The Decred Digest - Dec 11, 2017
Decred is a hybrid Proof-of-Work (PoW) and Proof-of-Stake (PoS) cryptocurrency that offers many benefits over a pure PoW or PoS blockchain. The majority of these benefits come from Decred’s unique PoS system that works by locking up a chunk of decred coins into a “ticket”. A ticket represents a token to participate in the Decred PoS system, and if you hold a one then you’re a Decred Stakeholder.
The primary role of a Stakeholder is to govern Decred via the on-chain consensus voting system and the Decred Proposal System, Politeia. Decred Stakeholders have a real say in how the network is upgraded, developed and marketed — the Stakeholders make the rules. However, Stakeholders also help to secure the network, and protect it against contentious hard forks. Furthermore, they actually get rewarded for doing this!
Here are my top 5 reasons to become a Decred Stakeholder:
Reason 1: Staking rewards — Receive a reward for governing Decred
Just like PoW miners are incentivized to participate in the network with 60% of DCR coins created in each new block (block reward), PoS miners (Stakeholders) are also incentivized to participate with 30% of the block reward. Stakeholders receive this reward for governing the network — which is currently around 1.37 DCR, or a return of 1.8% — every time their ticket votes. But the actual percentage of return is determined by a combination of the current block rewardand the ticket price, which is in turn determined by the demand for tickets.
Once you’ve obtained your ticket via the Decredition wallet it enters the ticket pool alongside all other Stakeholder tickets, where it will wait to be randomly drawn to vote. It takes an average of 28 days for a ticket to be selected, but it can take up to 142 days (around 5 months), and there is a 0.5% chance that it will expire before being chosen (which means your coins are returned without any reward). The ticket pool has a target size of 40960 tickets. If the amount of tickets in the pool reduces below this number then the price of a ticket drops. Conversely, if the amount of tickets in the pool rises above this number the ticket price increases. Therefore, the cost of a ticket is actually decided by the Stakeholders themselves, or more specifically, by how much DCR a Stakeholder is willing to lock up to obtain a ticket and the subsequent reward.
For example, if the ticket price dropped to 40 DCR with a 1.4 DCR voting reward, this would represent around a 3.5% return in approximately 28 days (high incentive). So it’s likely lots of people would want to buy tickets. In turn this would drive up the number of tickets in the pool over the target size, which would therefore raise the ticket price (via the stake difficulty algorithm). If the cost of a ticket continued to increase to 100 DCR this would only represent a 1.4% return (lower incentive). So more people may decide they are unwilling to pay such as high price. As a result it is likely this would then reduce the number of tickets in the pool below the target size, lowering the ticket price. And so on…
At present it appears the average cost of a ticket is steadily increasing as more and more people see the value in becoming a Decred Stakeholder, but the current price is fluctuating around 75 DCR (~1.8% a month). When these rewards are compounded over a year the gains are actually quite surprising!
For a detailed explanation of Decred rewards and inflation click here.
Reason 2: Consensus voting — Govern Decred Consensus Changes
I believe the feature that brings the greatest value to a cryptocurrency is decentralisation. True decentralisation means a censorship-resistant network with no single point of failure. However, a cryptocurrency also needs the ability to quickly adapt and evolve so it can scale to meet the demands of an ever-growing user base. Therefore, all decisions regarding these upgrades must also be made without reliance upon a central authority, as this would represent a single point of failure, putting the security of network at risk.
In pure PoW cryptocurrencies like Bitcoin, PoW miners ultimately make the decision to upgrade the consensus rules (hard fork). But because there is no formal governance system these changes often result in a prolonged and messy governance crisis. Furthermore, PoW miners have their own interests in mind, not the interests of the users — we’ve all felt the effects of the high transaction fees on Bitcoin. To fix this issue Decred decided to implement a formal on-chain consensus voting system that ensures truly decentralised decision-making, by those who have interests aligned with the users — Stakeholders.
So perhaps the greatest benefit of being a Decred Stakeholder is the ability to have a real say in decisions that relate to a change in the consensus rules of the network, via the world’s first on-chain consensus voting system. Without the majority support of Stakeholders it is impossible to change the consensus rules of Decred.
Consensus voting is pretty simple. After a Decred Change Proposal (DCP) has been approved by Stakeholders in Politeia, developers then code the protocol upgrade. Once the upgrade is complete this is released to Stakeholders in a new version of Decredition that contains the dormant upgrade code. If 75% or more Stakeholders choose to upgrade to the new version the voting process begins. Throughout a voting cycle Stakeholders cast their vote by simply changing the ‘yes’, ‘no’ or ‘abstain’ voting parameters when they obtain a ticket. If the vote achieves at least 75% support from Stakeholders the dormant upgrade code activates and the hard fork automatically occurs, after a short lock-in period (normally around 1 month). Unlike other cryptocurrencies this is not a signaling vote — the vote is binding and the decision is final — developers or PoW miners cannot stop it. The Decred Stakeholders really do rule the network.
For a detailed guide to Consensus Voting visit the mainnet voting documentation page here.
Reason 3: Politeia voting — Approve proposals for funding
To avoid conflicts of interest, or the influences of an external third party, Decred has a built-in self-funding mechanism where 10% of all block rewards are allocated to a central development fund. Soon anyone will be able to submit a proposal to receive DCR from this fund to develop or market Decred via the new Decred governance platform and Proposal System, Politeia (Pi).
Pi’s primary function is to provide Decred with an unalterable public record of proposals, comments on proposals, and Stakeholder votes, by anchoring this information to the Decred blockchain via a timestamped filesystem. As a Stakeholder you’ll be able to vote to decide which of these proposals you’d like to see funded. Therefore, you have the power to decide how Decred developed and marketed. As a Stakeholder you are in the driving seat! Together with other Stakeholders, the decisions you make will direct the future of Decred.
If you’re interested in finding out more about Pi, then have a read of this recent blog.
Reason 4: Help secure the network against contentious hard forks
Although the primary role of a Stakeholder is to govern Decred, they also help to protect the network against 51% attacks and contentious hard forks.
Stakeholders participate in the Decred PoS system, which acts as a secondary authentication for consensus. This means Stakeholders can keep a check on the behaviour of PoW miners by voting against the previous block to either reduce or eliminate the block reward. When each new block is created 5 tickets are randomly drawn from the ticket pool to vote on it, and all new blocks need at least 3 votes to be valid. For PoW miners to also receive the full block reward all 5 tickets must approve the block. If only 4 tickets approve then the PoW miners only receive 80% of the block reward, and if only 3 approve then they only receive 60% of the block reward. Any less than 3 approvals means no reward is received at all, and the block is invalid. Therefore, this provides a strong incentive for PoW miners to not engage in questionable behaviour, or behaviour that does not conform to the wishes of Stakeholders.
In addition, this also means it’s impossible to create a contentious fork of Decred against the wishes of Stakeholders, without destroying the hybrid nature and security properties of the system (in which case the fork wouldn’t be Decred). A Bitcoin Cash or Ethereum Classic scenario could not happen with Decred unless the Stakeholders desire it.
For example, if 80% of Stakeholders voted in favour of activating a privacy enhancing feature on Decred, and the remaining 20% refused to move over to the new private blockchain, the miners on the old minority chain would statistically only be able to obtain 1 out of the 5 votes on each block (20%). Which would be less than the minimum of 3 votes required to validate a block. Therefore, the minority chain would not be able to create valid blocks, and they would be rejected by the network.
Furthermore, this also makes it incredibly difficult for someone to 51% attack the network. Decred’s Lead Developer, Dave Collins, carried out an excellent apples and oranges comparison between Decred and Bitcoin to explain this, shown below:
“As of November 1, 2017, at its peak, there was an estimated 10,833,159 TH/s of hashing power securing the Bitcoin network. So in order to successfully attack Bitcoin, you would need 51% of that which is 5,524,911 TH/s. Also, let’s discount the fact that with the amount of money we’re talking about here you could just pay to have your own ASIC built out in a fab for even less, but let’s just keep it simple using released hardware. An Antminer S9 provides 14 TH/s @ 1415 USD. Thus, to achieve that 51%, you would have only needed to acquire approx 394,637 Antminer S9s * 1415 = $558,411,355 USD. Now, for an apples to apples comparison, let’s assume Bitcoin used Decred’s hybrid system and thus we’ll use the same coin supply, the same price per coin, and the same PoW hash rate. As of that same November 1, 2017 date, there were around 16,660,788 bitcoins in circulation at a cost of roughly 6740 USD per coin. Now, let’s go ahead and use some less than favorable numbers and assume there is only 33% stake participation and calculate how much money it would take to attack the network by aiming to acquire 33% of the stake. Running the numbers, we can see ((1/0.33–1) * 0.33)³ = 0.29, so you would also need roughly 29% of the hash power in addition to 33% of the stake. So, 33% of 33% of 16,660,788 coins ~= 1,814,360 * 6740 per coin = 12,228,786,400 USD for the PoS portion. Now, you also need 29% of the hash power, so 10,833,159 TH/s * .29 ~= 3,141,616 TH/s. Thus, you would need to acquire approx 224,402 Antminer S9s @ 1415 USD = 317,528,830 USD. So, in summary, you would need roughly 559 million USD to attack Bitcoin while you would need roughly 12.55 billion USD to attack Decred.”
For a more detailed explanation of Decred’s fork resistance click here read of Dave’s recent Reddit post on the topic.
Reason 5: HODL
Investing in cryptocurrency can be pretty stressful. It’s volatile, unpredictable and highly speculative. If you haven’t got the stomach to hodl strong through the highs and the lows then it’s very likely you won’t last long in crypto. Luckily being a Decred Stakeholder can also can help with this!
To be a Stakeholder you need to have a long-term outlook and firm belief that the Decred project will succeed. As I mentioned earlier, when you stake your decred it takes an average of 28 days for your ticket to vote, but it can be anything up to 142 days before your coins are returned. Therefore, you need to have enough conviction to lock up your DCR for an unknown period of time (or until your ticket votes).
Personally, I’ve found staking to be great way to hodl strong! It’s easy for your emotions to get the best of you when investing, when the market is on a downtrend you can over-react or think irrationally which can lead to panic selling at the wrong moment and losses. The good thing is that as a Decred Stakeholder you don’t have to worry about panic selling — because you can’t! When you’re a Stakeholder you earn rewards no matter what the market is doing. It’s a great feeling!
Bitcoin has disintermediated banking — if you own Bitcoin you can securely store and transmit value without relying on a centralised third party — you can be your own bank. But as a Decred Stakeholder you’re not only the bank, you’re the central bank too. You’re empowered with the ability govern Decred — you make the rules.
More and more people are now realising this along with the broader benefits and rewards of becoming a Decred Stakeholder. As I’ve mentioned in a previous blog, the demand for tickets is gradually increasing. Between September 14th and November 14th the percentage of decred locked up in PoS rose from 42.01% of the total supply, to 46.65% of the total supply, which also meant the circulating supply of decred dropped by 64,079 over the two month period — despite inflation!
Buying tickets can quickly become addictive. Maybe it’s the buzz you get when your ticket votes and the reward arrives your wallet. Or maybe it’s the feeling of safety you have when you realise you actually hold some sovereignty over your own finances. Either way, when you become a Decred Stakeholder it’s very likely you will never go back. Once you learn of the benefits and rewards that come with governing the Decred network it’s likely you will be Stakey fan for life!
Although the ticket price is slowly climbing as demand for tickets increases, it’s not too late to join the club and be part of something where you really are empowered to make decisions that can change the world — become a Decred Stakeholder!