes that would create a hard fork. The first step of the voting process is to meet the upgrade threshold on the network.

After a hard fork code is released a majority of the network needs to have updated to the new code. 95% of the most recent blocks need to be the latest block version and 75% of votes cast within a single SVI must use the newest code.

Once this criterion is satisfied, voting can begin on the first block of the next RCI.

Decred Voting Guide
Decred Voting Guide – via Decred.org

For the next four SVIs, all votes are tallied and there are five possible results as per the chart above. If there is a majority (75% of the non-abstaining vote) the new consensus actives at the next RCI. If there is no majority of yes or no votes or a 90% abstention, the proposal undergoes a revote.

The vote will fail if 75% of the non-abstaining votes are no or if the proposal expires before reaching a majority, the proposal is then taken off the agenda.

In order to keep track of these votes, Decred will make use of Politeia. Politeia can broadly be described as Git with timestamps. It is designed to record all proposals, comments, and amendments of the blockchain in order to provide a record of governance.

The goal is to mimic the records websites of real-world governments, like senate.gov or house.gov. Politeia has been created as a general tool that allows users to create and maintain data in a version-controlled and time-stamped environment.

This government system is combined with a 10% subsidy for development taken from all block rewards. The funds acquired from this development subsidy are open to anybody who wishes to help improve Decred, not just the development team. Users vote on how the development funds are allocated.

A Brief History of Decred

Many of the developers behind Decred are the same people who helped design the grandfather of all cryptocurrencies, Bitcoin.

These developers were frustrated with what they saw as a centralized development team imposing their will upon the community. The frustrations led Alex Jacob-Pitt and the other developers to found Company 0 and launch Decred in February 2016.

Their aim was to create a truly decentralized cryptocurrency that could not be dominated by mining interests or even its own developers. To do this they took the unique step of allowing the Decred community to vote on the future direction of the cryptocurrency.

As the team felt that an initial coin offering would be unfair to users, Decred was self-financed by members of company 0.

Once the technology was complete, the team conducted a pre-mine consisting of 8% of the total supply of DCR (1.68 million DCR).

Rather than allocate this entire balance to development costs Company 0 kept 4% to pay developers and organized an airdrop of the remaining 4% to the community. Each of the 3,244 participants received approximately 258.94 DCR.

In October 2017, Company Zero announced Politeia, essentially Git with timestamps, to help organize proposals that the community would vote on. Politeia is to ensure that there is a public record of all proposals and comments that anybody can view that is stored off-blockchain.

Decred Prices and Price Outlook

Decred Price

 

Decred Price Drivers

Despite its unique features, Decred is still governed by the same rules as most other cryptocurrencies. For most of its existence it experienced relatively flat growth followed by an uptick towards the beginning of 2017.

Like many other cryptocurrencies, the price of DCR skyrocketed toward the end of 2018. The factors that drive the price of Decred are broadly the same as those that affect other cryptocurrencies.

Media Attention

One of the primary drivers for any cryptocurrency is media attention. News about cryptocurrency, in general, can help indirectly increase prices as new traders become involved.

News about Decred, in particular, will also tend to spark interest and therefore investment in the cryptocurrency. Generally, rises caused by media coverage are followed by a corrective period.

It is possible for a brave investor to try and sell just as the price peaks and then buy back on the dip, although this is a risky approach and could easily result in a loss rather than a gain.

Implementation of New Features

One of the key price drivers for Decred will be the implementation of new features. When the cryptocurrency implemented the Lightning Network it saw its value double.

Generally, new features will encourage traders to take note of a currency. Even rumors that something new will be implemented can cause prices to increase.

Listing on an Exchange

Being listed on a major exchange like Binance or Bithumb can have a huge influence on the price of a cryptocurrency.

For example, when Zcash was listed on Bithumb it saw a huge increase in value. This was primarily because it had gained exposure to the lucrative South Korean market.

Expert Opinions on Decred

In the short term, the price outlook for Decred, like many other cryptocurrencies, is incredibly unpredictable. The cryptocurrency market is still relatively young and prone to volatility. Therefore, you shouldn’t be surprised by large price fluctuations.

On a medium- to long-term basis, Decred will likely continue to rise. While Decred has yet to achieve mainstream attention, some experts are still positive about the potential impact that their approach could have.

Peter Todd, a Bitcoin core developer, has previously said that he would be in favor of some form of coin voting in order to allow users to give better feedback on what they actually want from developers.

Academics have also proposed hybrid consensus as a way to improve the performance of blockchains. Rafael Pass and Elaine Shi of Cornell Tech have argued that the hybrid consensus method could help solve some of the problems with existing PoW blockchains.

Other cryptocurrencies have also begun to look at implementing some form of hybrid consensus.

Vitalik Buterin - The Creator of Ethereum
Vitalik Buterin – The Creator of Ethereum – Image via Flickr

In 2017, Ethereum creator, Vitalik Buterin, released an implementation guide for Casper version 1, which would bring some elements of Proof of Service into the Ethereum blockchain.

Despite the promise that Decred holds it has yet to gain enough traction to compete with the likes of Bitcoin and Ethereum.

Jonathan Solomon, founder of Digital Mint, believes that while Decred will continue to be popular with niche traders and enthusiasts it will be some time before it gains the support needed to be accepted as a payment method by major retailers.

Decred vs Bitcoin

How does Decred compare to the leading cryptocurrency, Bitcoin? What are the key differences? See below for our head-to-head comparison.

 Decred (DCR)Bitcoin (BTC)
PurposeTo help provide a solution to the scalability problem that plagued BitcoinDecentralized digital currency
Founded20162009
FounderAlex Jacob-Pitt and a number of other contributorsSatoshi Nakamoto (alias)
Market CapOver $630 millionOver $250 billion
Current Price
All time High$126.80 (January 2018)$19,908 (December 2017)
All Time Low$20.01 (November 2017)$0.06 (July 2010)
How long did it take to hit $100?22 months51 months
Notable SupportersJeff Currie (Goldman Sachs)
Peter Theil (Venture capitalist)
Christine Lagarde (IMF)
Marc Andreessen (Early internet Pioneer)
Supply Cap21,000,000021,000,000
Initial DistributionMiningMining
Mining MethodGominer
GPU
ASIC
Consensus MethodProof of work
Proof of Stake
Proof of work
Network Hash Rate*Up to 10,000Gh/sOver 40 BTC per hour
Difficulty increaseEvery 2016 blocksEvery 2016 Blocks

How is Decred Made?

Governments or banks are centralized institutions that physically print money. Like other cryptocurrencies, Decred takes a decentralized approach and new DCR is created by the community through a process known as mining.

In general, cryptocurrencies, such as Bitcoin, use Proof of Work as the primary token creation method. Decred is different from most other cryptocurrencies in that it combined two different consensus methods, Proof of Work (PoW) and Proof of Stake (PoS).

Proof of Work – This consensus method involves a user giving over their computer’s processing power in order to process network transactions and build the blocks that make up the blockchain.

To encourage users to mine they are rewarded when a new block is created. In the case of Decred, this reward is split between PoS users and the development fund. Generally, DCR mining takes place using graphics cards using a mining pool.

Proof of Stake – This consensus method is based on users “locking” some of their DCR funds in order to obtain a ticket (and therefore a vote) and a reward.

The locked DCR is considered to be the “Ticket Price” and cannot be transferred until it is unlocked. Once a ticket is created it is transferred to the ticket pool where it waits to be processed in a block.

Typically, ticket-holders pay a fee to ensure that their ticket is included in a block. Once a ticket has been processed in a block the user is able to vote and the ticket price, plus a small reward, is returned.

Stakeholders also have the ability to vote a block mined using PoW invalid even if it conforms to the consensus rules of the network. This helps to discourage unfavorable mining behavior, such as mining empty blocks.

Each time a block is processed, users are given a reward of approximately 30 DCR. This reward is split between Proof of Work miners, Proof of Stake users, and the development fund.

The reward system serves two purposes. It encourages users to either use their computer power to process blocks or lock their DCR in order to obtain tickets. It also helps regulate the creation of new DCR, which is then distributed to stakeholders and miners.

  • Proof of Work – 60%
  • Proof of Stake – 30%
  • Development Fund – 10%

The 10% earmarked for the development fund is set aside to compensate developers for any future projects.

Any projects are voted on by the Decred community and anybody is able to access the funds, not just the core development team. This feature helps to ensure that Decred continues to be self-sustaining in the future.

Further Reading

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