What is Decred? The Lowdown on Decentralized Blockchain Governance

What is Decred? Decentralized Blockchain Governance

Decred (DCR) is a cryptocurrency that prioritizes decentralized governance and decision making on the blockchain. The goal is to build a cryptocurrency that runs autonomously, with improvements voted on and enacted directly by the miners and holders of the currency.

Decred incorporates some fundamental changes from the Bitcoin protocol that it’s based on in order to accomplish these decentralizing goals.

Decred launched its mainnet on February 8, 2016 to mixed reviews from crypto enthusiasts. For some, Decred represented everything Bitcoin was supposed to be from the outset. It was seen as the pinnacle of decentralization and democratic decision making for a peer-to-peer network, allowing it to respond quickly to attacks and community requests for new features.

On the other hand, many skeptics question what Decred brings to the table that’s truly new and unique. Other cryptocurrencies have mechanisms for incorporating community needs, and it’s not entirely clear why you would choose to use Decred over a more established currency.

Decred’s developers and community believe Decred’s protocol for incorporating improvements and changes will allow it to become the optimal cryptocurrency on the market in the long run. Over time, they claim Decred will be the most responsive to the needs of future cryptocurrency users, and that will make Decred the foremost coin based on user influence.

Currently, nearly two years into the Decred experiment, DCR’s market cap sits in the low 30s in terms of ranking for cryptocurrencies, with a total market capitalization of around $354 million, according to CoinMarketCap.

What problem does Decred aim to solve?

Decred’s developers are crypto-enthusiasts and early Bitcoin adopters, but they spotted an inefficiency in the way Bitcoin operates. As mining operations have grown, Bitcoin’s decision-making process has become more centralized, with the largest mining companies holding large amounts of power over the Bitcoin improvement process. In addition, while some Bitcoin improvements can be implemented via a soft fork, almost all improvements that involve a significant change to the Bitcoin software require a hard fork from the old blockchain.

This was on display just a last month with the proposed SegWit2x hard fork on the Bitcoin blockchain. Debates raged, and the community was in upheaval about the future of the network. Eventually, the hard fork was called off because it didn’t have enough support from miners, institutional users, and exchanges. According to Decred, this kind of power that the miners and institutional users held over an improvement to the blockchain is counterproductive.

hard fork

A hard fork.

In the case that the community doesn’t agree on a fork, independent factions can also create their own hard forks of the Bitcoin open source blockchain, as we’ve seen with Bitcoin Cash, Bitcoin Gold, and now Bitcoin Diamond. These offshoots implement various improvements in different ways and at different speeds, fracturing the Bitcoin community every time consensus isn’t reached about an improvement.

Decred aims to reduce or eliminate hard forks, especially ones that divide the community. While a hard fork is possible on Decred, and in fact Decred recently navigated the first fully user-driven hard fork, Decred’s voting protocol makes it so that users can vote on changes before activation. Then upon passage of the vote, the changes go live.

Hybrid proof of work & proof of stake

Decred accomplishes its voting protocol on the blockchain using a hybrid design that combines proof of work and proof of stake. The basic principle behind the hybrid system is each block must be mined with the correct nonce and ratified by at least three verifiers. The hybrid system mitigates the weaknesses of proof of work or proof of stake individually. Miners still receive block rewards and staking verifiers also receive a small reward.

decred mining

The mining is straightforward and works like Bitcoin with processors competing to find a nonce that lowers the hash below the difficulty threshold.

decred ticket pool

The proof of stake system is open to anyone who owns DCR. Using your DCR, you can choose to buy tickets that allow you to participate in the proof of stake system. Your ticket will need to be mined as part of a block, and since each block can only contain 20 tickets, you may have to wait for your ticket to be mined (or pay a fee to have your ticket mined earlier). Once mined, your ticket will be considered “immature” and held outside of the lottery pool until 256 blocks (about 20 hours) have passed.

After that, your ticket enters the pool and you wait for it to be chosen. Decred is designed so you have a 50% chance of being chosen within 28 days and a 99.5% chance of being chosen before your ticket expires (around 4 months). Once chosen, you’ll help validate a block, and you’ll receive the price of the ticket plus a staking reward for participating.

The staking process encourages longer term investment in the Decred project because your DCR will be in the system tied up for a few weeks while you’re staking. Luckily, contrary to other proof of stake systems, you won’t need to keep your computer on for the whole time your ticket is in the pool. Instead, you can join a staking pool that will vote on your behalf should your ticket be chosen and return the dividend to you.

Ratifying an improvement to the protocol

Using a combination of mining and staking means everyone gets a vote when it comes to improvement proposals and forks in the Decred blockchain. Anyone can submit a proposal for improvement, and that proposal will pass through the Decred Assembly first, a group of Decred users who have been vetted and voted into the council.

In the future, even this part will live on the blockchain through a proof of assembly mechanism that’s currently in development. With proof of assembly, the community will be able to vote on which projects receive funding from the block reward and are worth pursuing.

Once an improvement project has been fully developed and tested, it will be added to a new version of the Decred source code as “dormant code” with no activation. The first step in voting on the new improvement requires that the supermajority of nodes on the network update to the new version of the software that contains the dormant code.

Voting on a new initiative begins when 95% of the past 1000 blocks have been mined with updated code and 75% of the verifying votes on the past 2016 blocks have the updated code. As soon as this “upgrade threshold” is reached, voting begins.

decred voting

Voting lasts 8064 blocks (around 28 days), and it involves both the miners and the stakers (ticket owners) choosing yes, no, or abstain. The voting ends when 40,320 votes are cast or 8064 blocks transpire. An agenda item requires a 75% majority to pass. If the yeas or nays do not reach 75%, the vote is re-started at the next voting period of 8064 blocks and is re-voted until a majority is reached or the agenda item expires.

When an agenda item is accepted, it immediately becomes active. Since it was already dormant in the updated code, the vote has the ability to activate it immediately. In the near future, all the governance data and supporting information will exist off-blockchain with Decred’s new Politeia project to make governance open source and freely accessible.

Lightning Network for instant transactions

Decred also plans to implement Lightning Network. This is an improvement that multiple cryptocurrencies have explored, including Bitcoin. Essentially, Lightning Network operates as an off-blockchain way to settle payments and reduce network requirements and processing speeds. It requires two users that regularly do business to set up a third account that’s a locked box into which they each put an equal amount. When the two users want to transact with one another, they simply send each other promissory notes changing the balance of funds in the box.

For example, Alice and Bob each contribute 10 DCR to a Lightning Network box, for a total of 20 DCR in the box. If Alice wants to pay Bob 2 DCR, she can send Bob a note updating the distribution of their locked box to 8 Alice, 12 Bob. This note doesn’t need to be sent on the blockchain and Bob and Alice can freely transact back and forth within a margin of 20 DCR before they need to add anything to the blockchain beyond the initial transactions that funded the box.

Since it’s based on promissory notes, Lightning Network payments are instant and don’t rely on the block time for verification. They can also be micropayments of fractions of a coin. Additionally, taking the transactions off the blockchain allows for greater scalability as the blockchain has to process fewer transactions.

Conclusion: Strengths & Challenges

decred development

Decred’s largest strength is its community. The founding development team is made up of former developers from major crypto projects, most notably the developers of btcsuite, a version of Bitcoin written in the Go programming language. Btcsuite’s open source Go code has been used for other projects.

If the team can build great features that extend Decred in a way that makes it more useful for community members, then Decred adoption will continue to grow as good governance drives good decisions. However, if Decred’s community fails to engage or organize for rapid developments, Decred could find itself quickly overtaken by new, exciting cryptocurrencies that offer better features out of the box.

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Bennett Garner

I'm a B2B technology content consultant and writer. I specialize in blockchain, cryptocurrency, and AI writing. Visit my personal website to learn more about me and read more of my writing.