Decred (DCR)

What Is Decred?

Decred is a cryptocurrency based on an early Bitcoin blockchain fork. Decred got its start in 2013 in a Bitcointalk thread about creating an altcoin. A whitepaper describing a new cryptocurrency called Memcoin₂ was published shortly after the discussion. It was picked up by a company named Company 0 and launched in 2016 as Decred.

Decred uses a hybrid model of the proof-of-work and proof-of-stake consensus mechanisms to secure its blockchain.

Learn more about Decred, its purpose, and how it is different from other cryptocurrencies.

Understanding Decred

Decred is a cryptocurrency and blockchain designed "to develop technology for the public benefit, with a primary focus on cryptocurrency technology." It is also intended to decentralize its governance by allowing the community to vote for changes rather than only a team of developers who decide which direction a cryptocurrency can take.

Early History

Cryptocurrency was gaining in popularity and traction after Bitcoin's release in 2009. Creating coins through cryptocurrency mining became popular with non-developers, enterprises, and interested investors. Developers began to notice that mining was becoming more centralized; there was a chance that cryptocurrency would not remain as decentralized as intended. As a result, many were trying to find ways to introduce and popularize cryptocurrency that circumvented the looming centralization.

In 2013, Memcoin₂ was introduced to the cryptocurrency community via the Bitcointalk forum, where all cryptocurrencies were announced. In 2014, the Memcoin₂ project was adopted by Company 0, and Decred development began in earnest.

In 2016, Company 0 launched Decred—a PoW and PoS hybrid blockchain governed by the community via an on-chain voting process.

Evolution

Decred has evolved since its introduction in 2016. In 2017, the blockchain was adapted to allow for atomic swaps—the ability for cryptocurrencies from different blockchains to be swapped or traded by users. This was significant because it allowed cryptocurrency users to exchange tokens without using a third-party exchange.

In 2019, Decred implemented the Lightning Network on its mainnet to add smart contracts and off-chain transactions to its arsenal of blockchain tools. The Lightning Network then allowed Decred developers to create the Decred Decentralized Exchange (DEX), which allowed Decrediton—Decred's wallet—to become the interface that allowed users to exchange tokens without a trusted third party.

In October 2020, The Decred DEX launched, allowing for the first trades between DCR and BTC (bitcoin) without an exchange facilitating the trade.

How Is Decred Different From Bitcoin?

While Decred is a Bitcoin fork, it is significantly different in many aspects. Some of the key differences include:

• Community involvement
• Community governance
• A hybrid of two consensus algorithms
• A different reward system

Community Involvement

Developers behind Decred believe that cryptocurrency is supposed to be fully decentralized so that anyone interested or has a stake should be able to influence how it is developed. Therefore, users are encouraged to propose changes and become involved in the development in whatever way they can contribute.

Community Governance

To this end, DCR holders can stake their coins to acquire tickets that allow them to vote on changes to the blockchain, the Decred decentralized autonomous organization (DAO) budget, consensus rules, and block approvals. This approach ensures that no entity controls the cryptocurrency unless they are involved—this is commonly called proof-of-activity consensus.

Hybrid of Mechanisms

One of the most notable attributes of Decred is that it uses proof-of-work and proof-of-stake consensus. Decred's PoW consensus works virtually the same way as Bitcoin's—miners process network transactions to open new blocks for the blockchain. The miner receives the transaction fees and the block reward when a block is opened.

Coin holders can stake their coins to become voters. Voters—called stakeholders—can purchase tickets to cast votes for block approval or other governance issues. Multiple tickets can be bought and used. Tickets are mined into a block at random in increments of 20 tickets. The tickets only last around 20 hours while waiting for a vote from the ticket holders. Stakeholders must join a Voting Service Provider (VSP), which casts votes on behalf of the ticket holders.

Reward System

Because Decred is an incentive-based cryptocurrency that uses proof for consensus, it has a reward system similar to that of Bitcoin and Ethereum. The key difference for Decred is that because it uses two consensus mechanisms, it rewards network participants differently. Miners, whose job it is to process transactions, receive 60% of the block reward. Stakeholders receive 30% of the reward, and the remaining 10% is sent to the project's treasury fund development.

Goals of Decred

Decred is innovative in that it attempts to improve upon other cryptocurrencies and blockchains by harnessing the power of its community of users rather than relying on only a few insiders to enhance the project.

The blockchain's overarching goals are to ensure that the chain and users remain secure. Adaptability is essential for the blockchain to stay relevant. Decred has a built-in system called the Politeia Proposal System that allows the community to submit and approve proposals for blockchain improvements.

The Decred design solves the tragedy of the commons, in which self-interest becomes prevalent in any common enterprise no matter the design and intent. To keep the project from falling into this trap, 10% of every block reward goes into the Project Treasury for funding; no other sources of financing are accepted. This ensures that no parties can influence the blockchain's direction through funding. The community then votes through Politeia to implement or deny changes.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.01 bitcoin.