Decred (DCR): A Hybrid Approach to Consensus

What Is Decred?

Launched in 2014, the Decred network is built atop the original codebase for Bitcoin, but includes adjustments geared toward achieving greater scalability and fostering a holistic network incentivization structure. In other words, Decred is considered a Bitcoin fork. The Decred coin (DCR) functions similarly to cryptocurrencies like BTC and BCH, but is supported by an innovative hybrid consensus mechanism and governance model. Decred fashions its governance on a sustainable funding model to encourage development, foster community input, and facilitate open governance.

The Decred network utilizes a hybrid consensus protocol that combines Proof of Work (PoW) and Proof of Stake (PoS). Under Decred’s hybrid model, PoW miners validate transactions, while PoS stakers propose and vote on network upgrades. Members of the Decred ecosystem are incentivized by the splitting of block rewards between PoW miners, PoS stakeholders, and the ecosystem-funding Decred Treasury. This unique delegation of roles and rewards reduces the concentration of influence across the network, and resists hard forks that might otherwise result from protocol disagreements — as have occurred throughout both Bitcoin’s and Ethereum’s respective histories.

Decred Mining: Proof of Work (PoW)

Here’s how the PoW element of the Decred mining consensus mechanism functions: Proof-of-Work miners dedicate computational resources to validate transactions on a blockchain network. Depending on the hash function in use, miners conduct this process using Graphics Processing Units (GPUs) or Application-Specific Integrated Circuits (ASICs) — both of which represent more viable options for independent miners. Similar to how Bitcoin mining participants receive rewards in BTC, Decred mining participants receive rewards in the blockchain’s native DCR coins in exchange for validating the Decred network.

Each time a block of valid transactions registers to the Decred blockchain, a miner receives minted DCR coins. However, unlike how Bitcoin PoW miners receive 100% of block rewards, Decred mining rewards are split between network participants using a customized allocation:

• Validators (PoW): 60%

• Stakeholders (PoS): 30%

• Decred Treasury: 10%

This reward allocation helps ensure Decred PoW miners remain incentivized, while also keeping a clear distinction between the role of Decred mining and that of the other two categories, which also serve important functions in the network.

Decred Coin Staking: Proof of Stake (PoS) Governance

Decred’s Proof-of-Stake element relates largely to governance of the network. Once you stake DCR coins, you can participate in Decred governance to confirm the validation of blocks, make and enforce blockchain consensus rules, participate in decisions that affect future development, and decide how the Decred Treasury will fund initiatives. Decred PoS utilizes a unique framework to administer the network governance process that rewards stakers for participating in network governance.

Each DCR coin staked as part of Decred governance is “time-locked” in the protocol and represents a non-transferable “ticket” or vote unique to the Decred network. Ticket holders vote on-chain to validate the blocks proposed by PoW miners and participate in open rule change proposals — usually yes or no questions. Stakers can cast a single vote for every ticket they hold. Once a vote occurs, each ticket in the block generates a return for its owner — the original ticket price plus a reward.

On average, it takes 28 days for a ticket to vote; however, it can take up to 142 days in some cases. The ticket price, which is denominated in DCR, adjusts dynamically every 144 blocks — around every 12 hours. Potential stakers can find current ticket prices on Decred wallets or the network block explorer. If users don’t have enough DCR coins to purchase a whole ticket, they can also participate in ticket-splitting.

The Decred Politeia proposal system was introduced to the Decred protocol in 2018, and acts as the foundation of Decred network governance. Politeia facilitates the submission, tracking, and discussion of potential upgrades or policy changes. Politeia is also used to guide Decred Treasury spending and policy. Under the current framework, a stakeholder puts forth a proposal, discussion ensues, and a week-long ticket vote precedes the final decision.

The Decred Treasury

The Decred treasury receives 10% of all block rewards, and functions as a source of revenue for the network. The treasury is responsible for paying contractors and other parties that help maintain the Decred ecosystem. Until 2018, the treasury was an autonomous entity, which means funds were spent without broader community consultation. However, the introduction of Politeia allows stakers to vote on the allocation of treasury funds.

In 2021, the DCR crypto protocol’s stakeholders voted to decentralize the Decred treasury — which was worth $128 million USD at the time of the vote — even further. The resulting protocol update allows stakeholders to review contractor payouts each month and vote on whether or not they’ll be approved. Stakeholders made this change in an effort to empower individual users, bolster security, and mitigate the risk of treasury fund theft.