What is Decred?
Decred is a payment coin that was founded in 2016 as an alternative to Bitcoin. Responding to some of the biggest issues with the no.1 cryptocurrency, developers sought to create a more democratic coin that truly belonged to its community.
But that was 5 years ago. What are the main strengths of Decred today, how secure is the Decred network, and how does the DCR cryptocurrency work?
Read on for a deep dive into this well-respected digital currency.
Decred Community Governance
Decred (which stands for ‘Decentralized Credits’) is often praised for its successfully decentralized governance.
Not only did the team begin with the ideal that the community at large must approve all transactions and changes to the protocol, but they have managed to implement this as reality.
This is achieved because every holder of Decred’s DCR coin has the potential to be called to vote, no matter how many coins they own. On-chain votes take place via five randomly-selected voting tickets in each mined block. Off-chain votes, which concern the direction of the project, can be proposed by anybody on the project's purpose-built Politea platform, with the prerequisite of a small fee (which is designed to prevent spamming).
The most common voting mechanism on other chains sees large token holders having a correspondingly larger vote as standard, thus creating what could be called an ‘on-chain plutocracy’.
While this may not be causing huge problems in the crypto space currently, the idea is that blockchains will play an ever-more important role within increasingly globalized societies. So any networks that are successfully adopted and used by millions of people should remain responsive to the majority’s needs.
For a current-day look at why effective decentralization and community governance are important, one need only look to the recent incident in which Facebook attempted to block Australians from having access to news feeds, only to ultimately block the Australian Health Department from being able to use Facebook to effectively roll out their vaccination efforts.
The centralized social media giant has grown so large that it can effectively make or break certain parts of society.. And if the elected officials of nation-states don’t like that, their only chance is to attempt to persuade one single, fallible human being to change his mind.
Decred, which was originally created by the Company 0 enterprise group, uses it’s combined Proof-of-Work (PoW) and Proof-of-Stake (PoS) consensus mechanism to create a platform that averts this totalitarian dynamic.
Jake Yocom-Piatt, who founded Decred after having worked as a developer on Bitcoin, said in a 2020 interview:
“Decred is redefining governance using blockchain technology. Many nation-state governments and corporations are staffed by elected officials, whose incentives only weakly align with those of their constituents. Instead of electing officials like a nation-state or corporation, Decred uses a rolling opt-in lottery to make policy decisions, removing the need for dedicated decision-makers and the corresponding delegation of sovereignty. Decred is an effort to create a fairer financial system driven by sound money, where its community makes decisions as a group and every decision maker has skin-in-the-game.”
Yocom-Piatt has also contributed code to Bitcoin’s long-awaited Lightning Network. We’ll discuss the importance of this later on in the article.
Decred Proof of Stake (POS) and Security
The PoW mining on Decred creates the same centralized pooling of computational power as that on Bitcoin. The combined PoS mechanism negates this though, by having staking nodes spread across the world in a decentralized manner, and introducing ‘ticket-holder voting’, where every community member has to stake their DCR in order to gather on-chain and off-chain voting tickets.
To gain control of the Decred network, an individual would have to capture 51% of the mining power and 51% of the Decred voting tickets. This makes Decred multiple times more difficult to attack than the already-robust Bitcoin, which means that taking it down is a virtual impossibility.
The proposals on Politea are frequent and of a high quality, demonstrating that community governance can be a great asset to crypto projects going forward. One such accepted community proposal was for Ditto PR, a marketing company, to help Decred gain wider recognition in the crypto space. This awareness-raising appears to have resulted in more exchange listings for DCR, and wider acceptance as a payment solution.
Another benefit that the Decred Proof of Stake consensus brings is staking rewards. Token holders must first lock their DCR on the platform, upon which they receive voting tickets. Users can then submit their tickets and after a period of maturation, become a voter. As they vote on the proposals in Politea, they are rewarded with a share of 30% of the total block reward, in DCR. Like with Bitcoin, the block reward is reduced over time, but with Decred this process is more gradual, so there are no dramatic halving events.
Also, thanks to a privacy mixer within the codebase, these votes now protect the anonymity of the ticket holder. This privacy implementation also obfuscates and protects the identity of those who use Decred as a payment coin, thus adding to the number of convenient tools available for users.
A full explanation of the PoS voting procedure can be found here.
Where can you buy and trade DCR?
Thanks to the success of it’s team and community, Decred (which, like Bitcoin, has a max. total supply of 21 million coins) can be purchased on many different exchanges. Some of the largest available exchanges include Binance, OKEx, MXC, KuCoin, Poloniex and Bittrex, and the most common trading pairs are with BTC and USDT.
This glut of listings has seen Decred’s market maturity score increase dramatically on Flipside Crypto’s FCAS rating, which judges the fundamental strengths of crypto projects. The developer behavior score remains high, but as can be seen below, there’s still room for improvement in terms of actual on-chain utility.
Caption: FCAS line chart showing Decred’s market maturity, developer and utility scores
However, in terms of development, the Decred community have voted for and implemented their own native Decentralized Exchange (DEX). This is called DCRDEX, and offers trading pairs of Decred, Bitcoin, Litecoin and Ethereum.
The DEX needs to be downloaded for use as a desktop client, and trades are executed with atomic swap technology, meaning that user funds can be exchanged without leaving the wallet.
Like other decentralized exchanges, DCRDEX requires no ID or verification for either users or token listings, but one way in which Decred’s native DEX stands out is that there are no fees incurred while using it.
In this way, the Decred team is closely following the grand vision for Bitcoin, which aims for trustless, instant, universal value exchange, with negligible fees. Decred has also implemented Lightning Network payment channels, which should help the project scale upwards and stay ahead of the curve as the competition between payment coins increases.
Decred’s competitors include other privacy coins, such as Monero, Dash, Zcash and Grin, and other payment solutions such as Stellar, Litecoin and Digibyte. It’s main competitor is Bitcoin though, especially seeing as DCR, which shares similar economics to BTC, also markets itself as a store of value coin, where users can have an alternative to storing their money in their native fiat currency.
With Lightning Network on the horizon and potentially bringing super fast and private transactions to Bitcoin, it’s difficult to imagine any other coin being able to compete with ‘the king of cryptos’ in the future, but that doesn’t mean that smaller projects won’t be able to capture pockets of adoption, especially as the crypto industry becomes more complex and nuanced, and consumers understand the differences between the various coins and protocols.
In that regard, Decred’s user-friendly applications and open, effective governance could still stand it in good stead.
Should I invest in DCR?
Like with any cryptocurrency, novel technology or speculative investment, the DCR coin requires further study before purchasing it. We recommend the crypto curious to always do your own research (DYOR!) before following any crypto recommendations or Decred price predictions.
Decred’s governance model is a shining example for the rest of the crypto industry, and it remains to be seen if this model can or will be adopted by other projects.
Despite the respect for DCR within the community, the ultimate goal should still be significant user adoption. Decred may still have a long way to go, but the working product is there and designed to be something that could potentially stand the test of time.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.