Decred 101 - Start here
Decred is Sound Money
To understand "sound" (not able to be manipulated) money, it is first important to understand the history of money and money as a function of its characteristics. For the purpose of brevity we will not detail money's history and focus more on the characteristics of money and what makes Decred "sound money". For a more in depth overview of the history of money, we recommend Investopedia's "The History of Money".
Money has 3 specific functions
- Store of Value
- Unit of Measurement
- Medium of Exchange
Gold is currently the de facto global store of value and has withstood the test of time as an investment vehicle and currency for over 3,000 years. Unlike USD, gold cannot be effortlessly printed and is limited in supply - there is only so much gold to be mined on earth (until Elon Musk sends his rockets and mining equipment to space to mine the gold in the asteroids circling earth). Gold also requires serious man-power and mining equipment to obtain. Given its difficulty to obtain and scarcity by nature, gold supply is relatively sound.
Paper money or "fiat" currency (dollars, euros, etc.) is the de facto global medium of exchange.
Fiat is government-issued legal tender whose value is based on supply and demand and the stability of the issuing government. Fiat money is controlled by banks, who create new money as credit and have the keys to control the money supply. The money supply is controlled to target specific economic conditions, usually including a degree of inflation in prices. This monetary manipulation is what we consider "unsound". Also, anyone who is not benefiting directly from the creation of the new money is losing value.
What if there were a way to take the sound money qualities of gold, add the internet and mathematics, be decentralized from central manipulation, and satisfy all the money characteristics listed above? With Bitcoin, Satoshi Nakamoto discovered a way to maintain a distributed ledger for recording transactions without relying on any specific (centralized) authority to enforce the rules. By gamifying the process for adding new transactions to this "blockchain", and making this role "permissionless" (anyone with the hardware can participate) the network's miners and nodes can effectively ensure that everyone follows the rules - as long as most of the entities which participate in creating the blockchain are honest.
Decred is a blockchain-based cryptocurrency like Bitcoin, but focuses more strongly on community input, open governance and sustainable funding for development. It is money designed to be predictable and scarce. No one person or centralized group has the power to print DCR out of thin air and there will never be more than 21 million DCR. Decred is sound money.
Your money is losing value! It's inevitable! With fiat money printing, the value (purchasing power) of your savings is decreasing at a rate consistent with the rate at which the money supply is increased. How much would you be able to purchase for $100 USD now vs. 15 years ago? Refer back to the money timeline above for an illustrative view.
Decred is a community
The Decred project is led by its community of Stakeholders and Contractors following six simple principles:
- Free and open-source software: all software developed as part of Decred shall be free and open-source software.
- Free speech and consideration: everyone has the right to communicate opinions and ideas without fear of censorship. Consideration shall be given to all constructive speech that is based on fact and reason.
- Multi-stakeholder inclusivity: inclusivity represents a multi-stakeholder system and an active effort shall be maintained to include a diverse set of views and users.
- Incremental privacy and security: privacy and security technology shall be implemented on a continuing and incremental basis, both proactively and on-demand in response to attacks.
- Fixed finite supply: issuance is finite and the total issuance shall not exceed 20,999,999.99800912 DCR
- Universal fungibility: universal fungibility is fundamental to Decred being a store of value and attacks against it shall be actively monitored and countermeasures pursued as necessary.
Being a decentralized community means there is no official Decred channel. People hang out, discuss and coordinate using different channels and social media platforms.
Decred is secure
Network security is the foundation of any financial system. Agreement on transactions and account balances, also known as consensus, is vital to confidence in the network and currency. As cryptocurrencies are quite new, it takes time for people to develop confidence that they are secure and stable, and their resistence to various attack vectors is scrutinised in detail by potential investors and attackers.
Decred uses a hybrid system:
- a Proof-of-Work (PoW) mining system as Bitcoin has
- a Proof-of-Stake (PoS) system to approve blocks produced by PoW miners
PoS ensures that a small group of miners cannot dominate the flow of transactions or make changes to Decred without the approval of the Decred Stakeholder community.
Decred employs a combination of PoW and PoS to leverage the best of both systems, mitigate their weaknesses, and deliver a layered consensus mechanism that makes it far more secure than other cryptocurrencies.
As part of Decred's PoS system, Decred Stakeholders lock their funds for a pseudorandom period of time (average: ~28 days; minimum: 1 day; maximum: 142 days) to purchase tickets in what is effectively a lottery. These tickets are added to a pool of roughly 41,000 tickets. Each block (~5 minutes), five tickets are pseudorandomly selected to validate the Proof-of-Work transactions from a previously mined block. If at least 3 of 5 of the chosen tickets approve the block from the miner, the miner’s reward is approved and the block is added to the blockchain. Ticket holders (Stakeholders) are also rewarded for verifying the PoW process.
However, if the mined block is rejected by the PoS system, the transactions are rejected and a miner does not get their reward. This prevents miners from misbehaving as they would waste precious electricity and hardware resources if they continue to produce malicious blocks. PoS Stakeholders are still rewarded for securing the blockchain.
Decred is evolving
Stakeholders agree on and enforce the blockchain’s consensus rules, they set a course for future development together, and can make use of a development fund which receives 10% of each block's reward. Decred’s blockchain is similar to Bitcoin’s, but with major improvements to the funding model as well as transparent and inclusive governance baked into the protocol. If you hold Bitcoin, but you don't like how the protocol is evolving (or is not evolving), you can't do much about it. In Decred, people owning Decred can actively participate in "governance" and actively steer the path of the project.
To align incentives, block rewards are split between Proof-of-Work (PoW) miners, Proof-of-Stake (PoS) Stakeholders and the Decred Treasury. Decred's Treasury is used to fund continuous project development.
The Politeia Proposal System plays a vital role within the Decred DAO (Decentralized Autonomous Organization), empowering Stakeholders to manage Decredʼs Treasury expenditures and policies.
Proposals to date include new software features, marketing expenditures, partner integrations, bug bounties and further research. Politeia is a governance platform that uses on-chain timestamps and signatures to anchor all activity related to the submission, discussion, and voting for proposals into the blockchain. Once a proposal is approved by Stakeholders, the proposal author is authorized to begin work, knowing their efforts are supported by the community and financed by the Treasury.
Decred's issuance is predictable. New blocks are generated every ~5 minutes, and each one creates new DCR. The block rewards are split three ways:
- 60% goes to the PoW miner who finds (mines) the block
- 30% goes to the PoS voters (Ticketholders) on that block (6% to each of the 5 tickets chosen to vote)
- 10% goes towards the Decred Treasury
The hard cap with no “tail emissions” beyond the scheduled ~21M is designed to provide certainty in the monetary policy and prevent existing holders from being diluted by future manipulation of the monetary supply.
If a block includes less than 5 PoS votes there will be a fraction of the block reward which is not allocated to anybody. As a result, it is only possible to calculate an upper limit for the total number of Decred which will ever be created.
The following chart shows an estimate of the coin supply growth over time:
Find out how Decred's Hybrid Consensus system makes it secure, adaptable and sustainable in the next article!