Introduction to DASH Digital Currency
Introduced in 2009, Bitcoin has become one of the most popular blockchain-based digital currencies. However, not all people are satisfied with the features and opportunities that Bitcoin provides. This is the reason why the market today has many digital currencies that, while being similar to Bitcoin, offer unique features that Bitcoin doesn’t have.
DASH is one of such cryptocurrencies.
The name “DASH” comes from the words “digital cash.” DASH network was launched on January 18, 2014. The currency was originally known as XCoin (XCO). It changed its name to DarkCoin in February of 2014. In March of 2015, DarkCoin became DASH.
If a coin went through rebranding (changed its name once or several times), knowing the history of rebrands is important for two reasons. First, you can study the development of the coin from the very beginning of its existence, not just after the latest rebrand. This can give you a much better understanding and feel for the coin and people behind it. The second reason is that knowing all the previous names of the coin will help you avoid confusion. For example, you may read in one place that coin X launched in 2015. In a
different place, you may see that it launched in 2014. Knowing all the names and having the right chronology you will immediately understand why the dates are different.
DASH was created by Evan Duffield. He decided that the DASH network would eventually have 18 million coins in circulation. Because of the bug in the original code, the network added 1.9 million coins shortly after the launch. While a re-launch was an option, Duffield decided to not perform a re-launch. He sold most of the coins during the early days of the network at very low prices.
DASH adds blocks to its blockchain at the same speed as Ethereum network, 2.5 minutes per block. This is four times faster than Bitcoin. On the DASH network, the block mining reward decreases by 7.1% annually.
In December of 2017, trading volumes of DASH were about $120 million/day. The market capitalization of DASH as of January of 2017 varies between eight and nine billion dollars. 1 DASH is valued at around $1,000, making it one of the most valuable digital coins on the market. The community behind the coin is very active and is constantly growing. So is the number of pages dedicated to DASH on various forums.
Most people today discover DASH after trying to use Bitcoin and discovering that using Bitcoin has its disadvantages, the biggest ones in the practical sense being lack of full privacy, high transaction fees and long confirmation times. With DASH, it is possible to send funds very quickly. The network also has an option in case you want to make sure that your transaction remains completely private. DASH has also successfully solved the issue of double-spending.
Side note: Double-spending is when a cryptocurrency user attempts to spend funds more than once. Let’s say that a person has some 1 unit of cryptocurrency in the wallet. Double spending would be trying to send that 1 unit to user A and at the same time send 1 unit to user B, user C and so on.
All the technology behind Bitcoin, including blockchain, proof of work algorithm, mining, and mining difficulty, in essence, exist to prevent double-spending and make sure that when someone sends funds on the network, the transaction becomes irreversible and final. You send money to user A. The network allows you to send the money and processes the transaction. There is no way to change that, alter the network, spend money several times and so on.
The Bitcoin network solves the issue of double-spending by using confirmations. When you initiate a transaction, your Bitcoin software broadcasts the transaction to the entire Bitcoin network. When this happens, miners are free to include your transaction into a block of Bitcoin blockchain. When they do, your transaction becomes a part of one block. This counts as one confirmation. Another way to say that is that the transaction has been mined at a depth of 1 block. The Bitcoin blockchain then keeps adding blocks.
Each block of the blockchain refers to the previous block. When the blockchain has a block with your transaction and a block after it, your transaction now has two confirmations or has been mines at a depth of 2 blocks. To protect the information about transactions from changes, the Bitcoin network requires at least six confirmations to deem a transaction on the network as valid.
When you initiate a transaction in a Bitcoin client, the client would often show you first the status of your transaction as “n/unconfirmed.” Once, where n is the number of current confirmations for your transaction. When n reaches 6, the status will change to “confirmed.” The problem with this approach is that Satoshi Nakamoto has created the Bitcoin Network in such a way that it aims to add blocks to its blockchain at the speed of about 10 minutes per block. You can see how quickly the Bitcoin is adding blocks to the blockchain as you are reading this article by visiting https://blockchain.info/ and checking the age of blocks in the “age” column. 6 confirmations mean that you may need to wait up to an hour and even longer for your transaction to become confirmed.
The issue of double-spending has the highest risks for merchants who accept payments
in Bitcoin and need to act immediately after getting a payment. Before a miner includes a transaction in a block, the transaction is a zero-confirmation transaction (because no block on the blockchain has yet information about it). Such transactions have the highest risk of double-spending.
Finally, DASH digital currency has a mechanism for its users to decide how the network changes and grows. With many other digital currencies, including Bitcoin and Ethereum, users may be spending their times on forums discussing ideas and solutions, but most often such discussions don’t lead to any productive changes. DASH has a structure that allows its users contribute to the development of the network in a meaningful way.
Next, this article will discuss the most important features of Bitcoin in detail. Then, it will explain what is missing in Bitcoin, and what makes DASH unique.
Advantages of Bitcoin
Some of the reasons why Bitcoin was able to gain popularity are its decentralization, coin cap, and autonomy. Bitcoin is autonomous because Satoshi Nakamoto, the creator of Bitcoin, made Bitcoin software open-source. Anyone can download the mining software or the Bitcoin wallet and start using them for free, autonomously from anybody else. You do not need to apply, fill out forms, wait for someone to approve you, or anything like that.
Decentralization means that there is no single point of authority that can make decisions about the future of Bitcoin. Bitcoin is a decentralized financial system that operates on its own. There are no chief executive officer of Bitcoin, no Bitcoin office, and no phone numbers to call if you can’t figure something out. All users and miners of Bitcoin are a part of the Bitcoin ecosystem. Rather than relying on a central authority, Bitcoin is a peer-to-peer currency. The Bitcoin network exists because its users freely choose to
participate in it.
Coin cap means that there can only be 21 million Bitcoins in circulation. The Bitcoin network adds coins to circulation by giving them as rewards to miners for creating the blocks of the Bitcoin blockchain. Initially, the reward for mining the blocks was 50 Bitcoins. Then, it went down to 25. It is currently 12.5 Bitcoins. It will go down to 6.25 Bitcoins approximately in June of 2020. Then, it will go down to 3.125 Bitcoins and will keep dividing with time. You can see the reward clock in real time by visiting http://www.bitcoinblockhalf.com/ There, you can see the total number of Bitcoins in circulation as you are reading this article, the percentage of Bitcoins mined out of the total amount and a lot of other information about the Bitcoin network.
There are several reasons why the finite supply of Bitcoin is so important. The first reason is transparency. Everyone knows how many coins Bitcoin has in circulation and everyone knows what will be happing with the number of coins in the future. The second reason is that no one could change the value of the currency by adding coins to circulation or limiting the number of coins in circulation.
All government currencies in the world today are fiat currencies. The word “fiat” means that a currency doesn’t have any commodity behind it, such as gold or silver or something else. Modern currencies are money because the governments behind them say so. History shows that when the economy of a country starts declining, the government of the country is likely to print more money or start changing the rules of the game in some other way. Often, a government decides to pay for the mistakes of a few key players with the money that comes from the taxes of the majority. This is what happened
during the financial crisis of 2008/2009 in the United States. Banks such as CitiBank, Chase and Goldman Sachs made a lot of bad decisions, which is why they started to lose money. The government decided that allowing the banks to fail was not acceptable because of the impact of failure on the economy of the country. This is why the government bailed out banks, insurance companies and certain other businesses and organizations. You can see the full list of these companies here: https://projects.propublica.org/bailout/list . Such bailouts are possible because a government borrows money. Borrowing means that future generations will have to pay principal and interest. Essentially, this means paying for the mistakes of “a few” today and having
“many” pay both principal and interest over time.
With Bitcoin, changing the rules is not possible. Borrowing or adding extra Bitcoins to circulation is also not possible. If a country were to use Bitcoin as a currency, a bailout could not have happened. This is one of the biggest benefits of Bitcoin.
Anonymity and Bitcoin
Many people think that Bitcoin is an anonymous currency. In reality, this is not true. When you send and receive funds using Bitcoin, you are essentially hiding your identity behind an address for your Bitcoin wallet. Bitcoin is anonymous to a degree, but it is not fully anonymous.
Every Bitcoin wallet can have an unlimited number of addresses. You can generate an address whenever you want and there are no fees associated with that. An address is a long string of symbols, digits, and numbers that are case-sensitive, which is why it is important that when you deal with cryptocurrencies, you copy addresses exactly the way they are and make no mistakes and changes.
A bitcoin address provides no insight into where you are located or who you are. However, all transactions on the Bitcoin network become a part of its public ledger, also known as blockchain. This means that if someone knows an address, they can look up all the transactions associated with the address on the blockchain. For example, if you were to send 0.01 Bitcoin to your friend, anyone in the world could see the transaction. They would not necessarily know that it was you sending money to a friend, but they would see the transaction on the blockchain.
This means that if someone uses the same address more than once, anyone would be able to see all the transactions associated with the address. For example, some of the websites today accept donations in Bitcoin and have a Bitcoin address for donations on their website. You can use the address to check how many donations the website received and when the donations usually come in. This is not real privacy or anonymity. Here is another example. Let’s say you are sending money to a friend and someone wants to figure out how much money you’ve sent and to whom. Even if they just know the approximate time and the approximate amount, they could access Bitcoin blockchain and start looking for your transaction. While the network does have a lot of transactions, it would be possible to find your transaction. Anonymity is one of the issues that DASH currency solves. With DASH, it is possible to send funds in a way that no one will be able to know that it was you sending the money or how much money you’ve sent.
Making changes and improvements to a digital currency: a comparison of Bitcoin and
In a message exchange with Hal Finney (who was a computer scientist, a cryptocurrency user and the receiver of the funds in the first-ever Bitcoin transaction), Satoshi Nakamoto says that he “did this kind of backwards.” (Source: http://satoshi.nakamotoinstitute.org/emails/cryptography/6/)
He is referring to the development of Bitcoin. Nakamoto didn’t have an idea, then sorted everything on paper, then solved all the problems theoretically, and then created the software. Instead, he first wrote the code, then he tested the code, then he wrote the famous Bitcoin whitepaper.
Nakamoto did not develop a mechanism for introducing changes to the Bitcoin network in the future or for funding these changes. This is why the role of developers of Bitcoin software is very limited. All the implementations of Bitcoin software and its variations can be governed by the developers of the software in any way they want. The problem with this approach is that many developers are excellent software engineers, but not great managers of people or projects. Users of the Bitcoin network can also use any software they want. This has led to a number of issues, such as high fees and long
transaction confirmations mentioned above.
Here is another example of an issue that comes from the absence of a structure to fund changes on the network: Bitcoin.org, a website originally registered by Satoshi Nakamoto himself and currently used to distribute Bitcoin Core software, has a warning located at https://bitcoin.org/en/alert/2016-08-17-binary-safety. The warning mentions that
Bitcoin software can be a target for attackers, yet Bitcoin.org doesn’t have the necessary resources to protect the software and the project from well-funded attacks.
Most cryptocurrencies try to solve the issue of updates, development, and protection by funding and starting non-profit foundations. For example, both Bitcoin and Ethereum have non-profit foundations. However, as the warning from the bitcoin.org a link to which you can see above shows, this approach has a lot of flaws and problems, the biggest of which is the disconnect of the non-profits from the financial realities and world of the currencies that their mission is to support. Many of the people willing to join a cryptocurrency non-profit are early enthusiasts who believe in the ideas behind the currency and its future. They become very passionate and active for some period of time and join the non-profit with the best intentions, often agreeing to work for free or for a nominal fee. Then, life kicks in and they often find themselves having no time to do all the things for the non-profit that they’d like to. Most cryptocurrency foundations have no mechanism that would prevent this scenario from happening and no effective solutions and approaches to deal with the scenario if and when it occurs. This is why many digital currencies become crippled and their development stalls when their founders and/or early developers leave the project or decrease their degree of activity with the foundation behind the currency.
The most common approach to the issue is the collection of voluntary donations from users of the currency. This approach is unfair in its nature because there will always be those who will want to benefit without having to donate anything even when they have means to do so. Often, this way of funding a project leads to investors and donors losing their motivation and feeling absence of gratitude from the users.
Other crypto-related projects have tried to fund themselves by pre-mining the currency, yet in this case, a project may turn into an organization that has a central authority, which contradicts the idea of decentralization that makes cryptocurrencies so attractive to users. When there are just a few people in charge of the funds who are making decisions about the project, it is very hard to run the project in a truly democratic, fair and decentralized way.
This is not how things work on the DASH network. In a way, DASH is the first
cryptocurrency that is not just a currency, but is also a truly decentralized, autonomous organization (a dao, not to be confused with “The DAO,” which was an initial coin offering on the Ethereum network) with a mechanism that allows its users to make decisions about the changes to the DASH currency, and, what is probably even more important, a way to fund and monitor the development and implementation of such changes. On the DASH network, 10% of the mining rewards go to a special fund that the network uses to pay for new features and changes.
Bitcoin as a one-tier network, DASH as a two-tier network
On the Bitcoin network, miners compile transactions into the blocks of Bitcoin blockchain and then get 100% of the transaction fees for doing so. From this perspective, Bitcoin is a single-tier network: Bitcoin miners do all the work on the network.
DASH Network works differently. It has two tiers of network members doing the work. The first tier is miners. They compile transactions in a way similar to how Bitcoin network operates. The second tier on the DASH network is masternodes. Masternodes do not exist on the Bitcoin network. Masternodes on DASH network process InstantSend and PrivateSend DASH transactions. On top of that, masternodes have governance rights.
Anyone on the DASH network can become a masternode. To keep the network safe, DASH requires its masternodes to have a balance of 1,000DASH (which is a hard requirement because the price of DASH is around USD$1,000), a server and a dedicated IP address. It is also possible to rent the necessary equipment from DASH masternode hosters. If the number of coins in a masternode account goes below 1,000DASH, the masternode will stop being a masternode. It can become a masternode again if it replenishes the account. Because masternodes perform essential functions on the DASH network, they get 45% of the block mining rewards.
To summarize: on the DASH network, 10% of the block mining reward goes into a special “network development fund,” 45% goes to miners and 45% goes to masternodes.
PrivateSend and InstantSend Features of DASH Cryptocurrency
With InstantSend, users of the DASH network can send payments instantly instead of having to wait the way they do with Bitcoin.
Here’s how the InstantSend feature works: When a miner on the DASH network a winning hash for a block of the DASH blockchain, the hash also select a masternode in a random way. The masternode then temporarily becomes an “InstantSend Authority.” This means that when an InstantSend transaction appears on the network, the InstantSend Authority masternode grabs it and locks it as a transaction in process. It then informs other masternodes about the transaction, thus eliminating the possibility of double-spend. This entire process takes less than a second.
PrivateSend is a feature of DASH network that allows sending money completely anonymously PrivateSend obscures the origins of your transaction because with digital currencies it is possible to treat the funding amount in a transaction as coins that came from somewhere else.
For example, let’s say that you have two $1 bills in your wallet and a $5 bill. You
received two $1 bills when you went to a grocery store, bought $8 worth of food and paid for it with a $10 bill. You received a $5 bill when you stopped by a pharmacy and bought $5 worth of goods. You also paid with a $10 bill at the pharmacy and received $5 back. So, even though you have $5 and two $1 bills in your wallet, these bills came from somewhere else.
Because DASH is a digital currency, using the fact that the funds come from somewhere else can be implemented in an algorithm.
Side Note: Internal tracking of where the money is coming from is an important part of how cryptocurrencies work. Internal tracking may not be visible from the outside (which is the case with privacy coins like Monero and InstaSend feature of the DASH network), but it needs to be there for the network to process transactions.
In technical terms, transactions on digital financial networks have “inputs” (which is a term for the funding amount of a transaction) and “outputs” (a term for the resulting amount in a transaction). A technical definition is that an input for a transaction is a reference to an output of a transaction that has occurred in the past. For a transaction to occur, an input needs to refer to an unspent output. To continue with the example from above, an input for the next time you decide to pay with two $1 bills could be “change for a transaction at the grocery store A that occurred on such and such date in which X received two $1 bills as a change after paying $10 for products one and two.” This input is a description of a result of a transaction you had in the past. This is how inputs and outputs are connected. Transactions on the Bitcoin network can have multiple inputs and outputs.
How PrivateSend feature works on the DASH network
DASH PrivateSend feature is based on anonymization algorithm called CoinJoin. CoinJoin is based on the idea that one of the ways to make a payment completely anonymous is to find someone else who also wants to send a completely anonymous payment. Then, you and that someone else turn the payment into one and send it as one. This way, it is not possible for anyone to tell who is behind the payment and who is paying what amount even if and when they can see a transaction on a public blockchain.
When you use PrivateSend feature, it first breaks your payment into standard
denominations. These denominations on the DASH network are 0.01, 0.1, 1 and 10. What happens at this step is the same as if you wanted to give, say, $10 to someone, but you didn’t want to track them the origins of the $10. If you have a $10 bill, you can stop by a convenience store and ask a clerk to break $10 into two $5 bills. Then, you could stop by a pharmacy and ask a clerk there to break one of the $5 bills into five single dollar bills. You could also ask them to exchange the two $5 bills into one $10 again. This is exactly what is happening on the DASH network as the first step of a PrivateSend transaction. DASH network has standard denominations just like US Dollar does with $1, $2, $5, $10, $20, $50, $100 and the coins (all other regular currencies have standard denominations, too).
Then, PrivateSend informs a masternode that there is a user who wants to send funds anonymously and is interested in mixing the standard denominations with someone else’s. At this point, the masternode doesn’t receive any information that could allow it to identify the user. When a masternode gets the same message from two more users, the mixing begins. Once it happens, the masternode instructs the users to pay the original amounts back to themselves, but in a transformed way and to a different address. Then, the wallets of users repeat the process several times with each denomination that is a part of the transaction. A step in this process is also known as a round. The more rounds there are in a mixing process, the harder it is for someone to figure out where the funds are coming from.
When the PrivateSend is performing the rounds of mixing, users do not have to do anything. No work on the user part is required. In a PrivateSend transaction, all receivers get the funds from all three senders participating in transaction at the same time. Inputs and outputs of a PrivateSend transaction on the DASH network are not connected directly and are stored in separate places, which means that if a third party were to take a look at the lists, all it would see is parties paying to themselves and a list of parties involved in the transaction, but no specific information about who received what amount and
from whom. This means, for example, that no one will be able to tell that user A sent
user B 0.01DASH at such and such date and time.
When a masternode performs all the work necessary for a PrivateSend transaction to occur, it broadcasts the transaction to the network using a certain code. The network keeps track of how often masternodes perform PrivateSend transactions and limits the number of allowed PrivateSend transactions on the network per N hours.
A wallet on the DASH network can only change the addresses in a way that works with PrivateSend 1,000 times. To create more addresses, you will need to back up your DASH wallet first, which means that to use the PrivateSend feature on the DASH network you need to enable the backup feature of your wallet. If the feature is disabled, you will not be able to use PrivateSend.
For users, the network has a fee for every 10 PrivateSend transactions. The fee applies to a set of transactions to further protect the privacy of the users of the currency, which is why masternodes can broadcast PrivateSend transactions to the network without attaching a fee to them.
To put things in simple language, the PrivateSend feature makes all the coins the same by dissociating them from their history. This is very important because otherwise, some people may choose not to accept coins with a questionable history.
For example, if you knew that a certain bill that you are about to get as change at a grocery store has been in the past used to bribe someone, you could have chosen to not take the bill. If people could know what happened to the money before the money got to them, they would start choosing money that was “clean” (didn’t participate in any transactions deemed unethical or criminal) over the money that was “dirty.”
This would essentially mean that some bills or digital coins of the same currency would have more value compared to other bills or digital coins of the same currency (if more people were to choose one USD$100 bill over a different USD$100 even though these bills have the same face value, then bill 1 is more valuable than bill 2).
In the science of economics, this is known as “fungibility.” Fungibility is a possibility of exchanging an asset for another asset without having to consider the history of assets.
The PrivateSend feature gives privacy not only to its users but to all members of the network. With Bitcoin, you know the address of the receiver of the transaction and the amount. With DASH, you also have access to the information about the transactions on the network, but you never know whether the transaction you are looking at used PrivateSend or not. If it did, then the information about the transaction is not going to tell you anything. This means that you can never be sure what the information about a transaction on the network means, which makes looking at transaction on the DASH network pointless.
Decentralized governance of the DASH network
Masternodes on the DASH network not only participate in facilitating InstantSend and PrivateSend operations but also have voting rights. The philosophy of the DASH network is that because masternodes have to keep 1,000DASH in their accounts, they have shown financial dedication to the network and because of this they deserve to make decisions about its future. It is masternodes who decide what proposals get funded, what happens to the DASH next and where and how the network spends the 10% of the mining rewards
that go in the “DASH Development fund.”
Every masternode on the network gets one vote in the voting process. If a proposal gets a large number of votes, it becomes viable. Only proposals with budgets that can be covered by the available funds can proceed to implementation. This allows the network to avoid a scenario in which it hires someone it can’t afford, gets in debt and the development stops.
Creation of the proposals is not limited to masternodes. The process is fully transparent and visible to anyone. Any person can create a proposal on the official DASH website by using the form on this page: https://www.dashcentral.org/budget/create
DASH recommends submitting proposals to the official DASH forum and discussing them with other active members of the DASH network. You can see the current list of active proposals together will potential budgets here: https://www.dashcentral.org/budget
Voting for proposals and distribution of funds occur on the DASH network. Funds go to people hired to perform specific tasks related to the proposals that get the most votes as a result of the voting process by masternodes. This means that the network can avoid dealing with people who have hidden financial agendas or want to steer the development of the network in a certain direction for their own financial benefit.
This mechanism also ensures that the network will keep developing and improving if certain people decide to leave the project.
After the masternodes vote for projects, the voting results become available to the public. All of this allows DASH to be more competitive and develop faster and more effectively compared to other cryptocurrencies.
As of the writing of this article, there are about 30 full-time workers on the Dash Core Team. The network also employs part-time workers and uses volunteers. However, it does not rely on donations as a funding mechanism. All the funding comes from the 10% of the mining reward that goes to the network. The network releases the funds via a superblock that it generates every month. All users of the network can track the release of funds and check where the funds went.