What is Decred (DCR)? A comprehensive guide to the innovative cryptocurrency

What is Decred?

Decred is a cryptocurrency that originated from an early fork of the Bitcoin blockchain. It aims to advance technology for public benefit, particularly focusing on cryptocurrency technology. Decred's governance model is decentralized, allowing the community to vote for changes, in contrast to a centralized decision-making process by a team of developers. Explore Decred further to understand its objectives and how it sets itself apart from other cryptocurrencies.

History of Decred

Cryptocurrency began gaining traction and popularity following the release of Bitcoin in 2009. The concept of creating coins through cryptocurrency mining appealed to non-developers, enterprises, and investors. However, developers soon observed a trend towards centralization in mining, raising concerns about cryptocurrency's decentralized nature. In response, efforts were made to introduce and promote alternative forms of cryptocurrency that could avoid centralization.

Decred emerged from discussions in a Bitcointalk thread in 2013 about creating an alternative cryptocurrency. A whitepaper detailing a new cryptocurrency called Memcoin2 was published shortly thereafter. This concept was adopted by a company known as Company 0 and eventually launched in 2016 as Decred. Decred operates as a hybrid blockchain using both proof-of-work and proof-of-stake mechanisms, with its governance entrusted to the community through an on-chain voting system.

Decred evolution

Since its inception, Decred has undergone significant evolution. In 2017, the blockchain was upgraded to support atomic swaps, enabling the direct swapping or trading of cryptocurrencies from different blockchains. This development was notable as it permitted cryptocurrency users to exchange tokens without the need for a third-party exchange.

In 2019, Decred integrated the Lightning Network into its mainnet, enhancing its blockchain capabilities with smart contracts and off-chain transactions. This integration enabled Decred developers to create the Decred Decentralized Exchange (DEX), utilizing Decrediton, Decred's wallet, as the interface for users to exchange tokens without relying on a trusted third party.

The Decred DEX officially launched in October 2020, enabling the first direct trades between DCR and BTC (bitcoin) without the need for a centralized exchange.

In response to a centralization concern where a mining cartel had gained significant control over the Decred network, the community decided to switch its proof-of-work (PoW) algorithm to one that supports GPU mining in September 2023. This change appeared to have effectively removed the offending miners from the blockchain, as the network's hashrate dropped from approximately 66 petahashes per second (15 zeros) to between two and 11 terahashes per second (12 zeros) in the days following the switch.

The decrease in hashrate was attributed to the new algorithm's lack of support for mining pools, an issue that the developers subsequently addressed. Additionally, the switch rendered ASIC mining for DCR obsolete, at least until a compatible ASIC is developed.

What sets Decred apart from Bitcoin?

Decred, while stemming from a Bitcoin fork, diverges significantly in several key aspects:

• Community involvement: Decred's developers emphasize full decentralization, allowing anyone interested or invested in the project to influence its development. Users are encouraged to propose changes and contribute in any way they can.
• Community Governance: DCR holders can stake their coins to acquire tickets, enabling them to vote on blockchain changes, the Decred decentralized autonomous organization (DAO) budget, consensus rules, and block approvals. This approach ensures that the cryptocurrency is not controlled by any entity unless actively involved—referred to as proof-of-activity consensus.
• Hybrid consensus mechanisms: Decred uniquely utilizes both proof-of-work (PoW) and proof-of-stake (PoS) consensus mechanisms. The PoW consensus is similar to Bitcoin's, where miners process transactions to create new blocks. PoS allows coin holders to stake their coins to become voters, who can then purchase tickets to cast votes on various governance issues. This hybrid model aims to balance the influence of miners and coin holders in the network.
• Reward system: Decred's reward system is based on incentives, similar to Bitcoin and Ethereum. However, due to its hybrid consensus mechanisms, rewards are distributed differently. Miners receive 40.34% of the block reward, voters receive 49.63%, and the remaining 10% is allocated to the project's treasury fund for development.

Decred distinguishes itself by leveraging its user community to enhance the project, rather than relying solely on a few insiders. Security and adaptability are key goals, leading to the creation of the Politeia Proposal System. This system allows the community to propose and approve blockchain improvements, ensuring the chain remains secure and relevant. To avoid the "tragedy of the commons," where self-interest can undermine common goals, 10% of every block reward is allocated to the Project Treasury for funding. This funding mechanism prevents external parties from influencing the blockchain's direction. The community then votes on proposed changes using Politeia's "Reddit-style up/down voting system."

What is Decred used for?

Decred (DCR) is a cryptocurrency utilized for compensating blockchain and network participants for their contributions, such as processing transactions, validating blocks, and supporting the Decred project.

Is Decred a worthwhile cryptocurrency?

Whether Decred proves to be a valuable cryptocurrency hinges on your objectives for its use or involvement in the network. While DCR's market value has fluctuated from $28 to over $245, its purpose is not primarily for investment or speculation; instead, it is meant to function as a community-governed payment system.

In essence, Decred is a blockchain project striving to be a community-governed payment system, setting it apart from the governance models of other blockchains and cryptocurrencies. Established in 2013, Decred remains under active development as of December 2023.