In a nutshell, Decred's hybrid PoW/PoS consensus system was designed from the ground up to solve Bitcoin's biggest challenges .
Each new block on the Decred chain goes through a multi-factor security verification process, similar to a 2 factor authentication, before being considered fully valid. Similar to Bitcoin, Decred transactions are first aggregated by Proof-of-Work miners into new blocks. However, in the hybrid consensus model, Decred mined blocks are then required to be signed/approved by Proof-of-Stake voters who hold tickets (locked DCR), for which 5 tickets (out of ~41,000) are pseudorandomly chosen (similar to a lottery) each block to vote. This two-step process that mixes both PoW and PoS systems is at the core of Decred's hybrid consensus.
Instead of issuing 100% of the block reward through the Proof-of-Work system (Bitcoin model), newly minted DCR is shared between miners, stakeholders, and the Decred Treasury (Development Fund) as shown below:
- 60% to fairly compensate miners who have the biggest running costs
- 30% to reward those who time-lock DCR to help secure the network
- 10% is deposited in the Treasury to fund future project development
DCR issuance is fixed and known at every point in time. You can find additional issuance detail details about it in the Decred Documentation
Proof-of-Work participants commit their computer hardware and resources to process network transactions and aggregate transactions into the blocks that make up the Decred blockchain.
When a miner creates a valid block, they receive the fees from all of the transactions included in the block as well as 60% of the block reward.
Decred uses the BLAKE-256 hashing function. PoW mining can be done using GPUs, however, more powerful DCR ASICs are now available. Since the introduction of ASIC mining, the PoW difficulty has become high enough to make GPU mining unlikely to be profitable.
A second layer of security
In Bitcoin, Ethereum and other pure PoW blockchains, only miners can interact with the chain directly. To dilute power, Decred combines PoW mining with Proof-of-Stake voting.
Decred holders time-lock their DCR to buy tickets, and in each block 5 tickets are pseudorandomly selected and called to vote. When a ticket is called it makes two kinds of votes:
- To approve or reject any open consensus rule change proposals
- To approve or reject the regular transaction tree of the previous block
PoS voters provide the network with a second layer of security. The Decred network double checks every block to protect itself against invalid transactions but also against misbehaving miners.
Ongoing research indicates Decred is up to 40x times more expensive to attack than Bitcoin and other pure PoW networks given the same hashrate.
When do tickets unlock? The ticket lottery is pseudorandom. PoS voters commit to locking their funds for a pseudorandom period of time, and it can go on for up to 142 days.
This mechanism ensures that stakeholders will behave in the network's best interests.
The Armored Lizard
Decred's hybrid system makes it abnormally expensive to attack the network. Attackers not only need to amass big amounts of hashing power but also purchase and stake tickets in order to validate the malicious blocks they mine. In this scenario, attackers must be highly vested in the network and any attack would also compromise their own funds!
While the Proof-of-Work system is extensively documented in the cryptocurrency space, the addition of a Proof-of-Stake layer and its implementation as a governance mechanism is an absolute differentiator in the space.
In the next article, you'll learn the basics about Decred's Staking and Governance system.