A Beginner’s Guide to Decred
BTCManager first mentioned Decred in 2016 as one of the altcoins that took significant strides in 2015; since then, the project has come a long way, at the forefront of atomic swaps and set to become a contender in the privacy space. Here we provide an introduction to the cryptocurrency, Decred (DCR).
Jake Yocom-Piatt, the organizer of the Decred project and CEO of company0, stated on an Epicenter episode how Decred came into existence, “The Decred project began as an outgrowth of a whitepaper that was posted on bitcointalk in April 2013. In April 2013, a whitepaper was posted for a coin called memcoin two, and it was posted by someone named Adam McKenzie. Basically, it was an idea to hybridize proof of work and proof of stake, instead of a having a Proof of Work (or Proof of Stake) dominated system.“
“It allowed for on-chain governance, that’s what really led to the start of Decred. Adam McKenzie and another user pursued contact with me starting in July 2013, and then they pushed me for several months to pick up memcoin two as a project, and Decred is what came out of that process in approximately March 2014.”
The Decred organizer also said that the more time you spend in Bitcoin, you involuntary learn about the problems of governance. Over time, more people have switched onto Decred, according to Yocom-Piatt. Instead of proof of work miners having access to the shared ledger, there is an added ability for the stakeholders to override proof of work miners. Yocom-Piatt continued, “Back in 2013 or 2014, an empty block was mined with bitcoin, which is basically a low-grade denial of service attack. We saw that this process as bad, the hybridization takes power from those with specialized equipment, such as ASICs and GPU farms, putting power back into hands of holders of coins.”
Herein lies a major difference between Bitcoin and Decred. While Bitcoin is entirely Proof of Work, Decred is only partial Proof of Work. Miners in Bitcoin keep their machines running to receive their share of the block reward, whereas, with Decred, the miners doing the work receive 60 percent of the newly generated tokens, the Proof of Stake voters get 30 percent while 10 percent goes to a development subsidy.
Dave Collins, the lead developer of Decred, explained the rationale behind such a system:
“It allows stakeholders to completely control the direction, we’re not just talking about block sizes here, when quantum computing becomes more relevant, you change the signature algorithm, you change the encoding mechanisms… You can pretty much change any part of the system, and we think that’s really important. Things advance over time, and you definitely have to have some way to upgrade those rules. One of the fundamental mistakes in Bitcoin, in my mind, is the approach to governance.”
One advantage of a dual system such as Decred is that it is more costly to 51 percent attack hybrid systems compared to Bitcoin. Collins explained on the Epicenter episode that a 51 percent attack for Proof of Work would cost around $500 million (at the time). Now, assuming exact same price of bitcoin, same hashpower, same number of coins, under the Decred system it would cost $2.8 billion, as an attacker would have to purchase a lot of the stake too (you’d have to own a lot of the cryptocurrency as well as own a lot of hashpower).
Instead of using hashpower to engage in proof of work and mine DCR, you can also stake your DCR holdings by getting a ‘ticket.’ The current price of a ticket is around 75 DCR ($2504). Once you’ve got your ticket, you will earn returns over a period of approximately 28 days. At the time of writing, the approximate reward is 1.7 DCR ($56.5). The staking procedure also has the added advantage of locking coins away from the available supply, providing a positive fundamental for the cryptocurrency’s value over time.
For example, in a November update, the Decred team noted, “Over the last two months the circulating supply of decred has dropped due to an increase in staking participation… this amount has now risen dramatically to 3.068 million (or 46.65 percent of available supply).” If this trend continues, we could see Decred leading altcoin market cycles, as DASH has been doing recently in the altcoin rallies during the Summer and August 2017.
Decred and Bitcoin share the same supply schedule, namely, only 21 million of each will ever be in existence. Around 31 percent of the total 21 million DCR have been mined so far, compared to bitcoin’s 17 million. However, eight percent of Decred was pre-mined, four percent was given away as part of the increasingly popular method of airdropping coins, while the other four percent went to the developers who got the project off the ground.
There are also differences in the hash functions; while Bitcoin uses SHA-256, Decred went with BLAKE-256 because of a significant number of improvements.
Governance is a key element of Decred while being digital money as well and the recent fork of Bitcoin Cash shows the importance of community decision-making. For instance, Decred stakeholders voted on Lightning Network implementation (98 percent in favor), where voting on such proposals can be done in the official wallets.
The official GUI wallet is Decredition, shown below – and can be downloaded here. Here you can submit tickets and engage in stake mining, cast your votes, as well as store, send and receive DCR. The blockchain loads pretty quickly compared to other altcoin’s clients.
In November, it was revealed that third-party companies stated their intention to launch ASICs for Decred; ASICs are custom built chips specifically designed for mining and dominate bitcoin and litecoin mining. Expected to come online in mid-2018, Decred is not worried about miner centralization since it is not pure PoW. Therefore, the Decred network can take advantage of the increased security ASICs provide, creating a more robust network.
Atomic swaps have been pioneered with Decred, with their open-source atomic swap software used by Altcoin.io exchange to conduct the first atomic swap between bitcoin and ether. BTCManager reported on the first atomic swap for decred and litecoin in September 2017:
“It is evident that the potential of atomic swaps in the market of OTC and P2P cryptocurrency trading is truly promising. In the upcoming months, the Decred development team aims to continue testing atomic swaps between Bitcoin Core, Litecoin Core and dcrwallet and encourage users of the three cryptocurrencies to integrate the technology into their GUI wallets.”
With this new technology, it would effectively disintermediate exchanges such as ShapeShift.
The altcoin will also focus on privacy offerings toward the end of 2017, entering into the space dominated by Monero and Zcash. It is not clear what kind of technology will it be based on, but speaking to the Decred team, BTCManager learned that “it will be radically different to the technologies other privacy coins use.”
However, what is known, is that the team are working on a secure communications protocol known as zkc or zero knowledge communications. From the blog post, the team states, “We have chosen to keep it simple with zkc and take what we felt were the best parts of both Signal and Pond. zkc cuts the middle path between Signal and Pond in terms of UI/UX; it is not as easy to setup for clients as Signal, nor is it as challenging as Pond.”
The development of zkc is part of the project’s drive to “decentralize all things,” and the ultimate aim is to replace all of the communication tools currently in use, as well as avoiding the hassle of configuring them properly.
In October, the project launched a governance data storage system called Politeia, which will be used to store of all Decred’s governance data off-chain anchored to the blockchain and reduce the on-chain footprint.
“While we will use it first as the basis for our proposal system, it has been developed as a generic tool that allows its users to create and maintain arbitrary data in a version-controlled and timestamped environment.”
The broader goal of Politeia is to serve a similar function as websites such as house.gov or senate.gov does to a nation state, namely to provide cryptographically verifiable records so that anyone can ensure that governance is being conducted transparently, making it more difficult to sabotage or subvert the governance process.
Decred has displayed steady growth over 2017, as shown by the monthly chart below for DCR-USD. In early 2017, DCR-USD traded below $2 but then broke the $10 psychological handle in March. The bullish run continued into June 2017, when Decred hit a high of $51.794. Since the summer, DCR-USD retraced and now looks to test the 2017 high again, with the current price action holding firm above $40.
Notice only two fractal levels have formed for DCR-USD on the monthly timeframe. A buy fractal at $0.343 from December 2016 and a sell fractal from June 2017 at $51.794. A monthly close above $51.794 would open up decred to bullish momentum and should see a push to new highs. Notice also that the volume has been increasing over time on the Bittrex exchange (DCR can also be acquired on Poloniex), suggesting more traders and investors are becoming more interested in the altcoin.
The Fibonacci targets indicate that a break above $51.794 could materialize into a long-term drift toward the 161.8 and 261.8 percent extension levels, at $83.59 and $135.04 respectively.
DCR-USD Looks to Head to $83.59
Therefore, from a technical and fundamental standpoint, Decred looks like one cryptoasset to keep your eye on, with strong performance expected in late 2017/early 2018 as staking becomes more popular, more participants join the governance process, and privacy technologies are incorporated into the cryptocurrency.
The author owns no Decred but may enter a buy position in the next 48 hours.