Decred (DCR) is a proof-of-work (PoW) cryptocurrency that has the same coin supply as Bitcoin, but what differentiates it?
Decred is essentially “Bitcoin with governance”. Many analysts attempt to categorize coins by industries, and the Level 1 hierarchy usually has three categories: currencies, platforms and applications. Decred is a currency that aims to be a store of value and medium of exchange, while improving on some of the drawbacks of Bitcoin.
Value is ultimately given to currencies like Bitcoin and Decred due to their properties that make them “better money” than sovereign-backed fiat currencies. Money must serve three primary functions:
Be a Store of Value (SoV): Prerequisites include immunity to theft, credibly low inflation, and low cost of conversion. Cryptocurrencies are generally considered better stores of value than let’s say gold because there is no storage cost, reduced risk of physical theft because of multi-signature hardware storage, no capital control restriction (can cross the border with $10M in BTC but not $10M in gold), divisibility, a transparent fixed supply (new gold supply is found every year) and no counterparty risk.
Be a Medium of Exchange (MoE): Money has historically evolved into a medium of exchange after becoming a respected SoV. Purchasing power then stabilizes and the opportunity cost of exchanging the value diminishes. The ability to frictionlessly send payment, fungibility and security are precursors.
Be a Unit of Account (UoA): When money is used as a MoE goods will then be priced in its terms, which makes it an excellent UoA. Blockchain based currencies are exceptional units of account due to the transparency and immutability of the public ledger.
The appeal to using cryptocurrencies as money instead of fiat currency is that they can be defined as what we call “Sound Money”. Many economists agree that no perfect money exists in the world, and sound money is considered “closer to perfect” in an economic sense. Sound money is fungible, scarce, secure and uncensorable.
Cryptocurrencies meet this definition by doing as little as using a blockchain and having a fixed supply. For example, 1 DCR is fungible (no difference between each unit), scarce (fixed supply and transparent monetary policy), as well as secure and censor-resistant due to its decentralized blockchain properties and consensus model.
You can see why so many crypto projects (Dash, Verge, Bitcoin, Bitcoin Cash, Litecoin, Dogecoin, etc.) are trying to solve the problem of globalized currencies. The fact that the total addressable market for these projects is ‘all of the money in the world’ definitely isn’t a deterrent either.
History of Decred
The founders of Decred were early Bitcoin developers in 2013 and they quickly saw problems with the protocol that they wanted to solve. Their group of 6 founders were writing what is called “btcsuite”, which is an implementation of Bitcoin written in “Go” similar to how TCP/IP has several implementations. The idea was that multiple kinds of software would make Bitcoin stronger in the case there was a bug with one implementation, and today there are many forms including btcsuite, libBitcoin and Bitcoin core. These stacks all run just as there are multiple TCP/IP stacks running the Internet.
The founders realized that the Bitcoin community was not welcoming developers who weren’t running Bitcoin core, which led to them being shunned, apparently because they had dissenting interests.
Three main issues with Bitcoin were identified early on, including:
Project Governance: Bitcoin has been suffering from governance issues for years now – this is nothing new. Early on it was apparent that miners were going to be the decision makers, and that they may not have aligned incentives with token holders. Bitcoin was clearly forkable as well. We have seen with the block size increase issues, as well as SegWit2x, that Bitcoin has a big governance problem where token holders, developers, and miners can all have clashing opinions on the best course of action to take. A small group of developers at the time were deciding what would go into Bitcoin core, and these implementations needed to be carried out by the miners, so it was clear that a future development that the majority of miners didn’t agree with had the potential to get blocked.
Funding Development: Up until 2014 Bitcoin development was entirely donation-driven, and even today there are arguments on how to align development incentives with the interests of the token holders in an environment where developers are not compensated directly for their work. There is no system in place with Bitcoin where a developer can say “I want to be paid $X for contributing Y”.
Mining Power: Miners have the ability to do a “denial-of-service” on Bitcoin by mining empty or artificially sized (small) blocks. Miners are still compensated even if blocks have 0 transactions. Censorship risk…