Article 2. Re-imagining Governance in Blockchain Projects
By Amalgam Staff.
There are more than 2000 cryptocurrencies currently in existence as of this writing.[1]. For this article, we wanted to spend our time on one project which has recently caught our attention: Decred (decentralized credit).[2].
We wanted to focus on Decred for this issue because Decred focuses on decentralized governance, and its potential applicability to other decentralized governance platforms. [2].
What is Decred?
Decred is an open-source, autonomous digital currency project started in 2016 to solve governance and decision-making issues in blockchain projects. [2]. The ultimate end goal is to create an autonomous cryptocurrency that improves based on the input of all community members.[3].
Total Supply
Decred’s total supply of its autonomous cryptocurrency, DCR, is 21 million, the same as Bitcoin. [2].
Decred Principles
Decred is bound by the following principles:
- “free and open-source software;
- incremental privacy and security;
- free speech and consideration; and
- multi-stakeholder inclusivity.” [2]
Decred Platform Features
Decred proposes the following features will be available on its platform, if not already:
- “An innovative hybrid proof-of-work (PoW) proof-of-stake (PoS) consensus voting system;
- A censorship-resistant blockchain-anchored public proposal platform;
- Smart contracts that work such as Lightning Network;
- Cross-chain atomic swaps between different digital currencies; and
- Cross-platform wallets for ease of use.” [2]
Subsidiary Fund
One of the many things that impressed us about Decred is their community decision-making. [4]. By reserving 10% of the block reward in a subsidiary wallet, Decred has already allocated funds to sustain the project’s long-term growth. [4].
Even beyond the subsidiary fund, the major challenge with any funds reserve is how will it be managed.[4].
Decred recently addressed the management of the subsidiary fund, and its overall governance through the recent release of its Politiea (Pi) project , a censorship-resistant proposal platform, anchored to the Decred blockchain for time-stamping.[4][5].
Decred’s Consensus Model
Decred uses a hybrid governance model of Proof-of-Work (PoW) and Proof-of-Stake (PoS). [3][4].
PoW will account for 60% of the block reward, PoS will account for 30% of the block reward, and the remaining 10% of the block reward is reserved in a subsidy wallet for project funding. [3][4].
The Decred blockchain requires all blocks to be mined (PoW) and “ratified by at least three stakers” (PoS). [3].
Mining and Staking
Mining on the Decred blockchain works similarly to that of Bitcoin’s mining protocol, where computers try to solve the nonce to the PoW problem. [3].
To stake DCR, a DCR user must lockup their DCR to buy tickets.[3][4]. Upon buying tickets, users are asked to cast their ballot on any open issues. [4]. Once tickets have been purchased, the user must wait for the tickets to be mined on-chain, and if mined, will have to wait until their tickets have matured (256 blocks have passed since the user’s tickets were mined). [3][4].
Once a user’s tickets have matured, the user has a 50% chance of being selected to vote within 28 days and a 99.5% chance of being selected to vote within 4 months.[3][4]. If the user has not voted on their tickets within 4 months, the tickets can be revoked and the DCR returned to the user. [3][4].
Voting Protocol
As mentioned earlier, Decred decentralizes its voting protocol through its hybrid model. [3][4]. With the hybrid model, any improvements to the Decred blockchain software will require the votes of miners (PoW) and stakers (PoS) before the improvement is activated. [3][4].
Anyone can submit a proposal, which will then be evaluated by the Decred Assembly, “a set of Decred users who have been vetted and voted into the council.”[3].
Decred voting on improvements takes a four-step approach. [3].
First, if the improvement is approved, the improvement will be added as “dormant code,” i.e., inactive code, to a new version of Decred’s software. [3].
Second, the super-majority (> 50%) of nodes must upgrade to the new Decred software. [3].
Third, voting begins when the “‘upgrade threshold,’” which is when “95% of the past 1000 blocks have been mined with [the updated software] and 75% of the verifying votes on the past 2016 blocks have the updated [software]” has been met. [3].
Lastly, voting on the improvement lasts ~28 days, and ends “when 40,320 votes are cast or 8064 blocks transpire.” [3].
Agenda items (items involving improvements) require a 75% super-majority to pass. [3]. If unsuccessful, voting is restarted at the next voting period and voted on until either it successfully passes or the agenda item expires. [3]. Once successful, the dormant code can be activated immediately. [3]
What’s a “Fork” without a “Knife?”
Decred’s voting protocol allows it to avoid hard forks (i.e., major improvements to the blockchain) without community approval.[4]. The Decred community is made up of multiple stakeholders, thereby reducing the chances of centralization of the improvement process.[4].
Decred’s voting protocol, and even its own existence, is tied to Bitcoin’s improvement process.[4].
Bitcoin’s improvement decision-making has become increasingly centralized with large Chinese mining companies (about 4 Chinese mining pools have half of the network’s computational power, and Chinese mining pools make up 80% of all Bitcoin mining pools) having the final say in the improvement process because of their mining power. [3][7][8]. Further, any proposed improvements can be extremely contentious and divide the Bitcoin community. 4][9].
These internal issues regarding Bitcoin’s improvement decision-making reared its ugly head during Bitcoin’s SegWit2x hard fork proposal, which led to divisions within the Bitcoin community and ultimately, the BitcoinCash hard fork. [4][9].
Decred wants to avoid the improvement bottleneck that has plagued Bitcoin by providing a knife (i.e., Decred’s voting protocol) to proposed forks. [3][4]. By doing so, the Decred development community is less likely to become scattered because of internal divisions, and technical and financial resources stay within the project. [3][4].
Conclusion
Decred is an interesting project which focuses on decentralized governance.
We wanted to highlight Decred because decentralized systems are a keen attribute of blockchain projects, and generally are more inline with co-operative principles.
We hope the best to the Decred project’s progress on Pi and other endeavors to make decentralized governance, achievable in the cryptocurrency and blockchain ecosystem. [3].
References
[1] CoinMarketCap, All Cryptocurrencies, https://coinmarketcap.com/all/views/all/.
[2] Decred, https://www.decred.org/.
[3] Bennett Garner, What is Decred? The Lowdown on Decentralized Blockchain Governance, Coin Central, https://coincentral.com/decred-lowdown-decentralized-blockchain-governance/, Dec. 10, 2017.
[4] Richard Red, Governance of the Decred project subsidy through Politeia, Medium, https://medium.com/decred/governance-of-the-decred-project-subsidy-through-politeia-e6393b2bab1f, Mar. 5, 2018.
[5] Politiea, https://test-proposals.decred.org/.
[6] Olusegun Ogundeji, Bitcoin’s Possible Privatization: Has Blockstream Created Problem to Provide Solution?, CoinTelegraph, https://cointelegraph.com/news/bitcoins-possible-privatization-has-blockstream-created-problem-to-provide-solution, Jul. 07, 2016.
[7] Alexandre Wanlin, Why mining pool concentration is the Achilles’ heel of Bitcoin?, Medium: Hackernoon, https://hackernoon.com/why-mining-pool-concentration-is-the-achilles-heel-of-bitcoin-ce91089ce1f, Feb. 19, 2018.
[8] Nathaniel Popper, How China Took Center Stage in Bitcoin’s Civil War, N.Y. Times: Dealbook, https://www.nytimes.com/2016/07/03/business/dealbook/bitcoin-china.html, Jun. 29, 2016.
[9] David Z. Morris, Bitcoin Just Avoided a Massive Breakup, But It’s Getting a Little One Instead, Fortune, http://fortune.com/2017/07/30/bitcoin-cash-fork/, Jul. 30, 2017.
