Introduction

Decred is a blockchain-based cryptocurrency with a strong focus on community input, open governance, and sustainable funding for development. It utilizes a hybrid Proof-of-Work (PoW) and Proof-of-Stake (PoS) mining system to ensure that a small group cannot dominate the flow of transactions or make changes to Decred without the input of the community. A unit of the currency is called a decred (DCR).

How Does It Work?

Stakeholders make and enforce the blockchain’s consensus rules, set a course for future development, and decide how the project’s treasury is used to fund it. Decred’s blockchain is similar to Bitcoin’s, but with major aspects of governance baked into the protocol.

To align incentives, block rewards are split between Proof-of-Work (PoW) miners, stakeholders and the Decred Treasury, which funds the project.

Proof of Work miners play a similar role for Decred as they do for Bitcoin, but with Decred they only receive 1% of the block reward.

Proof of Stake voting is central to Decred’s governance. Decred holders can time-lock (or “stake”) DCR to obtain voting tickets. Tickets are randomly called to vote on-chain; this involves both approving the work of PoW miners and voting Yes/No on any open rule change proposals. 89% of the block reward goes to the holders of the tickets that voted in that block.

The remaining 10% of the block reward goes into the Decred Treasury. Holders of live tickets decide how that treasury is used through Politeia proposals and voting.

Politeia proposals are the mechanism through which stakeholders make policy decisions and approve programs of work. Politeia proposals must be approved by at least 60% of the tickets that vote, and at least 20% of the eligible tickets must participate in the vote. The default voting period is 2,016 blocks (~1 week).

What is Politeia?

Politeia is a platform that supports Decred’s governance. It facilitates the submission, tracking, and discussion of Decred governance proposals by the stakeholder community. The Politeia web platform facilitates browsing, discussing and submitting proposals.

Reddit-style up/down voting is used for comment sorting. Up/down votes are not anonymous.

Voting on proposals does not happen directly on Politeia, as it requires signatures from your Decred wallet. Voting can be done from Decrediton or on the command line using the politeiavoter CLI tool.

There are two broad types of proposal:

1. Proposals that aim to establish voter support for a course of action. For example, the direction of software development, or adopting or changing some policy.

2. Proposals that commit to spending DCR from the Decred Treasury. These proposals create a budget that some entity can draw down against as they demonstrate progress towards the proposal’s aim.

How Politeia Works?

To vote, stakeholders must time-lock DCR to buy tickets. While tickets are live they can be used to cast a vote for or against each open Politeia proposal.

There is a fee for submitting a proposal (0.1 DCR) to limit the potential for proposal spamming. There is also a fee for registering a Politeia account (0.1 DCR) to limit comment spam and up/down voting sock-puppetry. Fees may be altered if a) they aren’t serving as a sufficient spam-deterrent, or b) the price of DCR changes considerably.

Transparent Censorship

When proposals are submitted, they are checked by Politeia administrators. Proposals that are deemed spam or invalid will be censored.

Politeia is built around the concept of transparent censorship, using dcrtime. Users cannot be silently censored; they can prove that censorship has occurred. When a user registers, a cryptographic identity (pub/priv key pair) is created. This cryptographic identity is then used to create a “censorship token” for each user submission (proposal, comment, comment upvote/downvote). If a user is censored, these tokens can be used to prove that a specific submission was submitted, the time it was submitted, and the exact form of the submission. This cryptographic identity is stored in the user’s browser by default, but can be exported and re-imported at any time.

Proof-of-Stake (PoS)

Proof-of-Stake (PoS) voting is a form of Proof-of-Stake (PoS) security, but the way Decred integrates this as a complement to Proof-of-Work (PoW) mining gives it a distinctive set of roles and characteristics.

PoS voting serves a number of purposes:

1. Allowing stakeholders to vote for or against proposed changes to the Decred blockchain. If stakeholders vote in support of a change, the chain will hard fork and the new feature becomes active automatically. More information on voting can be found in the Mainnet Voting Guide.

2. Providing a mechanism for stakeholders to influence Proof-of-Work (PoW) miners. Stakeholders can vote to withhold a miner’s reward even if the block conforms to the consensus rules of the network. This allows stakeholders, in principle, to discourage problematic mining behavior such as mining empty blocks.

3. For a block to be valid, it has to be signed by at least 3 of the 5 tickets that are called to vote in that block. This makes the Decred blockchain more robust to certain kinds of attack, such as those which rely on secret mining.

4. The same principle makes the Decred blockchain resistant to contentious hard forks. PoW Miners are unable to build on a chain without the Votes of the tickets that are called.

5. Snap voting of live tickets is used to make decisions about the project treasury through Politeia.

These roles are incentivized; ticket-holders (or “Proof-of-Stake (PoS) Voters”) collectively receive 80% of the block reward when their tickets are called to vote.

How to Stake

To participate in PoS voting, stakeholders lock some DCR in return for a ticket. An individual stakeholder can purchase one or more tickets. The amount of DCR locked, or Ticket Price, is adjusted dynamically every 144 blocks (~12 hrs). The current ticket price can be found in Decrediton or on dcrdata.decred.org. Every ticket owned gives its holder the ability to cast a single vote. Upon voting, each ticket returns a small reward plus the original Ticket Price of the ticket.

Tickets are selected pseudorandomly according to a Poisson distribution. The average time it takes for a ticket to vote is 28 days, but possibly requiring up to 142 days, with a 0.5% chance of expiring before being chosen to vote (this expiration returns the original Ticket Price without a reward). Every block mined must include a minimum of 3 votes (miners are penalized by a reward deduction if fewer than 5 votes are included).

Below is a chart showing the probability of a ticket voting by day.

Every block mined can also include up to 20 fresh ticket purchases. A new ticket requires 256 blocks to mature before it is entered into the Ticket Pool and can be called to vote.

There are a few important variables that you should familiarize yourself with while staking.

Every 144 blocks (~12 hours), the stake difficulty algorithm calculates a new Ticket Price in an attempt to keep the Ticket Pool size near the target pool size of 40,960 tickets. This 144 block window is referred to as the StakeDiffWindowSize.

The Ticket Price/Stake Difficulty is the price you must pay for a ticket during a single 144 block window.

The Ticket Pool is the total number of tickets in the Decred network.

The Ticket Fee (ticketfee) is the fee that must be included in the ticket purchase to incentivize Proof-of-Work (PoW) miners to include that ticket in a new block. Ticket Fee usually refers to the DCR/kB fee rate for a ticket purchase transaction. The Ticket Fee defaults to the minimum (0.0001 DCR/kB), which is typically sufficient.

When a ticket is called to vote, the wallet that has voting rights for that ticket must be online. If the wallet is not online to cast its vote, the ticket will be marked as missed and you will not receive a reward for that ticket. In practice, Solo Voters often run voting wallets on a number of servers on different continents, to minimize the chance of their tickets missing a call to vote.

Voting Service Providers (VSPs) offer a service whereby ticket buyers can delegate the act of voting to the VSP. The ticket-buyer instructs the VSP how their ticket should vote on any open rule change proposals, and shares voting rights with the VSP to take advantage of the voting infrastructure they provide (i.e. at least three always-online servers).

VSPs charge a fee for this service, which is paid upfront before the ticket is added to the VSPs voting wallets. This fee is generally 5% or less. A list of VSPs is maintained on decred.org. VSPs do not take custody of DCR. By using them, you only delegate the voting rights of a ticket.

Proof-of-Work (PoW)

Proof-of-Work mining, more commonly referred to as PoW mining, is the activity of committing your computer’s hardware and resources to process network transactions and build the blocks that make up the Decred blockchain.

Each time a valid block is created by a miner, the miner receives the fees from all of the transactions included in the block, as well as a block reward (newly created DCR).

The block reward reduces by a factor of 100/101 every 6,144 blocks (approximately 21.33 days).

When proof-of-stake tickets are called to vote on a block, they have the ability to the strip the reward from the miner of the previous block. This power may be used if the miner has constructed a block contrary to the best interests of the network. For example, an empty block when there are transactions waiting to be processed in the mempool.

Decred mining uses the BLAKE3 hashing function. Note that BLAKE3 is only used in the Proof-of-Work hash while the block hash still uses BLAKE-256 14 rounds.

As in Bitcoin, subsidy decays exponentially with block height. However, Decred’s algorithm, though also extremely simple, better interpolates this decay over time so as not to produce market shock with steep subsidy drops similar to CryptoNote1. Like PeerCoin2, the PoW difficulty is calculated from the exponentially weighted average of differences in previous block times. However, this calculation is also interpolated into Bitcoin-like difficulty window periods. The “timewarp” bug in Bitcoin is corrected3, by ensuring that every difference in block time in incorporated into the difficulty calculation.

It should also be noted that many well known mining attacks, such as selfish mining4 and stubborn mining5, will no longer function advantageously in a system where there is effective decentralization of stake mining and no PoW-PoS miner collusion. This is simply because it is impossible to generate secret extensions to blockchains without the assistance of stake miners. Resilience to previously described mining attacks, and newly conceived mining attacks specific to our system, will be a fruitful area for future research.