Dash is a fork of Bitcoin born in 2014 that aims to improve its scalability and privacy. Dash is the abbreviation for Digital Cash, in fact, the goal of the project is precisely to become the most widely used form of digital payment in the world.
Putting Privacy First
Back in 2014, cryptocurrencies were emerging with so-called altcoin or Bitcoin alternatives entering the market. The problems that these altcoins tried to solve were mostly related to privacy and scalability, features that were missing in Bitcoin.
Evan Duffield, an American entrepreneur and software developer, who discovered Bitcoin in 2010, wanted to add anonymity into the protocol. After receiving a refusal from the Bitcoin Core programmers, Duffield decided to launch XCoin on January 18, 2014, as a fork of the Bitcoin protocol. After only a few months, XCoin was renamed Darkcoin and soon gained some notoriety on the market. Its price went from a minimum of 75 cents to a maximum of almost 15 dollars thanks to its anonymity features that made it an ideal payment solution for buying illicit goods on the dark web.
Darkcoin uses a mechanism called Darksend – a function that allows combining any transaction a user makes with those of two other users. In this way, anyone who tries to analyze what happens on the Blockchain will have difficulty tracking the destination of a particular payment as well as its sender.
After a year from the launch of Darkcoin, Evan Duffield and the Darkcoin Foundation began to investigate a possible rebranding as the fame obtained by Darkcoin no longer reflected the true essence of the project. The coin was in fact being considered as the favorite cryptocurrency for criminals and other illicit enterprises, compromising investors’ trust and threatening the viability of the product.
In March 2015 Duffield opted for the name Dash, which would stand for digital cash, a name that represents the ultimate goal of building a fast, friendly and scalable online payment system.
Model, Governance and Mining Algorithm
Compared to the Bitcoin blockchain which uses the proof of work (PoW) consensus mechanism to secure its network, Dash uses a hash function called “X11” with a masternodes system called Proof of Service (PoS). Simply put, a masternode is a server with a full copy of the Dash blockchain, which guarantees a certain minimum level of performance and functionality to perform certain tasks related to block validation, as well as PrivateSend and InstantSend, which are the privacy and instant transaction feature present on Dash, respectively. In order to be eligible to become a masternode, it is necessary to deposit 1000 DASH as collateral – around $50k dollars.
It is interesting to note that Dash was the first cryptocurrency to implement the masternode model into its protocol.
In return for their services, masternodes get paid back in dividends on their investment. What this does is that it incentivizes the masternodes to work in the best interests of the ecosystem.
Masternodes are paid by the block reward. In principle, 45 percent of the block reward goes to the masternodes, and 45 percent is paid to miners. Dash has a hard cap of 18 million coins, meaning there will only be 18.9 million Dash ever made and the block reward on Dash will decrease by 7.14 percent every 210,240 blocks (approx. 383.25 days). As of writing, there are ~9.2 million coins in circulation with more than 4800 active masternodes.
In addition, different from other PoS networks, additional Dash token collateral on a single masternode will not affect the earnings of masternodes.
Another important service done by masternodes is the DAO. This decentralized organization serves to finance those projects that users deem useful for the development of Dash, and in general for the payment of developers or other individuals working on the project. Masternodes play an important role here as well since they are in charge of the votes to determine future development directions for the cryptocurrency.
Dash was born with the intention of improving the privacy and scalability of Bitcoin in order to develop an instrument that will be widely used as digital cash. From the way it was designed, Dash has a greater transaction capacity than Bitcoin and allows transactions to be made with a higher level of privacy. But the biggest difference with Bitcoin is the Governance model based on masternodes that manage a Decentralized Autonomous Organization (DAO).
In the second part, we will show how Dash has been adopted in different parts of the world as a real payment instrument, especially the case of Venezuela, and what are the updates and plans envisaged in the roadmap. Finally, we will analyze the weaknesses of this system and the risks associated with a structure managed by masternodes.