How would Bitcoin be different if Satoshi Nakamoto knew in 2008 what the Bitcoin community knows today? Jake Yocom-Piatt, the original project lead at crypto currency Decred believes he knows the answer and that answer looks a lot like Decred.
Decred, a crypto currency project launched in February 2016, shares many similarities with Bitcoin. The developers of Decred were themselves early supporters of the Bitcoin project. It differs from Bitcoin however in the way in which it seeks to establish consensus for decisions that relate to development of the blockchain.
The problems with Bitcoin and consensus are well-publicised. The most notable of these have resulted in several hard forks of the Bitcoin blockchain. Developers, miners and other community members have struggled to agree on the direction of the project going forward. Jake Yocom-Piatt sees this lack of efficient consensus formation as a critical weakness of the Bitcoin project. Decred was launched as an attempt to create a crypto currency that tackled these problems from the outset.
The most obvious way in which Decred differs from Bitcoin is that where Bitcoin employs Proof of Work to verify transactions on the Bitcoin block chain, Decred utilises a hybrid Proof of Work - Proof of Stake system, sometimes referred to as Proof of Activity.
In this system miners are still employed to validate transactions and are rewarded with small amounts of Decred for each block that they successfully validate. In addition to Proof of Work mining however, a portion of Decred’s block validation is undertaken by a Proof of Stake system whereby holders of the Decred currency can stake their holdings in order to earn the right to vote on block validations. In return for staking their currency, Decred holders receive a portion of the block reward as payment.
While this might sound like an additional layer of complexity, what it’s actually about is decentralising control of the block chain.
As is commonly publicised with regard to Bitcoin, a small group of very large Bitcoin miners have enormous influence over development of the Bitcoin block chain. This can and does create a conflicts of interest. When proposals are put forward that may improve the efficiency or scalability of the Bitcoin block chain, it is unlikely that consensus will be reached where these changes reduce the profit the miners receive from their activities. In many cases even in the absence of conflicts of interest it is often extremely difficult to achieve consensus amongst such a diverse set of stakeholders.
It is this lack of consensus that has led to both delays in the implementation of block chain improvements such as segregated witness, and also the multitude of Bitcoin hard forks, where new currencies are created by groups of developers who are dissatisfied with the direction that the current Bitcoin block chain is headed.
Decred was designed from the beginning to overcome this style of decision-making inertia.
When the product was launched, 8% of the tokens were pre-mined and a significant portion of these were air dropped to create a truly decentralised starting point from which to begin development. The hybrid Proof of Work - Proof of Stake consensus mechanism also makes it significantly easier for controversial proposals to be decided upon. In June 2017, Decred was able to pass a protocol adjusting the Decred consensus algorithm in a way that reduced the block reward received by Decred’s miners. This style of proposal would never be successful in the Bitcoin community due to the vested interests of the powerful players concerned. Jake Yocom-Piatt believes that Decred much more closely resembles the ideal that Satoshi Nakamoto envisaged than Bitcoin itself does today.
A Decentralised Autonomous Treasury
Another distinct difference between Decred and some of his peers is the way in which the project proposes to handle paying developers.
In the spirit of true community-based consensus decision-making Decred aims to completely autonomise the funding of development work on the block chain so that the community can guide the development of this project. 10% of every block mind is currently directed to the Decred Treasury where it is used to provide ongoing funding for developers. These funds are currently distributed manually by the project organisation.
By the end of 2018, Decred aims to have these funds managed by a Decentralised Autonomous Organisation (DAO) that will distribute funds in accordance with the direction given by the community through the Proof of Stake mechanism. Any developer will be able to put forward a proposal for development of the Decred block chain, and if a sufficient number of users in the community vote in support of this proposal then the DAO will automatically direct the appropriate level of funding to the new developer. This is a significant difference to many block chain projects where development funds are held by a central organisation and distributed in accordance with that organisation’s priorities. If the DAO is successful then funds will be automatically distributed in accordance with the community’s wishes, without any human interaction or oversight.
It remains to be seen whether this concept can be executed successfully, but it will be fascinating to watch it develop through the remainder of 2018. A common complaint amongst developers from projects as diverse as Bitcoin through Steemit is that the community has no say in the development of the block chain, and that development decisions are made with little regard to the community’s preferences. A Decentralised Autonomous Treasury, if successful, will go a long way to solving some of these concerns
Decred is a fascinating project. It is working in a number of areas of block chain development that have the potential to revolutionise the direction of block chain projects going forward. Proof of Stake and hybrid consensus making mechanisms are being explored by many projects, but Decred is at the forefront of implementing a real-time solution.
Similarly, its intent to completely decentralised decision-making amongst the Decred community is not unique, but this project is further down the path to implementation than many of its peers. When you consider that Decred is also at the forefront of development of successful atomic swaps (Decred and Litecoin successfully completed the first atomic swap in September 2017) and implementation of the Lighting Network this project represents something of a dark horse. It currently sits in 31st position in terms of total market capitalisation and few people are talking about it. Whether it is able to be successful as a viable digital medium of exchange into the future remains to be seen. With so much going on in the development community however, it is certainly a project to keep your eye on.