The dilemmas of a decentralized currency

In this article I will analyze some dilemmas that a decentralized currency project might encounter — dilemmas driven by human behavior. The article will focus on examples of Decred, a decentralized and open-source digital currency, but the observations and findings of this article are relevant for other decentralized projects and cryptocurrencies as well.

Decred is an autonomous digital currency. Besides having a decentralized blockchain with on-chain voting enabled, Decred is currently developing a censorship-proof proposal system along with smart contracts to decentralize the funding process. This is truly unique. Its team members are working hard to build a Decentralized Autonomous Entity. If you are a Decred stakeholder participating in the governance process, you already have a real voice in the direction of the project by voting on consensus changes. If you are a developer who knows Golang or if you are an enthusiastic marketeer, you can easily join the project as a contractor. In this way we are working towards a situation where there is no single point of failure within the project.

However, reality is not that simple. Many people have become interested in digital currencies to make a profit. This is perfectly understandable, since they are investing their time, skills, money, or attention into the project. Problems begin to arise when people want to maximize their gains, even if this comes at the expense of the project as a whole. This creates dilemmas.

Idealistic stakeholders versus realistic traders

Currently there are 900+ digital currencies listed on CoinMarketCap. You can imagine each currency like a stock. The more people invest in a currency, the higher the price per coin will be. In the traditional stock market, competition is a key element. The same is true for digital currencies. All 900 projects are competing for investor visibility. Each investor has a unique point of view on how decentralized projects should handle these dynamics. We analyze two main perspectives which are characterized below.

On the one hand there are stakeholders who invest in the project because they believe in it, because they share the same values, or because they feel that we are contributing something significant to mankind. Some of them are more active than others, but in general they are keen on helping out wherever they can. Their view is that the fundamentals of a currency are more important than the swings of the price per coin. They focus on the long-term and on the intrinsic value of a project. Investors come and go, but code is forever.

On the other hand there are traders, people who invest in a project because they expect the price per coin to rise. They make this decision based on the charts (technical analysis), what they read on social media, or based on what was shilled in one of the pump and dump groups they subscribed to. Some of them stick around for a while, but most of them are driven by profit and will leave whenever they feel that they should exit their position. Their focus is on the short-term and on the technical indicators of the currency.

These two views can be aligned in some cases (win-win), but most of the times there is a battle between the standpoints. A battle with idealistic values on one side, and a realistic, profit-driven business mindset on the other side. Ideals such as transparency, open-source and public collaboration are often in conflict with the profit-driven business attitude that is required to compete with other currency projects. For example, if Decred develops new features in public with full transparency, we will give competitors inside information that they might use to develop a counter strategy. There are additional dilemmas in other areas: deciding whether to pay for exchange listings, or determining the right amount of marketing and PR expenditures. Conflicts between the two standpoints that arise around these dilemmas are settled by the team members (the stewards) of the project.

In a decentralized project such as Decred, ultimately the community decides which perspective prevails. Sometimes the stakeholder view dominates and sometimes the trader view wins. How do the stewards of the project decide to pick one point of view over the other? Sometimes the competitiveness of the blockchain space requires us to reject a purely idealistic mindset. Decred is a decentralized and open-source project, but some circumstances require the Decred team to make decisions with a business hat on. A major example is the upcoming privacy update, which is developed in private prior to release. In other cases we do not bow to the business mindset. For example, we do not pay exorbitant listing fees to exchanges and we surely do not squander our funds on marketing at the expense of solid code. For the stewards of the project, striking the right balance is essential.

Reflection

Every decentralized currency is facing similar dilemmas. All currencies are competing to attract people to join their project, either as active contributors or as investors who use the currency. Nevertheless, my personal opinion is that being obsessed with competing is counterproductive. In my view, this happens when you are in a position of weakness or insecurity. We should focus on our strengths and authenticity. When we are doing something that is truly unique, there is no need for competition — we will have a monopoly!