Decred Review: Hybrid Consensus, Governance & Privacy

In the world of cryptocurrency, Decred is one of the few projects which has stood the test of time. Short for “decentralized credit”, Decred seeks to resolve a handful of serious issues its core developers identified in Bitcoin’s governance, consensus mechanism, and mining/development centralization.

In short, Decred is an autonomous cryptocurrency – it is “Bitcoin with governance”. Although we already covered Decred in 2018 and again in 2019 on our YouTube channel, it is high time to take another look at this exciting project.

Its use of the Lightning Network, the continued development of the decentralized governance platform Politeia, and the recent integration of privacy technologies akin to Monero has made Decred a serious candidate for the ultimate cryptocurrency in existence.

Decred’s Epic History

Decred’s timeline begins with a man named Jake Yocom-Piatt. Yocom-Piatt is the co-founder of Conformal Systems (now known to as Company 0), an open source software company which focused on privacy and security. He became involved in cryptocurrency after hearing about Bitcoin in 2011 and created a tool for Bitcoin developers called btcsuite in the years that followed.

While working with other developers in the Bitcoin community, Yocom-Piatt was floored by the level of centralization and tribal thinking in the Bitcoin ecosystem. Specifically, he noticed that Bitcoin mining was becoming dangerously centralized and that entities such as Blockstream, a blockchain technology company, had incredible influence within the Bitcoin development community.

When Yocom-Piatt voiced his concerns to the community, he was effectively shunned along with btcsuite. This led him to play with the idea of creating a new cryptocurrency that would be just like Bitcoin but without the flaws found in the proof of work consensus mechanism, the toxic governance structure in the development community which resulted in many forks, and the lack of honest funding for Bitcoin developers.

In 2014, an anonymous developer named _ingsoc approached Yocom-Piatt with the Memcoin2 (MC2) whitepaper which detailed a hybrid proof of stake / proof of work consensus mechanism. The MC2 whitepaper had been written by another anonymous developer named tacotime who created the (in)famous privacy coin Monero that same year.

After being egged on for months by _ingsoc to examine the MC2 architecture, Yocom-Piatt finally caved, and Company 0 began working on building a new blockchain with a hybrid consensus mechanism with support from both _ingsoc and tacotime. Decred was officially announced in 2015 and the main net was launched in 2016.

Decred ICO

Unlike many cryptocurrencies, Decred did not have an ICO. Instead, 8% of its fixed supply of 21 million DCR (the same as Bitcoin) was pre-mined and distributed in 2016, with 4% given to developers and the other 4% being airdropped to almost 3000 early supporters of the project.

When it was issued, the cost of DCR was just under 1$USD per coin. Although Decred was inspired by Bitcoin, Decred is not a fork of Bitcoin and is also not a token on Ethereum or any other network – it is its own independent blockchain.

What Does DCR Do?

DCR ultimately seeks to be the alternative to Bitcoin as a store of value in the cryptocurrency space. DCR is also used within Decred’s ecosystem for voting, staking, and powering platforms such as Decred’s decentralized exchange (DEX) which are still in development.

Since Decred’s development is fundamentally community driven, what DCR can and will be used for will likely change as the years go by.

How Does Decred Work?

While Decred’s inner workings are legitimately complex, its developers have done a stellar job of explaining them in laymen’s terms.

To help understand how Decred works, it is best to begin by examining the Decred constitution which was released in tandem with the Decred main net. This document lays out the 6 principles the project will adhere to.

1. Free and open source software
2. Free speech and consideration
3. Multi-stakeholder inclusivity
4. Incremental privacy and security
5. Fixed finite supply
6. Universal fungibility

Put simply, virtually every aspect of Decred is structured around these 6 principles. These totems are what have inspired its unique consensus mechanism, staking incentives, governance protocol, and its recently developed privacy protocol. Trust us when we say that the development team are true believers!

Decred Hybrid Consensus

Decred uses a hybrid of proof of work and proof of stake to achieve census on its blockchain. As you may already know, in proof of work, transactions are packaged into blocks which are then “solved” by miners using computing power, with correct blocks being added to the blockchain. In proof of stake, users stake a certain amount of cryptocurrency for a chance of producing a block.

Decred blends these two systems together by taking the classic proof of work structure and adding 5 validators which have staked DCR to check the work of the miner. If 3/5 validators vote that the work is good, then the block is added to the Decred blockchain.

This produces a block reward (in DCR) of which 60% is given to the miner, 30% is given to the validators, and 10% is given to fund successful Decred development proposals in Politeia (more on that later).

Decred Staking

Decred’s staking mechanism is unique from other cryptocurrencies in that you do not stake directly with DCR. Instead, DCR is used to purchase tickets which are then used for staking.

Decred is designed such that the likelihood of receiving a staking reward increases over time, starting close to zero percent in the first few days, increasing to 50% after 28 days, and eventually to 99.5% after 160 days.

The price of each ticket varies according to demand and changes every 12 hours. At the time of writing, the price per ticket is 135 DCR, or roughly 2300$USD. Ticket prices can be easily found using the Decred Block Explorer, which also contains a record of previous ticket prices along with a projection of future ticket prices. Staking rewards can also change over time and currently stand at around 7.4% per year. A maximum of 20 tickets can be held by an individual at any given time.

There are two ways you can stake DCR. You can either be a Solo Voter which requires a bit of technical knowledge as well as a constant internet connection, or you can use a Voting Service Provider.

This is a fancy term for a staking pool. Using a VPS to stake does not require any technical knowledge nor a constant internet connection. VPSs can be easily accessed via Decred’s native Decrediton desktop wallet. You can read more about Decred staking and other cryptocurrency staking in our recent article.

Politeia

Launched at the end of 2018, Politeia is a decentralized autonomous entity (DAE) which manages the governance of the Decred blockchain. What is remarkable is that it is also open source and can theoretically be integrated into just about any other crypto project. In Decred’s own words:

Politeia (Pi) is a censorship-resistant blockchain-anchored public proposal system, which empowers users to submit their own projects for self-funding from DCR’s block subsidy. Pi ensures the ecosystem remains sustainable and thrives.

If you are wondering how Politeia works at the technical level, it is pretty darn complicated. On the surface however, it is quite easy to grasp. If you want to create an account in Politeia, a small fee of 0.1 DCR must be paid.

At that stage, you can submit development proposals. All proposals are screened for things like spam by a team of admins. Proposals which pass the screening process are then shared with the Politeia community.

Other users in Politeia can submit feedback about the proposal and the person who submitted the proposal can open a voting window which lasts for roughly one week. Users which had tickets during that one-week period can choose to vote on the proposal. At least 20% of all “active” tickets must vote and at least 60% of those must vote Yes for the proposal to be passed.

After a vote is cast, the amount of DCR initially used to purchase the ticket is returned to the user plus a small reward. If the community votes in favor of the proposal, the development funds are issued manually from the Decred Treasury to the developers who implement the change. The primary development contractor for Decred is of course Company 0.

Decred Privacy

For many years, Decred’s outspoken developers, primarily Jake Yocom-Piatt and Marco Peereboom (who we interviewed in 2018), were careful to discuss the implementation of privacy technology. This was of course because the final decision is ultimately up to the community. Earlier this year, Yocom-Piatt officially announced a privacy technology called Coinshuffle++.

While the detailed architecture of this technology is outside of the scope of this article, Yocom-Piatt does a fairly good job of explaining it in this video. The main idea is that the link between inputs and outputs of transactions on the Decred blockchain cannot be identified by any party.

While Yocom-Piatt admits that other privacy technologies such as Zcash’s zk-SNARKS are the best, the underlying architecture is too complex to be properly audited by even the most seasoned crypto developers. As such, he created Coinshuffle++ to provide optimal privacy while also making it easy for developers to identify any errors or malicious changes in its code.

Decred Roadmap

Decred laid out its initial roadmap on Medium in 2017. Although no updated roadmap has been provided since then, development has progressed in accordance with the milestones outlined in 2017 with only a few delays.

This is important to note because Decred’s development is fundamentally community driven which makes it quite hard to know exactly where the project is headed in the long term. The 2017 targets were (in no particular order):

• Convert Decred into a decentralized autonomous agency (DAO) – completed
• Allow for hard fork voting – completed
• Create a public proposal system (Politeia) – completed
• Create a decentralized development funding mechanism – completed
• Lightning Network support – completed
• Improve the Decred wallet – completed
• Expand the core development team – completed
• Be more present at cryptocurrency events – completed
• Increase privacy – completed
• Work with payment merchants to achieve integration – in progress

In the words of Yocom-Piatt, the final goal of the core Decred development team is to “automate themselves out of a job”. As such, they have been intensely focused on pushing Decred further and further out of Company 0’s nest and more into the hands of the community. Perhaps the most remarkable development was the transfer of the Decred Treasury from an LLC to a smart contract on the Decred chain in 2019.

Decred’s developments in 2020 have focused around the continued development of the Decred DEX as well as their privacy protocol noted in the previous section. Their current objectives are transparent and can be found on the Decred Github and Trello pages. As you can see, many of these goals are quite specific and technical, whereas others are quite amusing (see “Rare Pepe Stakey card”).

DCR Price Analysis

The price history of DCR is quite standard. Shortly after its introduction to the market in February of 2016, it rallied to a price of almost 3$USD before loosing steam and falling to around 50 cents USD.

In 2017, it experienced a slow and steady climb to around 30$USD, moving sideways until the famous crypto bull run of 2017/2018, where it reached its all time high of just under 100$USD, an impressive 100x increase from its “ICO” price of 95 cents USD.

What is incredible is that DCR experienced a second rally in mid-2018 which almost pushed its price above its previous all-time high. This was at a time where many other cryptocurrencies were losing value.

Although DCR did crash a few months later, its price has remained well above its initial price of 95 cents USD, bouncing between 10-30$USD since 2019. This surprisingly high and stable price may be due to its robust consensus mechanism and governance architecture.

Where Can I Buy DCR?

DCR is available for trading on about a dozen cryptocurrency exchanges including Binance, Huobi, and Bittrex. Unfortunately, the volume on these more reputable exchanges appears to be quite low. Also, although more than half of DCR’s market cap seems to be traded each day, almost 90% of this volume is apparently coming from a lesser known exchange.

Given that the real 24-hour volume of DCR may be quite low and not very spread out, this leaves it open to volatility if any Decred whales decide to make a splash in the markets.

Be careful when trading and always remember to keep your funds safe on your own wallet and not to leave your coins on any exchange for very long. But where can you store DCR cryptocurrency? We are glad you asked!

DCR Wallets

As mentioned, DCR is built on its own blockchain. While this means it has limited support compared to other cryptocurrencies such as ERC-20 tokens built on Ethereum, because Decred is somewhat of a veteran cryptocurrency there are in fact quite a few digital cryptocurrency wallets and hardware cryptocurrency wallets which support DCR. We actually made a full in-depth list of DCR cryptocurrency wallets which has all the best options for you.

For those of you who do not feel like clicking the link, digital cryptocurrency wallets for DCR include Decrediton (desktop), Exodus Wallet (desktop/mobile), Cobo Wallet (mobile), and Atomic Wallet (desktop/mobile). Physical cryptocurrency wallets for DCR include select Ledger and Trezor devices..

Our Take on Decred

The future of Decred is a bit of a double-edged sword. Both Jake Yocom-Piatt and Marco Peereboom are titans in the space when it comes to their knowledge and vision. Not only that, but they are extremely well-spoken and dead-set on making sure Decred becomes what Bitcoin was intended to be.

We could easily go on and on about how seriously they take issues like decentralization, privacy, and governance. In comparison to the rest of the cryptocurrency space, they are at least 10 steps ahead in those regards.

However, neither Yocom-Piatt nor Peereboom will be around forever. At some point they will either retire from development or pass away as mortal human beings. Although they and other Decred developers have built a cryptocurrency which is almost certainly superior to almost every other currently in existence, the robustness of the protocols they have put in place are only as good as the people which maintain them.

This is a variation of the criticism of Decred by Buterin, who argued that such a large decentralized governance mechanism such as Politeia is not nearly as effective as Decred developers believe it to be. Yocom-Piatt’s response to this was that a benevolent dictator can only rule for so long, implying of course that Buterin is the benevolent dictator in Ethereum’s development space.

What is interesting is that Decred’s Achilles heel may not be in its design but in it is underlying democratic philosophy. Once could argue that the parties which vote and stake DCR within the Decred ecosystem may not always be informed enough to make the right decisions. Furthermore, it is quite easy to come to an agreement in Politeia today where the community consists almost entirely of die-hard Decred fans.

It is questionable whether the integrity of Decred’s brilliant Politeia will persist if Decred becomes a household name around the globe. This would immediately make it subject to the same issues of classical democracy, namely the dissemination of propaganda both inside and outside of the Decred ecosystem. Decred’s governance system is a strength but it assumes that external incentives remain objective.

Finally, although Yocom-Piatt hopes to protect against these issues by implementing greater and greater privacy into Decred’s various elements, the opposite is happening in the physical world.

Both governments and corporations around the world are shamelessly obsessed with tracking citizens and consumers. What good will a secure, decentralized, and private Decred governance system be if most of its participants are compromised from the outside?

Conclusion

Decred has gotten almost everything right when it comes to cryptocurrency. Its core developers are visionaries with seriously big brains on their shoulders. The respect and support the project has received even from Bitcoin maximalists is testament to the legitimacy of this project.

While Decred has serious future potential, underlying philosophical flaws may just undermine its foundational principles when cryptocurrency inevitably reaches mainstream adoption.