Dash (DASH) is digital cash. It is money exchanged on a highly secure, open-source, peer-to-peer network. Dash aims to be the most user-friendly and scalable payments-focused cryptocurrency in the world. The Dash network features instant transaction confirmation, double spending protection, optional privacy equal to that of physical cash, a self-governing, self-funding model driven by incentivized full nodes (masternodes, more on that later).
On the Dash blockchain, there are two ways to contribute (and earn in the process) to the network. While both are equally important and needed for the Dash network. The block reward on the Dash blockchain contemplates mining, masternodes, and the governance budget. Every time a block is mined, 45% of the reward goes to the miner, 45% goes to a masternode, and the remaining 10% is reserved for the governance budget. Each method is equally important to the network, although the masternode does enable more features, the blockchain needs both of them to work. Let’s analyze each of them separately:
Dash, like Bitcoin and most other cryptocurrencies, is based on a decentralized ledger of all transactions, known as a blockchain. This blockchain is secured through a consensus mechanism; in the case of both Dash and Bitcoin, the consensus mechanism is Proof-of-Work (PoW). Like mentioned, it is used to determine how the blockchain reaches consensus, which is when a majority of the participants in the network agree on validating information. When all participating entities agree, it results in the confirmation and addition of the transaction to the blockchain. This consensus mechanism uses an advanced form of mathematics called cryptography; the mechanism uses mathematical equations that are so difficult that only powerful computers can solve them.
In the Proof-of-work system, thousands of individuals devices all compete to become the first to solve the cryptographic algorithm. Still, only the user that solved the equation first is rewarded for the services they provide to the network. The process is known as mining.
The way that cryptographic puzzles are created allows them only to be solved by trial or error. Computers can guess millions of different combinations per second, which requires such a large amount of electricity. So generally speaking, the individual or individuals that have the most powerful and expensive hardware devices will always have the edge on the rest of the network, and thus a higher chance of winning the reward.
The Dash blockchain uses the X11 hashing algorithm for mining and real-time difficulty adjustment algorithm named Dark Gravity Wave. This algorithm prevents malicious mining centralization and hash power fluctuation. Mining is possible on a range of hardware.
Dash differs from other cryptocurrencies by employing a two-tier network. The second tier of the network is powered by masternodes (full nodes), which enable financial privacy (PrivateSend), instant transactions (InstantSend), and the decentralized governance and budget system. Because this second tier is so vital, masternodes are also rewarded when miners discover new blocks. The breakdown is as follows: 45% of the block reward goes to the miner, 45% goes to masternodes, and 10% is reserved for governance, a budget system (created by superblocks every month).
A masternode is a server with a full copy of the Dash blockchain, it guarantees a certain minimum level of performance and functionality to perform specific tasks related to block validations, and as mentioned, PrivateSend and InstantSend. They also enable services as ChainLocks, which protect the blockchain against 51% mining attacks by signing blocks as they are mined.
Anybody can run a masternode; there’s only one condition that must be met: the ownership of 1000 DASH. In return for the services they provide to the network, masternode owners receive regular payment. As more masternodes are created, the duration between payments increases exponentially. Users are rewarded for running masternodes; 45% of the block reward is allocated to pay the masternode network.
Masternode owners are allowed to vote on governance and funding proposals with each masternode receiving one vote (yes/no/abstain) on each proposal submitted to the system.
It is essential to mention that if the collateral behind a masternode is moved, spent, or if a masternode stops providing services to the network, it is removed from the list until regular service resumes, and payment for their service ceases. In this way, masternode owners are given the incentive to provide efficient and reliable services to the network, thus making it more secure. You can learn more about masternodes here.
The masternode system is referred to as Proof of Service (PoSe) since the masternodes provide essential services to the network. In fact, the entire network is overseen by the masternodes, which have the power to reject improperly formed blocks from miners. If a miner tried to take the whole block reward for themselves or tried to run an old version of the Dash software, the masternode network would orphan that block, and it would not be added to the blockchain.
To summarize, the first tier, which is powered by mining, takes care of basic sending and receiving of funds, and prevention of double-spending. Masternodes power the second tier, which provides the added features that make Dash different from other cryptocurrencies. Masternodes do not mine, and mining computers cannot serve as masternodes.
Due to the advancements in the crypto mining industry, to make mining actually profitable, one must have the most powerful and expensive hardware devices or join mining pools or cloud mining services. All of this on an effort to have the edge on the rest of the network and thus a higher chance of winning the reward. In other words, mining requires a substantial investment for it to be profitable.
On the other hand, masternodes require a lot less hardware and thus a lower investment than that of mining. The main problem here is the condition of owning 1000 DASH, which, to some, can be harder than to invest in mining hardware. Masternodes do not require much maintenance and can also be hosted through masternode hosting services. In such services, users would only have to worry about paying the service’s fees. Apart from the mentioned benefits that come with running a masternode (vote on the governance), it is also a good source of passive income.
Each of the ways of contributing to the network requires the user a certain amount of investment both financially and personal (time), it is left for each individual to decide what suits them the best.
What makes Dash different from the rest?
While Dash is based on Bitcoin and compatible with many key components of the Bitcoin ecosystem, adjustments to the code allowed to improve and introduce new features like its two-tier network structure, which offers significant improvements in transaction speed, privacy, and governance, Dash is the first cryptocurrency based on the work of Satoshi Nakamoto with built-in privacy functions. The second tier of the network is powered by masternodes (full nodes), which enable financial privacy (PrivateSend), instant transactions (InstantSend), and the decentralized governance and budget system. Without getting too much into technical details, the key takeaway points are:
- Masternodes: Dash introduced masternodes to incentivize users with payments to secure the network and enable handy features like InstantSend, PrivateSend, and decentralized governance. Masternode operators invest 1,000 DASH to host a Masternode. Masternode operators get 45% of the reward for every Dash block that’s mined. While this feature has become increasingly popular in other projects, Dash remains as the pioneer in such technology.
- InstantSend: Other cryptocurrencies such as Bitcoin block take an average of ten minutes and six typical confirmations for the transaction to be processed. Large transactions can take up to an hour to be processed. InstantSend technology allows Dash to complete nearly instant transactions, such as traditional transaction systems like points of sale situations, without the need to rely on a centralized authority.
- PrivateSend: While other cryptocurrencies transactions are pseudonymous and can be traced to their addresses, Dash introduced PrivateSend. PrivateSend works in such a way that the masternodes take the Dash you want to send privately and mix it within a group of Dash from other people using PrivateSend. The masternodes then distribute the Dash to the final addresses. This way, the final destination of your transaction is concealed.
- Self-Sustainable Decentralized Governance. While Masternodes are incentivized and can govern the blockchain with one vote per Masternode, the Dash blockchain is also self-funded. 10% of each block reward is allocated on a superblock that will then be released after a period of 16,616 blocks. This budget is used to finance development as well as other community-proposed projects.
- Algorithms used: While Dash uses Proof-of-Work (PoW) as a consensus mechanism, it doesn’t necessarily use the same algorithm as other cryptocurrencies that also employ PoW. Dash uses the X11 hashing algorithm for mining and real-time difficulty adjustment algorithm named Dark Gravity Wave. This algorithm prevents malicious mining centralization and hash power fluctuation.
- Mining rewards: Miners that contribute to the Dash network are currently awarded 3.11 DASH per block, an amount that gets reduced 7.14% every 383 days.
- The number of coins produced: The Dash network is scheduled to produce a maximum of 18 million DASH, with approximately 9 million already issued.