The Impact of Bitcoin on Dash
Bitcoin introduced the world to a peer-to-peer, decentralized cryptocurrency. For the first time ever, we had a financial system that wasn’t dependent on any government, company or bank. There are no intermediaries whatsoever. Like many cryptocurrencies, Dash has been heavily influenced by Bitcoin — both from a technical and philosophical perspective.
How Bitcoin inspired Dash
Bitcoin is powered by blockchain technology. The blockchain is a digital ledger that records every Bitcoin transaction. Bitcoin’s person to person network architecture downloads and maintains a copy of the blockchain on every server (node). This ensures robust decentralization and complete transparency. The protocol also uses very sophisticated cryptography to send transactions securely. Even governments and the military can’t break this level of encryption.
At its core, Dash follows the same architecture, with one key difference. Dash uses a two-tier network of normal nodes (layer 1 just like Bitcoin) and Masternodes (layer 2) to ensure scalability, better security, much faster transactions and optional privacy based on the user’s needs. Dash founder, Evan Duffield, used this 2nd layer innovation to mitigate Bitcoin’s low throughput, slow governance mechanism, and lack of privacy, optional or otherwise.
Interestingly, Duffield forked the original Dash codebase from Litecoin. Litecoin is a Bitcoin fork that offered an altcoin that was significantly faster than BTC. The original Dash protocol was dubbed “Xcoin” and then “Darkcoin” before rebranding to Dash. Following the Dash Core 0.11.0.x protocol update, the Dash codebase changed from a Litecoin fork to a Bitcoin fork. Dash also regularly backports updates from Bitcoin to maintain any competitive innovations or advantages that Bitcoin may produce .
Bitcoin’s impact on Dash’s protocol and tokenomics
One of the most important things that Bitcoin had to fix was the double spending problem. Double-spending is a flaw that allows the same digital token to be spent more than once. It’s the digital version of counterfitting. Unlike their physical counterparts, a digital asset can be easily replicated.
Until that problem was solved, a digital currency could never be successful and become widespread. You could never really prove that this bit of Dash or Bitcoin was yours and yours alone. If you can’t prove ownership, a merchant can’t be sure that any given transaction is real and final. This is one of the reasons a credit card or debit card transaction isn’t really finalized for several days or more. In one sense, this problem was even harder to solve in a decentralized digital currency network since there is no central authority like the bank to oversee the validity of transactions.
This is the root cause of the expense, complexity, errors and delays in the credit card, debit card and personal check systems in the legacy banking system.
Double or pending charges on your bank account or credit card do not necessarily mean that you have been charged twice.
Authorization hold (also called card authorization, preauthorization, or preauth) is the banking industry practice of authorizing electronic transactions made with a debit card or credit card, and holding the balance as unavailable either until the merchant clears the transaction (also called settlement), or the hold “falls off” and makes the balance available again.
For debit cards, authorization holds can fall off the account from one to five days after the transaction date, depending on the bank’s policy. For credit cards, holds can last as long as 30 days, depending on the issuing bank.
Satoshi Nakamoto completely solved the counterfitting/double spending problem with a stroke of genius. It’s called the proof-of-work (PoW) consensus algorithm. Every server (node) on the Bitcoin network sees every transaction, and the consensus algorithm makes it extremely difficult and expensive to fool the network for even one or two blocks. And virtually impossible to fool for longer than that. This single innovation solved the problem that the legacy banking industry has not been able to solve for 100 years…..and is still not solved today.
From a tokenomics perspective, Bitcoin is famous for having a fixed upper limit of 21 million. DASH also has an upper limit of 18.9 million. This completely changes the long term nature of the currency. There is no upper limit on how many dollars can be printed. The same is true for every other fiat currency in the world. This is what causes inflation. A good case can be made that the US Dollar is the most stable paper currency in the world.
The US dollar has lost 86% of its buying power in the last 50 years.
Since 2020, the US dollar has lost approximately 43% depending on which data you consider. And that’s one of the best fiat currencies in the world. The next 10 years will almost certainly be worse because of the huge increase in deficit spending. So, although cryptocurrencies like Dash and Bitcoin are very volatile, it is thought that in the long term, they will greatly appreciate in value because of the hard limit on how much can be mined/printed.
What about price impact?
Altcoins usually follow Bitcoin when it comes to price action, and DASH is no different. As you can see, the daily price patterns have several similarities,
How Dash has built a more functional protocol than Bitcoin
This is where Dash and Bitcoin differ significantly. Bitcoin makes a new block (a group of certified and proven transactions) every 10 minutes. Dash makes a new block every 2.5 minutes. But the real innovation is the second layer of servers (nodes) called Masternodes. In layer one, Dash uses a very similar PoW consensus protocol to secure blocks and transactions. But the second layer introduces a host of new features.
InstantSend. In the Dash ecosystem, we don’t have to wait 10 minutes for a new block like Bitcoin. We don’t even have to wait 2.5 minutes for layer 1 Dash to make a new block. The Masternode system absolutely locks the transaction in less than 2 seconds, and the transaction is final and safe. When the new block is published, all the InstantSend transactions are made even more secure.
Chainlocks. One of the possible attack vectors for all cryptocurrencies that are similar to Bitcoin is called a 51% attack. If you buy or rent enough servers (nodes) running Bitcoin on layer 1 (where mining occurs to publish the next block) you can split the chain so the layer 1 network is no longer certain which chain is the “real” chain. This is a perfect opportunity for the double spend or counterfitting scam. From a practical point of view, buying or renting that much computing power on the Bitcoin network would be ridiculously expensive. But for many other cryptocurrencies, the 51% attack is a real threat and it has happened a number of times
Dash has made that impossible because of the Chainlocks feature.
CoinJoin (aka PrivateSend) Bitcoin is not private at all. But any user of Bitcoin or similar cryptocurrencies can gain greater privacy by using a mixing service. The use and operation of mixing services has become controversial recently. Andreas Antonopolis does an excellent job of describing the complexity and controversy.
The take home message is that using PrivateSend on the Dash network is conceptually exactly the same as somebody using an independent mixing service with their Bitcoin transactions. It can be toggled on or off depending on the needs of the user. Some privacy cryptocurrencies like Monero make every single transaction on their blockchain private by default. It’s NOT optional.
DAO Governance. The Bitcoin community struggled mightily for two years trying to decide if they should switch to larger blocks to meet the rapidly growing demand. In the end, the community had a very public, messy and destructive civil war. The final solution, if we can call it that, was to split into three different and competing products, Bitcoin, Bitcoin Cash, and BitCoin SV.
Dash invented the DAO, or Decentralized Autonomous Organization as one of the features of layer 2 with Masternodes. People who run a Masternode get voting rights and a Treasury system to help solve critical governance and funding questions. Rather than taking 2 years and a civil war, the Dash DAO discussed and adopted the big block strategy in a week and never looked back. We have a realistic plan to scale Dash to levels similar to Visa or Paypal.
Wrapping it up
Bitcoin’s original purpose was to provide honest, fast, affordable money to the world. Their primitive governance structure and inability to scale has more or less forced them to abandon that use case. But not Dash. Dash embraced that challenge, solved the technical and governance problems and is now the fastest and most effective digital currency in the world. And most transactions cost a penny or less. You can send any amount of Dash to anybody in the world in a few seconds. Bitcoin can no longer do that.
And we are right in the middle of applying all that talent and innovation to the challenges of Web3. Dash started as a more private, more secure and faster form of crypto payments. It is now evolving into a highly programmable chain that could host a diverse and eclectic ecosystem. If you want to know more about these developments, check out Dash Platform.