The Long-Term Bullish Case for Decred
Consider the humble beginnings of what is now the world’s largest Internet company…
That is pretty much what every cryptocurrency looks like today: slow, complicated, and barely usable.
What matters for a startup like Amazon in 1995 is not its features, but how fast and effectively it can improve them. Likewise, what matters for a cryptocurrency today is not what it can do right now, but how efficiently it can evolve and how reliably it can survive.
And that’s why I like Decred, a crypto asset that still flies largely under the radar. As a result of superior on-chain governance, Decred is likely more resilient and able to evolve more efficiently. I suspect that Decred is selling at a discount relative to its peers because it has invested little in marketing, trades on fewer exchanges, and has less obvious advantages.
Decred focuses on more distributed and sustainable governance. Unlike Bitcoin and most other cryptocurrencies which use only Proof of Work, Decred uses a hybrid of both Proof of Work AND Proof of Stake. So both miners and coin holders are compensated for helping maintain and secure the network.
If you stake your Decred holdings, you earn dividends (block rewards in DCR) and voting rights. So as a coin holder, you have a say over the direction of the network and are compensated for your participation. In addition to miners and validators, developers receive a portion of block rewards. As Decred Project Lead Jake Yocom-Piatt wrote,
By allocating 10% of each block subsidy to the development fund, continuous development and improvement of the software is possible without the conflicts of interest present in current Bitcoin Core (BC) development process.
Distributing rewards and voting power serves as a check and balance against any single party hogging control of the network. It helps distribute power among miners, coin holders, and developers and minimizes the risk of contentious forks.
Better governance may not be as obvious an advantage as say faster transactions or stronger privacy. But perhaps it is more important as it’s a sort of meta feature: without good governance you might not survive long enough or maintain enough trust and participation to effectively built in other features. As Placeholder.vc recently wrote,
Decred’s killer feature is good governance, and with good governance, you can have any feature you want.
And governance may be the most important thing to get right out of the gate. While you can always add in speed and privacy improvements (Decred’s working on both), you can’t just wake up one day and decide to toss in better governance as it relies not just on protocol but on trust and community.
Blockchain is as much a social and political experiment as it is a technological one. The power of blockchain lies in its ability to organize human cooperation and economy in a way that is less centralized, censorable, and closed. So it makes sense to bet on protocols like Decred that are more decentralized.
Satoshi Nakamoto wrote in Bitcoin’s whitepaper:
We have proposed a system for electronic transactions without relying on trust.
Decred may actually better realize this vision since while individual transactions in Bitcoin don’t require trust, the progression of the network overtime, does. In contrast, every Decred participant in theory has a say over the direction of the network. Decred is closer to a purely peer-to-peer economy.
Nearly 50% of current supply of Decred is staked, which signals strong trust in the network and community involvement and means a lower circulating supply. Aside from the nice perk of getting ~15–20% annual return, staking creates a sense of involvement in the network. In the case of a major market crash, I suspect Decred would be a bit more resilient than many of its peers, as its average holder is probably more long-term focused and committed. And you can’t panic sell if your holdings are locked up.
A good rule of thumb is to look for coins that are harder to buy and less widely marketed, since one can expect a surge of demand when they become more publicized and easier to access on exchanges. Decred has done comparatively little marketing and remains unlisted on major exchanges like Binance, Bithumb, and Huobi.
I think any attempt to value crypto assets today is premature. Unlike the early days of the Internet, we are not just dealing with a new technology. We are dealing with a new asset class. Internet companies were still companies selling equity. Cryptocurrencies are not companies and they are not equities; they are something the world has never seen before.
Still, I think the Store of Value model of looking at gold (and offshore banking) as a proxy for how much capital wants to live in seizure-proof, non-sovereign, fixed-ish supply assets can be instructive. If Decred has even just a quarter of 1% chance of capturing this addressable market of a (conservatively) estimated seven trillion dollars , it should be worth ~18 billion. As of this writing, it’s market cap is ~700 million and about 177 times less than Bitcoin’s.
As the market matures and values coins more on the basis of technical merits and long-term resilience, Decred will likely surge into the top 10. And as Smart Money seeks to hedge its bet on Bitcoin, it will likely turn to coins that shine where Bitcoin falls short like Monero (privacy), Bitcoin Cash (speed), Ethereum (utility), and Decred (governance).
In the same way that information wants to live where it is more free and powerful — this is why it moved en masse from paper to protocol i.e., from the physical world to the Internet — Value wants to live where it is free and powerful, hence it’s mass migration from banks to blockchains. Is value more free and powerful on an oligarchical network controlled by a few or on a decentralized network like Decred where everyone has a say?
For more info: https://blog.decred.org/2018/02/28/2018-Decred-Roadmap/
As always just some thoughts, not investment advice.