Jake Yocom-Piatt, Decred’s founder, developed a series of concerns about Bitcoin while working on btcsuite, including:
- Ineffective and inefficient governance
- Lack of funding for protocol development
- Outsized influence of Proof of Work miners on development decisions
Jake Yocom-Piatt, who would later lead Decred project development through Company 0, discusses these issues at length in a late 2015 blog post. Indeed, the Bitcoin community has debated each of these areas considerably, with many viewing these factors as significant roadblocks to Bitcoin’s progress. Bitcoin has no formal governance structure, and decisions to alter the protocol are made entirely off-chain, typically by insiders/early adopters and heads of large mining operations. Changes to the Bitcoin protocol must be approved by consensus of the Bitcoin Core developers and adopted by miners, and there is no direct way for Bitcoin users or associated groups to vote on protocol changes. In particular, the Bitcoin Improvement Proposal (BIP)system provides a collaborative repository for proposing protocol upgrades, though no formal system for implementation.
Decred utilizes neither solely the ‘1 CPU = 1 vote’ of Bitcoin/PoW nor the ‘1 token = 1 vote’ of a pure PoS protocol, opting instead for a hybrid approach. Transactions on the Decred network are validated through a hybrid PoW and PoS system. At a high level, PoW miners generate blocks that a randomly selected set of PoS validators must validate before the block is appended to the main chain. This consensus architecture is part of Decred’s overall goal of giving various stakeholders input in managing the network. PoS validators act as an explicit check on PoW miners; the former can reject invalid blocks or those that use software versions not preferred by token holders. The block rewards are split 60/30/10 between miners, stakers, and the development pool. The 60% PoW miner reward is reduced proportionally if the block is not approved by all five randomly chosen PoS validators. As of mid-2018, the annual PoS reward is approximately 15%.
The PoW component of Decred uses the Blake-256 hashing algorithm. In early 2018, ASIC mining units for Blake-256 hashing algorithms were released, quickly increasing the total hashing power of the Decred network by a factor of 20. These ASICs can also be used in Sia. Similar to Bitcoin, hashing power in Decred is relatively concentrated to a small number of mining pools. Due to Decred’s hybrid consensus mechanism, where PoS stakers can reject fraudulent blocks, the introduction of ASICs and mining centralization are arguably not as crucial issues as in Bitcoin or other pure PoW networks. However, the development of ASICs will likely contribute to greater security for the network and generate miner interest in DCR.