What is Dash Cryptocurrency? A Crash Course
Everyone who is anyone is talking about bitcoin and cryptocurrencies. However, while it is true that Bitcoin happens to be a fine example of a decentralized, peer-to-peer currency when it comes to privacy, it doesn’t really match up now does it? Along with privacy, the transaction confirmation times in Bitcoin are SO high that it is extremely impractical for day-to-day transaction purposes.
In fact, according to this graph over here:
If you pay the lowest possible transaction fees, then you will have to wait for a median time of 13 mins for your transaction to go through.Evan Duffield realized that this was extremely problematic and thought of a solution.
Evan Duffield came across Bitcoin in 2010 and was extremely impressed by the technology, However, he was not that enthused about the slow transaction speed and the lack of privacy.
He had numerous ideas on how to make Bitcoin function better but the Bitcoin core members would never allow him to do that since that would mean changing the core’s code.
This is why, he decided to use the Core code and make his own cryptocurrency on January 18, 2014.
Dash was formerly called Xcoin which later on became “DarkCoin”. It was eventually rebranded to Dash which is a portmanteau of “Digital Cash”.
This is the team behind Dash:
The Instamine Controversy.
Within the first two days of their launch, 1.9 million coins were mined, which ~10% of the total supply that will ever be issued. Evan Duffield said that this was because of a bug created when the Litecoin code was forked to create Dash which hampered the difficulty.
The problem was immediately resolved and Duffield proposed to solutions:
To relaunch the coin. An “airdrop” in order to make the initial distribution broader.
The community, however, overwhelmingly disapproved of both these proposals. The majority of the mined coins were distributed later on in exchanges for very low prices.
What is Dash Cryptocurrency? A Crash Course
What is Dash Cryptocurrency? A Crash Course
Before we do a deep dive and see what makes Dash so desirable, we should do a basic overview first.
Dash has a hard cap of 18 million coins, meaning there will only be 18 million Dash ever made. As of writing, there are ~7.85 million coins in circulation.
Each coin costs ~$697 and the total market cap is ~$5.4 billion.The average block mining time is 2.5 mins, which is 4 times faster than bitcoin (~10 mins block mining time).
Dash also has a variable block reward which decreases by 7.1% every year.
Now let’s look at some of the features of Dash that makes it really special.
Feature #1: Masternodes
Full nodes are servers running on a P2P network, that allow peers to use them to receive updates about the events on the network. As one can imagine, these nodes require significant upkeep and care. Because of these reasons, there hasn’t been as significant an increase in the number of full nodes as there should have been. This significantly increases block propagation time.
Miners ideally want their newly found blocks to propagate across the network as quickly as possible. Every second delay increases the chance of some other miner wining the “block race” and getting their blocks added to the chain before theirs.
One way to increase the amount of these full nodes is via the utilization of a better incentive system.
So, this is what the Dash whitepaper suggested:
“These nodes are very important to the health of the network. They provide clients with the ability to synchronize and quick propagation of messages throughout the network. We propose adding a secondary network, known as the Dash Masternode network. These nodes will have high availability and provide a required level of service to the network in order to take part in the Masternode Reward Program.”
What exactly are Masternodes?
Masternodes are like the full nodes in the Bitcoin network, except that they must provide a particular service to the network and MUST have some sort of heavy investment in the system. To run a Masternode, one has to invest 1000 DASH.
So, now the question that one should ask is, why does a Masternode need to make that sort of an investment?
In return for their services, Masternodes get paid back in dividends on their investment. What this, in essence, does is that it incentivizes the Masternodes to work in best interests of the ecosystem. Dash was the first cryptocurrency to implement the Masternode model into its protocol.
The masternodes create a second tier network, following a Proof of service algorithm, and exists on top of the normal first tier network of miners.
This two-tier system creates a synergy between proof of service and proof of work mechanisms in the Dash network.
One a masternode is on, it is in charge of a certain set of functions like InstantSend and PrivateSend. They are also in charge of the governance.
Since running a masternode requires money and effort, in order to incentivize the node operators, they get rewarded for their efforts. The reward is usually 45% of the block reward. However, to get a more concrete answer, we will need to check out some parameters.
Reward System of the Masternodes
Since the number of Masternodes active in the DASH system keeps changing, the reward keeps fluctuating according to this formula:
So, the variables in this equation are as follows:
- n is the number of Masternodes an operator controls
- t is the total number of Masternodes
- r is the current block reward (presently ~3.6 DASH)
- b is blocks in an average day. For the Dash network this usually is 576.
- a is the average Masternode payment (45% of the average block amount)
Return on investment for running a Masternode can be calculated as:
((n/t)r * ba*365) / 1000
Ordering of the Masternodes
Masternodes can be used to take care of important tasks in a fast and trustless way. To emphasise on the speed, one can select N pseudo random Masternodes from the network to perform tasks. These Masternodes can essentially accomplish the task without the whole network having to take part in it. This is a stark contrast from Bitcoin where every node must take part in the consensus.
The pseudo random selection is done by utilizing the following algorithm.
For (mastenode in masternodes)
current_score = masternode.CalculateScore();
if(current_score > best_score)
best_score = current_score;
winning_node = masternode;
pow_hash = GetProofOfWorkHash(nBlockHeight); // get the hash of this block
pow_hash_hash = Hash(pow_hash); //hash the POW hash to increase the entropy
difference = abs(pow_hash_hash - masternode_vin);
How Proof-of-Service Works
As you can guess, the Masternodes have a lot of power and influence in the system. As such, steps must be taken to make them as Byzantine Fault Tolerant as possible. This means that the system should operate smoothly even if some Masternodes perform below par.
A Masternode can run below par for chiefly two reasons. It is either run by negligent actors or it is run by malicious ones. Regardless, it can be disastrous for the ecosystem if the Masternodes aren’t online or there are operating on the wrong block height.
So, to make sure that the Masternodes are working the way they should be, Dash utilizes proof-of-service.
To nullify the impact that malicious masternodes can have on the system, nodes must ping the rest of the network to ensure they remain active. The way the Masternode network goes about this is by selecting 2 quorums per block.
Quorum A checks the service of Quorum B block by block.
Quorum A are the closest nodes to the current block hash, while Quorum B are the furthest nodes from said hash.
- Masternode A (1) checks Masternode B (rank 2300)
- Masternode A (2) checks Masternode B (rank 2299)
- Masternode A (3) checks Masternode B (rank 2298)
~1% of the network is checked each block which means that the entire network is checked 6 times a day. The nodes are selected randomly via the Quorum system in order to keep the system trustless. Each node is allowed six violations before it is deactivated.
So, imagine Alice is a malicious actor and wants to pollute the Dash ecosystem. She will need to be selected six times in a row to successfully violate the system. If not, then the system will cancel out all previous violations. The only way to get selected 6 times in a row is for Alice to get more masternodes, however, we have seen that in order to do that, she will need to stake her own money (1000 Dash per masternode).
Even if she does that, what happens next?
n the table above:
- n is the total number of nodes controlled by the attacker
- t is the total number of Masternodes in the network
- r is the depth of the chain
According to the table, if Alice has invested 1 million Dash into the system and owns 1000 masternodes, she will only have a 0.6755% probability of success!
Those are some pretty thin odds. This essentially makes DASH Sybill proof.
Now, what if she invests more money and owns more Masternodes?
Can she trick the system then?
To answer that question, let’s do a simple thought experiment.
As of writing, 1 Dash costs ~$550.
If, one were to buy 1500 Masternodes in the Dash network, they will have to invest 1500 * 1000 Dash = 1,500,000 Dash which is $825,000,000.
Suppose someone really does invest $825 million dollars of their money into the system, what would be in their best interests to do?
Act against the interests of the system and make sure that the significant amount of wealth that you have put up as stake drastically drops down in value.
OR, do everything that you can to make sure that the value of your stake increases.
Chances are, you would go with the latter choice.