Analysis of Dash Blockchain
In January 2014, Dash was launched by Evan Duffield who found the potentially incredible value of cryptocurrency but was unsatisfied with the situation of the most popular crypto — Bitcoin. Evan believed that there was a further way to improve upon Bitcoin. While Dash was based on Bitcoin, it is a new cryptocurrency with many innovate features, which made Dash a private cryptocurrency with tamper-proof instant transactions and a secondary peer-to-peer(P2P) network.
1. Consensus and Governance
Dash is an open-source cryptocurrency, and an altcoin forked from the Bitcoin protocol. Inherited from the original blockchain network, miners secure the blockchain through Proof of Work (PoW). The important added feature of Dash is the masternode network, which is a subset of users as a secondary network to facilitate many unique functions on Dash like PrivateSend, InstantSend, and DAO.
While the Proof-of-Work is applied to secure the blockchain through miners for regular transactions, Dash also uses Proof-of-Service done by masternodes to keep its unique functionalities to improve the anonymity and instant transaction features. Masternodes are paid by the block reward. In principle, 45% of the block reward goes to the masternodes, and 45% is paid to miners. The remaining 10% will go to the treasury budget. In practice, however, the block reward is paid out to miners and masternodes, each with 50%. But, every 16,616 blocks (approximately 30.29 days), a superblock is created with the entire 10% payout to the treasury budget. The Treasury budget is aimed at funding the Decentralized Autonomous Organization (DAO) on Dash. Between the superblocks, users can make a proposal to the network which will then be reviewed by the community. If the proposal receives approval votes from at least 10% of the masternodes, then the requested amount will be paid out in the next superblock.
2. Unique Features of Dash
Masternodes are a creative invention on the Dash network to help it build a newly decentralized platform associated many exciting functions without losing the original scale and functionality of the Bitcoin. PrivateSend and InstantSend are two of the most important implements. Transactions are made anonymously on Bitcoin, but they are not truly in privacy because there are possibilities for people to track the information. By implementing mixed transactions through masternodes, Dash creates PrivateSend to achieve a significant improvement in privacy. Also, the InstantSend function on Dash could make the transactions in store much faster.
The traditional strategy for keeping privacy is to merge transactions. However, the transactions could be traced through the amounts joined and back to the transaction information of users. Other attacks like “Forward Linking” and “Through Linking” can utilize the information on the public blockchain and the exchange to capture the entire history of users, which exposes people to potential risks and compromises the privacy on the whole blockchain. Attackers could keep track of users’ transactions by capture the amounts on the blockchain if they know the public identity of users. For instance, if someone knows your public key, then this person could track all transactions history of yours on the public ledger. He/she can know where you sent and how much you spent.
The PrivateSend service of Dash uses a mixing strategy to keep the transactions more private from the attacks above. The strategy requires three users to form a mixed pool. The counterparties for each user will be mixed as an output pool. Once the transactions are finalized through masternodes, each user needs to confirm and check the information of their transaction is accurate and then the mixed Dash will be sent to all the counterparties simultaneously. To the public view, the mixing transactions are bundled together and no direct link between accounts is visible. Thus, it’s hard to know the exact flow of Dash even with the knowledge of someone’s public address. The mixing can be done up to 16 times which makes the transactions almost impossible to trace.
If the transactions are made in the Bitcoin network, users must wait until the block is confirmed to make sure the transaction is valid. Suppose you’re using traditional cryptos like Bitcoin to make an in-store payment. You send 0.002 BTC for a soft drink. The cashier cannot confirm the transaction instantly because it takes time to verify the validity of your transaction. The waiting time could be 30–40 minutes or even longer given that the averaging block time is 10 minutes on the Bitcoin network.
The InstantSend on Dash, on the other hand, secures transactions instantly by using a distributed consensus with masternodes. When you send Dash through InstantSend, your transaction will be checked by random-selected masternodes and the amount specified is locked which means it cannot be spent on any other transactions. When the masternodes reach consensus on this transaction, they will broadcast the information to the whole network, effectively promising the transaction will be included in the subsequent blocks. By using InstantSend, users do not need to wait for the standard block confirmations and make transactions much faster. Compared to the Bitcoin network, one transaction can be executed in seconds through InstantSend. In the real world, it would become more convenient and easier when people settle the transactions in the flesh.
2.3. Decentralized Autonomous Organization (DAO)
Another important service done by masternodes is DAO. Many blockchains have DAOs, but most of them are run without a clear mechanism of incentives. Dash has been special by giving its DAO more incentives. As we mentioned, in theory, DAO of Dash will receive 10% of the block reward as its fund to benefit the entire Dash network. The objective of DAO is to fund those projects which users think valuable to the Dash network and to decide who to be hired to make Dash more attractive and successful.
3. Masternode Incentives
The masternodes, as a supporting layer for the network, are given new incentives and rewards as well as a balanced combination of obligation and services. To become a masternode, the operator is supposed to claim collateral for at least 1000 Dash. There are about 5092 masternodes now in the Dash network and, to have control over 50% on the masternode network, one must buy a substantial amount of Dash from the open market, which is expensive and make the attack costly.
As we mentioned in previous sections, masternodes will receive a fixed 45% of block reward as their incentive to serve the special features. The rewards will fluctuate given the size of the active masternodes set. We could calculate the earnings for running a masternode as follow:
- n is the number of masternodes an operator controls
- t is the total number of masternodes (currently around 5092)
- r is the current block reward (presently averaging about 3.34 DASH)
- b is the number of blocks in a day. (on average, 576 blocks a day).
- a is the average masternode payment (50% of the average block reward in practice)
We could calculate the ROI (return on investment) based on the formula above:
- The collateral for one master node: 1,000 Dash
- Daily Dash issuance: 3.34 * 576 = 1,923.84 Dash
- Masternodes’ share = 1,923.84 * 50% = 961.92 Dash
- Daily earnings of 1 masternode: (1/5092) * 961.92 Dash = 0.189 Dash
- Yearly token income: 0.189 * 365 = 68.99 Dash
- Yearly ROI: 68.99 / 1,000 = 6.89%
As shown in the calculations above, holding one masternode on the Dash network could get a yearly ROI of 6.89%. With 1000 Dash as the collateral, one can get approximately 69 Dash as the return. It is worth noting that the block reward on Dash will decrease by 7.14% every 210,240 blocks (approx. 383.25 days) which will affect ROI. Different from other PoS networks, additional Dash token collateral on a single masternode will not affect the earnings of masternodes. Therefore, to guarantee the highest return possible, investors should hold as many masternodes as possible.
Dash, as the abbreviation of “Digital Cash”, has become more and more popular in today’s cryptocurrency world. As forked from the Bitcoin, Dash not only retains the great properties of the Bitcoin but also gets enhanced in multiple ways. As an open-source peer-to-peer cryptocurrency, Dash makes the transactions more applicable in the real-world implementations. The high-level privacy and low-latency transaction will strengthen the competitive advantage of Dash in the crypto world.
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