Since Decred Is Competing With Bitcoin, It’s Designed to Fail
I invested in Decred due to sentiment and following the herd. In retrospect, it was a bad decision.
What if $850 million marketcap in May 2018 was the high watermark, what if that was as high as Decred will ever go?
Decred peaked at 0.0163 BTC a year before that in June 2017, it’s gone down nearly 90% to 0.0016 in 2019 and today it’s hovering around 0.002 BTC per DCR.
Decred has been such a bad investment that there has only been a 3 month window in 2016 and a 3 month window in 2019 that you could have purchased Decred and be up in BTC terms.
Currently sitting at $240 million marketcap, it still feels overvalued to me.
Back in early 2017 when Decred was presented at Coinbase & Litecoin’s Charlie Lee tweeted a photo that he had a percent of his portfolio in DCR, a group of investors and I bought in to the idea that Decred had the potential to amplify our BTC gains, so we acquired a position.
Decred is unique & interesting, it’s a hybrid of Proof of Work & Proof of Stake, meaning you can get paid really well for voting on proposals (or you can get inflated hard for forgetting to vote.)
Decred’s developers were the team behind BTCD, one of the main bitcoin node clients. They were working on adding Segwit & doing cross chain atomic swaps. It seemed like a very compelling investment at the time, and it was only at a measly $5 million marketcap!
Aside from the low valuation and the team, there were 2 main pitches for why bitcoiners who were closet altcoin investors were attracted to fill up a bag with DCR.
The first is governance. The main difference between Bitcoin & Decred is with Decred, governance is built in via voting on proposals. Decred community likes to say that it is fork-proof because of this.
For example, let’s say Decred developers wanted to add Segwit – they actually code it up and submit it to a protocol vote so that if the vote is “yes” it gets merged and starts working immediately.
That’s quite novel, a lot of people see the value in a governance system like this – but Bitcoin got Segwit and became stronger & harder because of the internal conflict between the warring factions of bitcoin during the Segwit2X battle.
There are other types of proposals in Decred aside from coding proposals, people can submit proposals for funding to do marketing, etc.
While this is a novel idea and a pretty cool feature, the DCR cryptocurrency is directly competing with Bitcoin. Therefore it’s likely to fail.
This also does not make Decred fork-proof. If a bad actor like Roger Ver decides to copy the UTXO set and make Decred Cash, there’s nothing about Decred’s on chain governance that can stop an off-chain attack.
Bitcoin Cash is not Bitcoin, it has nothing to do with Bitcoin really – an early bitcoiner decided to make his own coin and copy/paste the bitcoin UTXO set on his coin. It’s an outside social attack that can’t be accounted for at the protocol level. Decred is not “fork proof” in this way.
Aside from the daunting insurmountable task of competing with Bitcoin as currency, Decred’s value proposition of onchain governance has proven out to be not that interesting.
The crypto markets don’t seem to value onchain governance, look at the top altcoins; Ethereum, Bcash, BcashSV, Litecoin, Ripple, EOS, etc.
All of these projects are extremely centralized around 1–2 entities.
“Crypto” investors don’t care about decentralization, nevermind governance.
The second primary differentiator is Security. The pitch is that Decred is 20X more secure as bitcoin with same mining power AND you can get paid via staking.
Initially I was triggered by this claim and I was very resistant to it. I thought “20X more secure as bitcoin, that has to be a lie!”
The key here is bit about “the same mining power”
While I don’t have a chart of Bitcoin and Decred hashpower equivalent laid on top of each other, you can see that Bitcoin’s hashpower has grown exponentially making continual all time highs during the bear market.
Decred on the other hand has seen slow growth and periods of slow decline or stagnant hashpower during the same time frame where Bitcoin hashpower has continued to make new highs continually.
This tells us that Bitcoin has made it much further down the path of Store of Value and commoditization while DCR has mostly stayed as a niche altcoin/spec mining play.
The “more secure” argument is that since DCR is a combo of both PoS and PoW, an attacker would have to both obtain the hashpower required to attack the network AND 33% of the coins.
Likely Decred would never be attacked this way, you can’t measure it effectively because if someone wanted to attack Decred, they would have to buy 33% of the coins which would cause the price to skyrocket. Decred price would go up as people would sell their coins to the attackers (likely for Bitcoin).
There are other ways it could happen — regulatory attacks, government capture, code bugs etc could cause a crash in the price of DCR and exchange delistings which would dry up liquidity while the would-be attacker buy blocks of coins OTC.
If Decred and Bitcoin had the same amount of equivalent hashpower (it’s not even close) then Decred would be 20X more secure than Bitcoin because attackers would also need to acquire a significant amount of coins to carry out the attack.
If you look at the gini coefficient of DCR, you can see that it appears to be sufficiently spread out to keep it safe enough from an easy attack on the PoS front.
So yes, it’s true to say that Bitcoin could be ~20X more secure if it used a hybrid of POW + POS, but Bitcoin’s hashpower is so significant that it’s security is already more than 20X better than the other altcoins as per https://howmanyconfs.com/
The Bitcoin network is secured by the most powerful computer network in the world, there’s more computing power going to secure the bitcoin blockchain than Google, Facebook or Amazon controls.
So while there may be truth to describing Decred as being 20X more secure than bitcoin at similar mining hashpower, it’s intellectually dishonest to say that Decred is 20X more secure than Bitcoin.
In fact I think it’s extremely unlikely that Decred ever could be half as secure as Bitcoin, even if there is another alt season.
Theoretically it’s an interesting tail hedge bet against a complete failure of Bitcoin security. It’s also an interesting computer science & consensus experiment — but as an investment, I don’t think it’s worth holding a large position long term anymore on the merits of it’s security & staking features.
Additionally, DCR does other things. Like many other altcoins, it has thrown in Lightning Network, DEX functionality & Privacy!
This chart shows 16.64% of DCR has been mixed — which shows that developer whales are actively using the mixing feature because it’s command-line only at the moment.
Decred is competing with Bitcoin as Store of Value. Decred has failed in this thesis. How long before the funds & institutional investors that liked DCR in 2017/2018 bail on this thesis?
Staking DCR gets you interest — but what good is interest if the asset is bleeding against Bitcoin?
DCR has to go up in value to compete against Bitcoin, and so far it’s failed miserably. 0.01 BTC per DCR to 0.002 BTC per DCR in 12 months.
DCR has continued to fall through support level after support level, it feels like there is no bottom.
DCR has been getting delisted from exchanges due to fears over it being a security and fears about the FATF travel rule.
Why use DCR when you can use Bitcoin?
I still have not capitulated on my DCR position, but I’ve been thinking about whether I will keep it.
Warren Buffet & Charlie Munger say that you are not growing unless you throw out at least 1 of your investment ideas per year.
DCR 2020 shortlist:
-liquidity is poor, large investors trying to buy & sell OTC.
-hashrate growth is healthy but nowhere close to Bitcoin.
-price action is depressing & fell through all major support zones in 2019.
-risk of it being classified a security is high as it was delisted from exchanges in 2019.
-gini coefficient is decent, more fairly distributed than most Altcoins.
-theoretically it’s 20X more secure than bitcoin with the same hashpower, but hashpower & network value of DCR is not in the same league as Bitcoin.
-the meme of Decred as a decentralized money of the internet and digital gold is nowhere close to the strength of Bitcoin’s Lindy effect.
-You can make interest with staking, but it’s high risk since price keeps going down & requires more work & headspace than just HODL bitcoin.
-Placeholder Capital is invested in Decred, they evangelize to hedge funds, and the fund’s reputation depends on the success of Decred.
-Competition is extremely high for PoS coin market share, including with Tezos, another silicon valley favorite.
-likelihood of Decred beating bitcoin in the next 5–10 years for SoV is miniscule.
-developer quality is very high, honest & hard working.
-developer activity is nowhere close to top competing Altcoins.
-community has declined in the bear market, a lot of early backers exited with significant profits during the bull run.
-decred was a 2017 story. 2020 spotlight belongs to Bitcoin & potentially some other altcoins.
Some things I’m going to need to ask myself — what is Decred doing in 2020/2021 for it to stay relevant on investors radar?
Why should I keep this bag, a lot of the people who recommended this coin as a buy in 2017 held this coin during the bear market until it was down 90%+. Listening to those same folks is definition of being in an echo chamber & group think. DCR and many other altcoins could fall another 90%.
At $30,000,000 marketcap, Decred was a great buy. Now it still feels overvalued.
The only logic I can think that makes sense to hang on to DCR at this point is as a tail hedge bet against a successful 51% attack on Bitcoin where DCR outperforms if the PoW + PoS proves to be more secure than PoW alone.
