Staking & Governance
In Bitcoin, miners hold the power and decisions are made off-chain. Decred intends to balance the decision making power between miners and holders. Instead of having miners and core developers making the decisions, the opt-in Proof-of-Stake voting system allows its users to collectively steer the project.
Decred’s governance is based on the principle of ticket-holder voting. Anybody who holds enough DCR may time-lock their coins to purchase tickets, participate in governance and earn rewards by helping secure the network.
Proposed changes to the system are voted upon, and only implemented if the voters approve. Some of the ticket holder voting occurs on-chain, and some of it off-chain.
Time-locking funds ensures everyone who votes has "skin in the game". Those who stake their coins have to sacrifice short-term liquidity to gain the ability to participate in the decision making process and earn rewards. They must deal with the consequences of their votes and, if rational, will vote for what they think is best for the network.
The Proof-of-Stake component of Decred's consensus is based on tickets. These are locked up DCR that give their owner voting rights in all of Decred's governance systems, from on-chain consensus rules voting to Treasury expenditure proposals through Politeia.
Tickets serve a number of purposes:
- Allow stakeholders to vote for or against changes to the Decred blockchain.
- Secure the blockchain by validating every new block with at least 3 out of 5 ticket signatures chosen at random.
- Allow stakeholders to participate in off-chain voting, including how to spend Treasury funds and amending the Decred Constitution through Politeia, the governance platform.
In each mined block, five tickets are selected pseudorandomly and called to vote on-chain. On-chain voting serves two main purposes: validating blocks created by Proof-of-Work (PoW) miners and voting on proposed consensus rule changes. After a ticket is called to vote, the DCR locked in that ticket is unlocked, and if the ticket successfully voted, the user receives the PoS reward.
Decred has a built-in an upgrade mechanism which allows consensus rules to be changed across the entire network in a coordinated fashion. This enables the rules to be changed predictably and, most importantly, without fracturing the network. It allows Proof-of-Stake voters to exercise sovereignty over whether or not to accept the proposed changes.
This on-chain voting mechanism allows Stakeholders to change the Proof-of-Stake difficulty algorithm, upgrade the network to support Lightning Network and improve Simple Payment Verification (SPV) security by introducing new block headers. Decred Change Proposals go through a formal process ensuring consensus is reached and that new rules are activated. It is a major improvement from Bitcoin's BIPs which may be discussed for long periods of time without a formal procedure.
Tickets vote to approve or reject the previous block of transactions created by a PoW miner. At least three out of five tickets called to vote must vote for the block to be mined. If the majority of votes are rejecting the previous block, the miner who produced that block loses their block reward, and the transactions from that block are returned to the mempool. This power provides a check against malicious PoW miner behavior (e.g. mining empty blocks), as well as forming the basis of Decred’s fork resistance.
Decred blockchain can't fork
Every fork of Bitcoin sucks value out of the network. Not only capital, but also miners have to decide which fork to support.
Decred solves project funding by taking 10% of the block reward, and putting the usage of those funds up for vote by DCR Stakeholders. Stakeholders can decide which projects to fund by presenting and discussing proposals in Politeia, the online governance platform, and tickets holders can vote on them using their wallets.
The Treasury started off as a special DCR address handled by Decred Holding Group LLC (DHC), a conventional corporate entity that manually executes payments. Security depends on a 3-of-3 multi-signature wallet held by the core development team, but stakeholders have the right to vote on changing the keys.
In May 2019, a proposal passed to decentralize the Treasury's spending process. The new Treasury code is almost done and soon Stakeholders will be able to vote on-chain to activate the new rules.
The next version of the Treasury will transform it into a special account that must follow strict rules:
- Every month Politeia generates a Treasury transaction that aggregates all invoices and creates an off-chain transaction that can be verified with the Politea draft key.
- The Treasury transaction must be approved by an on-chain vote for 2016 blocks (one week) with a 20% quorum and a 60% approval threshold.
- If the Treasury transaction is approved then the contractors can redeem their payouts after it matures. If the Treasury transaction is not approved by the Stakeholders it is not considered a valid transaction and its outputs are not rejected.
Politeia, an inclusive governance system
While Stakeholders tickets are active, they can also participate in Politeia proposals, where a particular snapshot of the ticket pool is used to decide on direction of the project. These decisions include how to spend Treasury funds, amending the Decred Constitution, or other policies. Politeia voting is not recorded on chain, but it is still backed by cryptographic techniques which prevent sibyl attacks and unfair censorship.
Some of the most voted Politeia proposals include funding an open-source and fee-less Decentralized Exchange, hiring both a PR agency and a Market Maker, and the current upgrade that will enable stakeholders to Decentralize the Treasury. While some early initiatives do not have an approved proposal (core dcrd software, Decrediton wallet, Lightning Network), in the future, every expenditure should be linked to an approved proposal.
How to participate
The added Proof-of-Stake layer sets up the stage for blockchain governance. But, automating the voting process and the software activation mechanism is not enough. Clean, simple and user-friendly tools must be developed in order to allow that every user, no matter their technical skills or social media following, can discuss and vote on the different agendas through the ticket system.
Taking into account both voting and discussion, Decred developed the Politeia governance platform and integrated voting tools to its main GUI wallet, Decrediton. Purchasing tickets and voting for or against proposals is as easy as one, two, Stakey.