Decred Iterates Where Bitcoin is Weak or Broken
Digital currency challenges the old ideas of value & exchange value because of new propositions made possible by technology; propositions that are at least equal to & often vastly superior to gold & fiat. The paradigm shift that is intrinsic to this digital landscape could not exist before its creation. This ability for a fully auditable, politicly egalitarian, and fair financial markets, finally exists. It is here where Decred iterates substantially, where BTC lacked foresight & or where, whoever controls the BTC code, has deliberately abandoned its mission.
It is the wish of this author to highlight the differentiation between Decred & BTC. It is vital, however, to compare where these two assets are also equal. We will explore these commonalities below in the Sound Money section.
It is beyond this article's scope to deep dive into the math or the finer points of the upcoming subjects presented below. Please refer to the embedded links as the devil, admittedly, is in both the math & the details. I wish not to make unsubstantiated claims & want to be corrected, should I be wrong.
This author believes that Decred represents cryptos' best chance at achieving BTCs original mission. That is, to be a Private, P2P, Electronic Cash, as presented in BTCs whitepaper. Let's make clear that A) those are Satoshi's words, B) that Privacy still needs fixing & C) a project, whether Decred or not, will step up to fill that void.
Remember, without Privacy, neither Freedom, Censorship-Resistance nor Fungibility can be achieved.
The core tenet of cryptography is secrecy. It is in the definition & it has been made explicit in the BTC whitepaper. Cryptography is code. Code is a secret. A secret is information we wish to keep private. Cryptocurrency then is the currency in which we hold the transactions private between two parties. Most of us agree that privacy is a fundamental human right & that privacy is what BTC attempted to fix. It is also where it has empirically failed. We will explore privacy later in this thesis.
However, what has become BTCs most significant talking point is the SOV (Store of Value) narrative that has emerged post introduction of the whitepaper. The current development teams for BTC are intentionally overlooking BTCs stated objective, Privacy. This does not negate BTCs original parallel goal of being a private MOE (Medium of Exchange); even, if current developers & thought leaders intend to change the mission, become regulated (Saylor & Company), & spin the narrative; one would reasonably assume for their own devices (to protect their existing wealth), or their inability to deliver the necessary code, wish clearly can be achieved.
Granted, to be a MOE, you have to be an SOV. This author would agree. Again, this does not negate BTCs original objectives. More importantly, our goal as sovereign individuals & that of Sound Money requires privacy for economic empowerment & both intellectual & creative development.
Yes, creative development; because without privacy, or said another way, while under observation, humans will change their behavior not to bear the wrath & or appease those observing. That is empirical.
Regardless, without security, there is no Store of Value or Medium of Exchange. So, let's start with security.
Security: The cost to attack DCR is 16- 22x stronger than BTC given equal market share, adding massive value at the Security Layer, making Decred a demonstratively stronger SOV than BTC. Decred achieves this feat using a hybrid consensus mechanism, utilizing both POW & POS, since 2016.
The math to prove this statement is presented in these two links:
https://medium.com/@_Checkmatey_/decred-hypersecure-unforgeably-scarce-e076b91a2be
https://medium.com/coinmonks/comparing-double-spend-resistance-decred-vs-bitcoin-part-1-330c8081b2a9
POS's staking process creates a second layer of security that must be compromised in conjunction with POW to attack the network.
It's that simple.
SOV: Circling back to the SOV narrative, it is first achieved by way of security. POS also allows those who participate to receive yield through staking rewards without having to give up custody.
The largest fixed income markets in the world, seeking to keep up with inflation, or, said another way, achieve a SOV, have traditionally been the Bond markets. With those markets currently providing (real) negative interest rates, endowments, pensions, sovereign wealth funds & others who wish to participate in fixed income markets have no place to park their money without speculating & entrusting 3rd parties. Through staking, Decred guarantees yield, executed by code, just as treasury notes have in the past. With a far less maturation time & without having to give up custody.
This staking process creates both a redundant, 2nd layer of security & provides stakeholders with yield, which provides a SOV in the way traditional bond instruments have for centuries.
This 2nd layer is also integral to the governance features that Decred has & BTC lacks & will be vital to both the retail investor & the larger institutions mentioned above. So, let's move on to Governance.
Governance: When we reach an agreement with a group, it is called consensus. Once we agree upon how we reach an agreement (or consensus), this communication tool will be the most potent communication form the world has ever seen. It should include your opinion.
If a group doesn't value your opinion, then those determinations are being made by a small party. Game theory & human nature would suggest that those decisions would benefit those in power at the expense of those excluded. History has empirically confirmed this proclamation.
Decred doesn't so much value your opinion as it precisely weighs your opinion, includes it in the collective intelligence pool & executes consensus as mandated by code. With Decred, Code is Law. Not the whims or politics of a select few who would rather you have no participation.
As it allows in Decred, Proof of Stake (POS) gives stakeholders the ability to Submit Proposals, Vote on EVERY Proposal, Vote on EVERY Consensus Change, & Vote on EVERY DCR spent from the Self-Funding Treasury. Votes are weighted precisely by the ethos of Skin In The Game.
Not valid for BTC. Why? Because their governance by "rough consensus" excludes you. What I imply is, if you are excluded from the process of governance, as you are with the monetary policies of the Federal Reserve, the ECB, & the IMF, then by definition, the protocol is centralized, leaving these decisions to a minority.
Centralization: These questions bring us to the issue of centralization. If stakeholders do not have a say in the project, it's fair to say that BTC is centralized by definition. A core principle to achieve Sound Money's objectives is to eliminate the distillation of power by a minority. Decred achieves this by allowing anyone holding $DCR to submit proposals & vote on all submissions. That is Decentralization.
Politeia: Within weeks of a proposal being submitted & debated, stakeholders of Decred can vote on said proposal. A supermajority vote is required to pass after a quorum has been reached (75% for consensus changes & 60% for everything else), at which time, the agreed-upon code executes the proposals' objectives & treasury spending, should funding be required. This takes weeks instead of years &, more importantly, includes your input. Execution of the stakeholder's mandate is executed by code & dismisses human intervention.
Who is in charge of these exact determinations (monetary policy, consensus changes, proposals, etc.) for BTC? How is BTC funded? Third parties. Two constituencies influence BTC. Miners who are mostly government subsidized & private capital from MIT Media Labs & Blockstream (amongst others) provide the majority of funding for BTC development. Third parties, as we know, are security holes & seek returns on their investment at everybody's expense. This author is not the first to notice.
If you are not part of those organizations, this leaves your interests where? In their hands, out of the loop & at their mercy. Precisely like the legacy regimes we live under today.
The removal of third parties is the stated objective the BTC whitepaper wished to abolish. Absolute power corrupts absolutely & serves those who wield it. Not you. This time is not different. Politeia puts the influence squarely in the hands of the stakeholders.
An argument that you hear incessantly against this philosophy of your inclusion is that not everyone should be voting on topics they don't understand. Fair. Who then decides what you don't understand? The argument is an insult to your intelligence. Should you not understand an issue, you can always abstain or research the topic until you do.
Distribution: Decred has achieved a Network Distribution Factor (NDF) that is 2nd in crypto, placing right behind BTC. Consider that Coin Market Cap lists over 4600 coins. The difference between the two assets is trivial & will narrow as time moves forward. The NDF is calculated by assessing the aggregate supply in addresses holding more than 0.01% of a crypto asset's supply and dividing that figure by the total supply. There are not another two more fairly distributed assets in the world. https://coinmetrics.io/bitcoin-an-unprecedented-experiment-in-fair-distribution/
Self-Funding Decentralized Treasury: We have established that outside money & interests have funded the development of BTC. All development in Decred is paid in DCR. The POW Block Reward distributes 10% of the reward to the Fully Decentralized Treasury. The Treasury is controlled by the stakeholders & no one else. When a contractor submits a proposal for funding, stakeholders vote & should the proposal pass, the code executes the distribution of DCR to the appropriate parties. Imagine that. Holders of the coin decide what is suitable for the protocol—not outside business interests.
Privacy, Censorship-Resistance & Fungibility: A core tenet of cryptography is privacy (by definition). It is made explicit in the BTC whitepaper.
Without privacy, BTCs value propositions of Censorship-Resistance & Fungibility are unattainable. If they can track it, they can censor it.
https://blog.sethforprivacy.com/posts/fungibility-graveyard/
BTC wished to retain privacy by trading p2p & eliminating 3rd parties. That, as I will continue to establish, did not remain to be the case. Today DEXs wish to resolve this problem & Decred is ahead of the curve, as described below. For BTC, however, this does not eliminate the issue of taint & ongoing surveillance of every transaction on the chain.
BTC proponents indeed recognize this & have created a solution. Unfortunately, it again requires a 3rd party (the very scourge Satoshi aimed to eliminate) & a hefty sum of your BTC.
The tech is called mixing. It is the means used by third-party wallets Wasabi & Samurai.
Decred solves this issue by including a mixer on Decred's base layer (L1). Without the user having to give up custody with a native mixer called StakeShuffle++. What's more, its cost is decidedly marginal. That last point is vital. If the anonymity restraints extract too much value as not worth the bother, then the populace won't utilize the tech.
That problem is already playing out in real-time. For this tech to be effective requires a large anonymity set. "Few" are using these mixers.
Decred, however, mixes more in a day than these 3rd party mixing wallets (for-profit companies) combined in a month. Over 60% of the circulating supply of Decred has already been mixed, compared to less than 1% for BTC.
Privacy is the biggest issue in the space. Stronger privacy assurances on the base layer are slated to come to Decred. https://blog.decred.org/2019/08/28/Iterating-Privacy/
These assurances will require consensus changes. Those changes will only be approved if 75% of the stakeholders formally agree to these changes.
If & when similar changes are proposed for BTC, it is widely agreed that a power struggle will ensue & a chain split will emerge as there are no formal agreement mechanisms to change consensus for BTC. At least not one that includes your vote, opinion, or input.
This will result in two BTC camps & hence a contentious hard fork is a certainty in BTCs future.
Decred, through its governance policy, the policy that includes your weighted opinion on all matters, including monetary policy, is Hard-Fork resistant. In its six years, Decred has never seen a Chain-Split.
Most everyone values privacy—those who do not, want to control you, your behavior & financial destiny.
All of BTC's value propositions, minus the hard cap, are unachievable without Privacy on L1 (most notably Censorship Resistance). Decred has it (Privacy); it is easily accessed in Decred's native wallet, On-Chain & at a Negligible Cost to the user.
Should you wish to mix BTC, you must first find a 3rd party & pay handsomely.
P2P Exchange: Satoshi opens the whitepaper with: "A purely p2p version of electronic cash would allow online payments to be sent from one party to another without going through a financial institution." P2P is as integral to privacy as base layer assurances.
Perhaps what Satoshi overlooked was that the easiest way to exchange BTC was through centralized brokerages. These exchanges co-opted the protocol. They are only allowed to operate under strict regulation. These regulators require that all your information be made non-secret.
Decred solves yet another weakness of BTC with the KYC-less DCRDEX, using the technology of Atomic Swaps. By the end of Q3 2022, interoperability will enable all ERC20 Tokens & BTC forks to be traded seamlessly without trading fees. The first Atomic Swap has already occurred between DCR & LTC in 2018 & is already in everyday use for CLI users of Decrediton for exchange between DCR & BTC. Development of a GUI has already been added to Decrediton Wallet. XMR will be soon to follow.
To be fair, one can trade BTC p2p; however, that is not how the exchange is practiced with BTC today. Worse, the practice of using 3rd parties has led to the majority of BTC having been traded on exchanges to become "tainted." Firms such as Chainalysis & Cipher Trace are contracted to do this work for nation-states & private businesses alike. Every BTC that has been traded through 3rd parties has been marked & is under surveillance. Is that what you signed up for? To be surveilled.
MOE: As a medium of exchange, Decred leads once more with the development of LND, also achieving this feat in its native wallet, Decrediton. The Decred team wrote the original implementation of LND for BTC & is currently the leading implementation to scaling cryptocurrency. Ahead of the curve again, Decred beats BTC to the punch providing an intuitive & elegant GUI once again in Decrediton. Opening channels between 2 parties is seamless.
However, challenges still exist on a commercial level. It should be noted that not everybody is sold on LND & there is a competition to solve the scaling issue. Decred's ability to adapt, should other scaling solutions become available, is light years faster than BTC using the most demonstratively decentralized governance protocol in crypto. If another credible answer presents itself, proposals will be submitted & voted on by stakeholders. Should the proposal pass, work will begin immediately.
Sound Money: Here, I will copy & paste Wally Hansen's summary of Sound Money from his work, Decred: An Investment Thesis below. This link is his thesis in its entirety: https://medium.com/coinmonks/decred-an-investment-thesis-bf9ba3cd1042
I will also add before I finish, that Decred outperforms Bitcoin on Privacy, Censorship Resistance & Fungibility & hence, Freedom & Sovereignty.
BTC wins the established history category; however, neither protocol has enough history to determine a definite outcome.
Every other category is dead even. But who cares if you are being surveilled with the threat of censorship?
I will also remind the reader that Sound Money's objective, should be to eliminate the power & tyranny of the minority. Decred returns your freedom & sovereignty & empowers the values & inherent rights that are common to all of us. Not just a few.
Thanks for reading.
Decred: An Investment Thesis. By Wally Hansen (The Attributes of Sound Money Section):
The Decred project is relatively new having launched in 2016 and comes from the same roots and aspirations as Bitcoin to achieve sound money in an unsound world. Sound money is a form of money that is scarce, programmable, and censorship-resistant (outside the control of a governing body). It is money that has purchasing power determined solely by the intrinsic value attributed to it from the markets. Whereas easy money (fiat) can have its supply expanded by central banks and the governments who govern them, sound money is hard and resilient against having its value inflated away over time.
Durable. The good must not be perishable or easily destroyed. If your wealth was stored in apples, you likely wouldn't be wealthy for very long.
Decred checks this box rather easily, as its existence as a digitally-native asset (via DCR) through code makes it highly-durable and resistant to weather, physical attacks, seizure, etc. Additionally, the Decred blockchain has proven itself secure since launching in 2016, and its hybrid PoW/PoS consensus mechanism makes the prospects of a successful attack on it incredibly difficult. This will only strengthen with time and scale, giving it the potential to display the type of anti-fragility needed out of a store of value good.
Portable. The good must be easy to transport and store, making it possible to secure it against loss or theft and allowing it to facilitate long-distance trade.
· As a digital asset, DCR is extremely portable, as it is possible to send/trade from one end of the world to the other in a matter of minutes.
Fungible. The good should be interchangeable with another of equal quality. Without fungibility, the coincidence of wants problem remains unsolved.
· In Decred, fungibility refers to the truth that all DCR have the same value, regardless of who owns them or what their history yet.
Verifiable. The good must be easy to quickly identify and verify as authentic. Easy verification increases the confidence of its recipient in trade and increases the likelihood a trade will be completed.
· On the Decred blockchain, transactions are verified by network nodes through cryptography and recorded on the blockchain's public distributed ledger. Every transaction can be verified by anyone accessing the network, and this is often done within seconds/minutes of submitting a transaction to the blockchain.
Divisible. The good must be easy to subdivide. This attribute has become more important over time, as trade within society has grown immeasurably over thousands of years and the quantities exchanged have become smaller and more precise.
· One DCR can be divided down to eight decimal places. Therefore, 0.00000001 DCR is the smallest amount that can be handled in a transaction as currently constructed. For those wondering, it would require 1 DCR to cost $100,000,000 in USD for 0.00000001 DCR to equal one cent; this assumes all DCR are in circulation.
Scarce. A monetary good must have "unforgeable costliness," meaning it must not be abundant or easy to either obtain or produce in quantity. This is perhaps the most important attribute of a store of value, and certainly so when competing against the other options in the market today (e.g., the USD Dollar).
· Decred has been programmed to only ever produce 21,000,000 DCR, making it scarce and, if demand increases, an asset that taps into the innate human desire to collect what is rare. This is also the core characteristic that distinguishes Decred from fiat currency, specifically fiat whose issuance is controlled by a central bank or governing body. Programmed scarcity guarantees that stakeholders of Decred can easily understand exactly how their purchasing power has and will change over time. Additionally, with over 50% of all circulating DCR supply locked up, Decred has introduced a new level of scarcity: by making it both more difficult to acquire circulating DCR and more difficult to acquire tickets for governance participation. As of August 2019, the price of a single ticket surpassed 130 DCR, up ~33% since the beginning of 2019 and ~45% year-over-year.
Established History. The longer a good is perceived to have been valuable by society, the greater its appeal as a store of value. A long-established store of value will be hard to displace by a new upstart except if the upstart has a significant advantage in many of the other attributes outlined above.
· This is where Decred struggles, though through no fault of its own. While the cryptocurrency market in general is very nascent, Bitcoin has established itself as a legitimate contender for dominating the digital store of value market by surviving ten-plus years of usage and attacks without compromise. If Decred exists for 20+ years, there will be near-universal confidence that it will be available forever, much as people believe the Internet is a permanent feature of the modern world.
Censorship-resistant. The importance of this attribute has emerged in today's digitally-driven and pervasively surveilled society, and it is unlikely that any store of value asset of the future will reach its full potential without succeeding here. Censorship-resistance doesn't necessarily mean guaranteed privacy — instead it is more important that it creates difficulty for an external party, such as a corporation or state power, to prevent the owner of the good from keeping and using it. Unsurprisingly, this attribute has been one of the biggest drivers of cryptocurrency adoption in countries governed by regimes trying to enforce capital controls or outlaw various forms of peaceful trade.
· As long as the private keys to a Decred address remain secure (private), Decred is fully censorship-resistant.
Predictable Inflation and Reliable Issuance. Decred also provides predictable inflation through reliable issuance through code. This is important for a number of reasons, most notably because it allows its users to retain and track its pricing power over time. Though gold has its flaws (see portability and divisibility), it has retained almost all of its purchasing power (in USD) versus the US Dollar over the last 100+ years. Decred takes this one step further, providing tangible proof of its historical and expected future inflation and issuance (through its underlying code), something that even gold (which has largely offset the loss of purchasing power of the US Dollar by being a naturally occurring, relatively rare metallic chemical element) cannot produce — the amount of circulating and not-yet-mined gold is based on assumptions and rounding errors, not uncompromising math. Source: www.goldchartsrus.com
Decred's issuance follows a similar schedule as Bitcoin, with the largest differences in mining protocol outlined below, followed by the schedule of issuance comparison for the two projects. This comparison is not meant to represent a competitive view, rather it should be used to provide reference for Decred's issuance from that of the most well-known cryptocurrency of today.
· There are an average of 144 Bitcoin blocks per day (target of 10 minutes per block).
· There are an average of 288 Decred blocks per day (target of 5 minutes per block).
· The Decred values below are the max possible, though in reality these values will be slightly
lower because missed votes reduce proof of stake subsidy and stakeholders can strip a block's proof of work subsidy for misbehaving miners, which in turn reduces the total possible supply. Similarly, there have already been very public examples of large amounts of Bitcoin lost forever, resulting in it being unlikely that more than 17 to 18 million bitcoin will ever truly be in circulation.
· Decred's subsidy generation algorithm is designed to be smoother than Bitcoin's, reducing by ~1% every three weeks as opposed to having huge halving events every ~four years.
Source: Decred Reward Forecast; Bitcoins in Circulation
Programmability. Programmability is not an attribute of historical store of value assets. However, it should not be difficult to believe that it is one that will grow to have immense value as the world continues its transition to a digitally-native state. As the pace of change and innovation in the world continues to increase, so will society's need to remain adaptable in how it interacts, transacts, and governs. Decred offers the strength of programmability (reliable issuance) and adaptability (potential for rule changes without fracturing the network). Protocols must evolve or they risk becoming obsolete, and Decred is designed to adapt when needed.
Thesis 4b: Valuing Sound Money
One attribute of sound money is a high stock-to-flow ratio. That is, the amount of something already in circulation is much greater than the amount of that something that can be injected into the circulation over any given period. The scarcity of gold combined with the immense time and effort necessary to mine it has meant the annual increase in gold supply from mining has consistently fallen to below 2% over time. This attribute has made gold the store of value of choice throughout millennia, having existed as a means of value in virtually every civilized economy since the Romans in one form or another.
Source: https://digitalik.net/btc/
As can be seen in the numbers above and the graphic below showing Bitcoin's historical stock-to-flow ratio, Bitcoin and Decred follow in gold's footsteps in their high stock-to-flow ratio, with both carrying the potential to "outperform" gold in this method of analysis. Following Bitcoin's next halving, which will come in mid-2020, the annual increase in bitcoin supply will fall to less than 2% of the amount already in circulation, putting its stock-to-flow ratio on par with gold's. Decred is still 8–10 years from the time at which its annual increase will be less than 2% of circulating supply.
Decred is actually holding an even larger monetary premium for a longer period of time than Bitcoin did it its early years, as detailed by Twitter user
Checkmate (@_Checkmatey_) in this analysis.
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