A beginner’s guide to Decred

What is Decred?

According to the Decred website, “Decred is an open and progressive cryptocurrency with a system of community-based governance integrated into its blockchain.” Bitcoin paved the way for cryptocurrencies in 2009 and there are a number of groups that have subsequently branched off to start new coins. One example is Decred which is a fork of Bitcoin with its own unique differences. This post should help those who are new to Decred to understand how it is different than other cryptocurrencies like Bitcoin.

Comparison

Bitcoin mining (the way new coins are generated) is extremely competitive and requires cheap or free electricity and specialized hardware called Application Specific Integrated Circuit (ASIC) miners. These are expensive machines built specifically for mining and won’t be able to be used for anything else. Due to this resource intensive algorithm called Proof of Work (PoW), a concentrated group of miners hold a significant amount of power in Bitcoin. Decred attempts to create a better balance of power between miners and users by allowing users who don’t own a miner to participate directly in the network consensus and act as a check on miners. That involves a hybrid consensus mechanism of both PoW and Proof of Stake (PoS).

In Decred PoS, token holders can validate transactions virtually to receive rewards as well as vote on network proposals. This allows token holders to have a direct say in the progression of the project which aligns incentives. Stakeholders lock up their Decred tokens in return for a ticket that, when randomly selected, allow the ticket holder to act as a block validator. In Decred, 60% of newly generated tokens go to the PoW miners, 30% to PoS voters, and 10% towards a development subsidy whereas for Bitcoin, 100% of the reward goes to the PoW miners. Through this differentiated setup of funds set aside towards a development subsidy, Decred allows developers to get paid for their work on proposals if the community approves the payout.

Both Bitcoin and Decred have a total supply of 21 million coins. In Decred, 8% was pre-mined with an even split between 4% distributed in an airdrop and 4% used for paying back costs for Company 0 and individual developers initially funding the project. The airdrop involved giving free tokens to selected individuals who had registered for the airdrop event in advance. This was done to create a wider distribution of tokens and encourage greater participation from the community.

Atomic Swap

One major announcement from Decred recently was that Decred and Litecoin completed an on-chain atomic swap which directly enables peer to peer trading. While this doesn’t substitute for some features that exchanges can offer such as high frequency trading, it allows holders of Decred and Litecoin to do over the counter (OTC) trades without needing to trust a third party.

Resources

Decred provides unique features that are not currently available to Bitcoin and has a strong focus on development. Below are some links that may help you understand Decred further and keep up with the development.

Understanding Decred

Keeping up with Decred

Thank you to Will Warren and Jordan Clifford for reviewing this post.