 Welcome to the Daily Decrypt, good buddy. A fine a place for currency competition as any. I am your host, Amanda B. Johnson, and today's episode is brought to you by BitShares. The still unresolved and increasingly expensive debate within Bitcoin has been attributed by some as a crisis of governance. Well, just what type of governance is most suited to the decentralization of all the things? The little discussed governance model of Dash has caught the attention of right-around technologist Eric Sammons, and we called him about it today. Please let us begin by just give us a brief bio of yourself. Okay. Yeah. I have always been very interested in technology and economics. I actually have an undergraduate degree in systems analysis with a concentration economics, and I've been working in internet startups for a very long time, and open source software, Linux in the 1990s when it was first getting big, I was very involved in that. And so when cryptocurrencies when Bitcoin came onto the scene, when I first heard about it, I was the kind of, I call myself a late adopter. I didn't hear about it really until 2013. I should pay more better attention, I guess. I'm a late adopter too. Yeah. I mean, and I heard a talk by Eric Voorhees, an interview with him, and I was just like, wait a minute, this seems crazy. This brings together what I've been thinking about for years about technology and economics. And so I got very much interested in Bitcoin at that point, and have been following it ever since. And then over the past probably year or so, I've kind of broadened my interest outside of just Bitcoin to some of the altcoins as well, kind of looking and seeing what are they involved in. I think like most Bitcoin people at first, you consider Bitcoin the one and only option. And then over time, you start to see, well, wait a minute, Bitcoin might not be the only game in town. It doesn't say anything against Bitcoin, it's just like it's not necessarily everything for everybody. And so that got me more interested in exploring other ways of doing things in the cryptocurrency world. Well, to let everybody know, Eric has recently published two pieces and they are what we will talk about today. The first of them is called Rise of the Machines, Blockchain-Based Governance. And the second, I don't have the exact title pulled up here, I believe it's called Unchained. Give us the full title, Eric. Yes, Unchained Altcoins as Free Market Bitcoin Side Chains. Unchained Altcoins as Free Market Bitcoin Side Chains. And I find both of these pieces particularly juicy, particularly ripe to be picked apart. So let us just begin with the first one, with Rise of the Machines, Blockchain-Based Governance. Mind giving us a general overview of your thoughts in that piece. Yeah, it's a general piece in the sense that talking about governance by blockchain, the idea, and when I say governance, I want to make sure something's very clear. I'm not necessarily talking about government, I'm talking about governance of anything. So maybe governance of a community, governance of a corporation, governance of any group of people. When you have more than one person involved in anything, you have governance, whatever that may be. And so it's really talking about that. And then I specifically look at one specific altcoin, how they are addressing the issue of governance, and that's the altcoin dash. So what is it that you go on to say about Dash's governance? Yeah, so basically I'm very interested in Dash, and I have been for a few months now, because we all know what's going on with governance in Bitcoin. That we have a huge debate going on with the block size limit and whether or not we should raise it to two, to keep it at one, do we want to do segwitness, all these issues. And if you're on Reddit, which I don't necessarily always recommend anymore, you see how rankerous it's gotten, that debate. The question has arisen, who decides? Who is the final decision maker to say, okay, is it this person who decides, do we do it this way or this person? If you look at the history of Linux and the history of Bitcoin, you see they start off with benevolent dictators, I call them, Linus with Linux and of course Satoshi with Bitcoin, where everybody agrees, this person cares about the community, they created it, we're going to let them be the final decision maker. Both those personalities were perfect personalities for it, where they were laid back, they didn't have egos, it wasn't a vanity project, they wanted to hear the community, they wanted to do what the community wanted, but in the end, they did make the final decision. And of course, with Satoshi no longer being involved with Bitcoin, now we have a situation where we have multiple parties interested in taking Bitcoin in different directions, we have the core developers, we have the miners, we have merchants, we have just general users and there's a disagreement on the fundamental nature of what Bitcoin does. And so, like a lot of people that got me thinking, is there a better way we might be able to do this? And what I found was with Dash, they found a better, I think a better way. What they do is they have hard coded governance directly into the protocol. So just a quick explanation of that is, in Bitcoin, what you have is the block rewards, you know, every 10 minutes, 25 right now, 25 Bitcoin are released and it's a block reward and they're given completely to the miners. So whoever mined that block, they get 25. Well, in Dash, it's similar, they have block rewards, it's every about two and a half minutes, I think, and the block rewards about four Dash per block. What they do is they divide that reward though. They give 45% of it to miners, so we still have a proof of work mining to secure the network that's very important to have that to make sure the network is secure. But then you give 45% of the block reward to master nodes. And these are full nodes who basically have set up a computer just like a Bitcoin node, but it's a little bit more than that because what they're doing is they're guaranteeing that it's going to be up 24-7, it's going to be on hardware and a connection that is robust, and then they get, and also they have to give up 1,000 Dash collateral. When I say give up, they don't actually get it out of their possession, but it's locked. And so as long as it's locked, they can run the master node. If they unlock it, the master node is no longer part of the network. And so these master nodes are very, it's a very unique two-tier structure that Dash is innovated with because now what you have is, you have these, right now there's about 3,500 of them, these very powerful servers that are running all the time, and they have owners who are incentivized to keep them running. So that 45% of the block reward goes to them. So if you are good at math or if you're not, 45 plus 45, we got 90. So what happens to the other 10%? Well, once a month, that 10% of the block reward, it's about 7 or 8,000 Dash a month, I think right now, that goes to the budget system. And what happens is anybody who wants to can make a proposal to the network and say, hey, I would like to do this. Like I would like to set up a decentralized exchange. I would like to set up anything they want to do with Dash. I want to create a soda machine that accepts Dash. And I need this much money to do it. They can say, hey, give me 400 Dash. And then what happens is the master node owners, they vote on that. And they decide, is this worth it or not? And if it passes, and there's a whole set of rules on whether or not it passes, but if it passes, then the protocol itself actually releases those Dash, let's say it's 400 Dash, they requested to that person who made the proposal. So if you notice, there's humans involved in the voting, but there's no person saying, OK, here's your 400 Dash. I'm going to give it out to you now. No, the protocol itself releases it, which is, if you think about mind-boggling, because you have a situation here where a computer algorithm and network is actually paying people to improve it, which I think is just kind of blows the most common, I think, people bring up first is Skynet, you know, the Terminator that all of a sense can become self-aware. But really, it is pretty radical because one of the things that's on the monthly budget is actually the core developer salary. And so we have a situation where the core developers are being paid by the computer protocol that they are maintaining and improving and upgrading, which in a sense means the protocol itself is self-growing. It's able, like a sentient being, it's able to actually grow itself, which I think is amazing if you really think about it. That is a world of difference in incentives when it comes to Bitcoin development, because, for example, as most of the core developers are employed by Blockstream, and Blockstream's most recent funding round was not funded in Bitcoin, but was rather funded in dollars. And so it is a market difference that you bring up to have a development team paid in the currency that they are developing. That's right. And also it gives power to the, it gives the incentives and the power to the masternode owners who have put their skin in the game. They've deposited 1,000 dashes, so they care about the currency. They are truly the owners of the network because they can fire the core developers. Let's say, you know, Evan Duffield is the creator of dash. Let's say he disappears like Satoshi did, or he just decides, you know, I'm done with this. Or even he decides, I don't want to go in a completely different direction. The masternode owners can say, we're not going to pay you anymore. And then somebody else could step in and say, we're going to pay you to develop dash. And so the core developers are the servants of the network, instead of being kind of the lords of the network, which I think gives incentives for them to do what's best for the broader community and not necessarily for one corporation like Blockstream or whatever. And also it takes power, some power out of the miners. Now the miners are still important because you want them to be important. They secure the network, they do very important work. But they are not, they don't have complete control like they do in Bitcoin. Because if you think about it, right now Bitcoin is really controlled by a handful of people in China, the Chinese miners. And they really are the ones who decide things because they could just decide, I'm going to mine core, I'm going to mine classic, whatever they decide to do, that's what happens. Well, in dash, that's not going to be what happens. If the miners decide, if they want to go a certain direction, the masternode owners really control whether or not that would happen or not. And now let's play out that scenario. Okay, so let's say a competing reference client in dash, let's call it dash classic, were to come about and some or a majority of dash's miners wanted to switch to it. Now, and you're saying, we're talking about a scenario in which perhaps dash's masternodes did not want to switch, how would this play out? Well, I think it would play out in the sense that the masternode owners would make clear through some voting proposal that this is not what they want to do. And also they would not, the masternode owners are nodes, so they run a version of the software. And so they wouldn't run the dash classic, so to speak. Instead what they would do, they continue on the dash core in this case. And they would be controlling to say, okay, this is what we want. Now, remember, this is a much more decentralized version than a handful of miners, because all you need to become a masternode owner is a thousand dash, which right now is about $4,000, $4 per dash. And so you can be anywhere, because you can host it, you can do virtual hosting somewhere, you could host it wherever you want. But the point is, is that there's 3,500 masternodes right now, which is a very large number considering the market cap of dash, because if you think about Bitcoin, it's about 6,000 nodes, of which those nodes are on and off. Those, I mean, I have a node, a Bitcoin node running, and it's at my house and it drops off about once a week, just because of my internet connection. Well, the masternodes, if they drop off, they don't get paid. And so they make sure they're up 24-7. And so what happens though, you have this much more decentralized market. Also, if you think about masternode owners, they're a little bit more in tune to wanting dash itself to succeed. Because they can't sell off that thousand dash. A miner, they could sell off their Bitcoin the second they get it. They get their 25 Bitcoin, they can just sell it on the market for dollars. So they could be doing this completely fiat-based, really. Whereas a masternode owner can't, because he's got a thousand dash at minimum locked up into the network. And so as long as dash is successful, that thousand dash is going to continue to grow, and that's what he wants. And so I think the incentives there have been adjusted, not completely differently than Bitcoin, but I think in such a way that you have a broader base of voters, a broader base, a more decentralized, truly Satoshi-like vision of how to govern the cryptocurrency. You know, it is interesting that this remaining 10%, as you said, which is set aside from the block reward to be allocated once a month, it's not just used for marketing. As you said, it's also used to decide the direction of development. So I myself have been paid by the dash blockchain. As anybody who's been on my channel very long has known, I made a budget proposal to the masternodes, and I said, hey, I would like your blockchain. Sounds weird to talk about blockchains like their people. I would like your blockchain to pay me for sponsorship of 10 episodes of the Daily Decrypt. And they voted and it passed. And sure enough, when the superblock came around the next month, this blockchain paid me. Like, it did not pay me. So I was like, huh, well, that's a great way to do marketing. But then I saw later in the month, I saw the action of this voting system also to be used to decide development direction, which as you probably remember, was when the currently developer, the one masternodes are currently paying to be the developer, put forth a proposal which costs five dash, which I believe are burned. So he paid $20 worth of dash out of his pocket and said, I think that it would be wise if we doubled our block size cap from one megabyte to two. I put it forth to a vote to you masternodes and they voted almost unanimously to increase the block size cap. And so this governance system is being used not only to fund projects, but also to decide development direction in and of itself. Is that correct to say? That's absolutely right. And that was a perfect example of that it's not only a self funding mechanism, you know, it's called a budget system for a reason because it funds things. And as we know, where money goes is how decisions are made. But also, like when Evan put that up for a vote, he asked for a token five dash return basically to pay back the five dash. He burnt to submit the proposal and he said, he believed and he gave an argument. That's the thing is every proposal comes with an explanation by the person who makes the proposal. Why did I think we should do this? And he was arguing that he thinks to get ahead of the curve. Let's go ahead and increase the dash block size limit to two megabytes. Dash being much smaller right now than Bitcoin isn't really running into the roadblock like Bitcoin is, but he was thinking like, let's do this now. And also will give us time to make sure that there's no consequences that we haven't thought of. We can do this in a very orderly fashion. But he didn't want to do it on his own. He said, no, I want to see what do the people, what do the masternodes, what are the most incentivized, most invested people in Dash think? And sure enough, within 24 hours, the vote was almost unanimous. I think it might be the highest percentage yes vote ever that's been in the system since it's been around for a few months now. And if you just look at in contrast with the block size debate in Bitcoin, which has been raging now for a year and maybe it'll be solved in the next year, maybe it won't, we see the vast difference in the governance structures there. All right, so this is all sounding very glowy, very advanced, very sparkling. On the flip side, have you identified any potential downsides to this form of governance or is that something that has yet to be tested enough to even know? Well, it is relatively new, but we've already found one I think and that was recently there was a budget proposal put out for a PR firm and it was going to last over multiple months. And so it was typically any corporation that they hired PR firm, they don't hire them for just one month, they hire them for six months to a year because PR takes time. Well, this was a multiple month proposal. And so I think Evan might have, I think it was Evan who put it in and it was supposed to last, I don't remember how long, maybe six months, something like that. Well, after about a month or so, there was members of the community who wished for, they weren't satisfied with the results. Okay, fine. And so then all of a sudden the proposal the next month was voted down. So the first month it's voted up, the next month it's voted down. Well, that can cause a problem because now all of a sudden we have a situation where a human being, Evan or somebody, made an agreement with this PR company for multiple months, yet the blockchain voted it down after a month. And so that was definitely finding a weakness in this governance model, which is exactly the way we're doing it. You just try on air. Who's ever done this before? We got it figured out. And so what Evan did was recently he put up a new proposal to modify the budget system so that multi-month contracts can be signed and agreed to in the blockchain itself. And so there would be different rules for passing it because obviously if you pass an agreement for one month for 400 dash, okay, fine. But that's a lot different than if you want a 12-month proposal for 400 a month. Now you take it more seriously and you're going to vote differently perhaps. And so he's making, he proposed different passing approval ratings. So instead of like a 10% of net votes for the whole masternodes, now I think he proposed 50% or something like that. Make it harder, which it should be. And so that one, and that one's currently being debated, but he is proposing this through the budget proposal system. And so it allows us to use. So it's not only self-funding, self-governance, it's self-improving because we see a weakness through the blockchain, the budget system itself. We can improve how it works. And so I think that's going to happen. We're going to have other things that we run into like, oh, we didn't think of this. Oh, this isn't happening. And so these are different issues that come up that can just be improved upon in the system, in the protocol itself. Well, you know, I think the human masternode operators also learned a thing or two of the other sponsorship of the daily decrypt because we also encountered a little snafu in that my generalized proposal of, hey, sponsorship that includes, you know, like 15 seconds of messaging, logo placement, da, da, da. That was voted yes by the masternodes. But when it came to scripting, like what I would actually say in the sponsorship messages, I had just submitted that to one point of contact within Dash in particular, like one PR representative and had just gotten his approval on the messaging. And turns out not all of the masternodes approved the exact messaging. And I was getting like nasty grams from people, like basically like, hey, you stupid bitch, like you should really like get your shit straight. And I was like, whoa. And so I just, I wanted to share that as like, you know, another story to show like the real newness of all of this kind of stuff. You know, like when, when nobody is in charge, how can things really get decided so that the most people are the most happy, the most of the time. Right. And remember, it's a great thing is, it's not governance by Reddit. It's not governance by forum. So even if you, you know, get a bunch of people on a forum all ticked off at you because you didn't do exactly what they want. You didn't say exactly, you're not the robot they wanted you to be. Okay, fine. The fact is the blockchain still paid you. And the majority of the masternodes voted for you. And so what happens is it allows us not to be, you know, analysis by, prowess by analysis where we're just like, okay, is this perfect? Is this perfect? Oh no, she didn't say it exactly like we wanted to. Oh no, no, we voted on it and you got your funds and you did what you're supposed to do. That's great. Now, if you were on a multi month proposal, then we would say, okay, is this something we continue on as it currently does. So I think the great thing is, yes, we're going to have, Dash is going to have the same amount of, you know, people trolls and people complaining and things like that of any community. I mean, that's the internet. But the great thing is we have a way, Dash has a way that you can finalize and say, okay, but this is actually what we're going to do. We're not going to just keep on debating it. We're going to move forward, which I think is a great innovation of Dash. Because once the votes are in, the blockchain will execute. It's almost like a form of smart contract really. Like the blockchain is going to execute regardless of what the trolls are crying about today. That's right. That's right. And also, let's be honest, usually the trolls aren't even masternode owners often. So, you know, they're going to be the loudest, but they might not even own any masternode. So, in the end, you know, their opinion does matter on one level, but in the final analysis, it's up to the masternode owners themselves to decide is this good for the project and they're the most invested in it. So, they should have the vote. Well, Eric, we've gotten so much into this one particular article. I almost want to ask you, will you come back for a future interview with me to discuss your second article? Oh, yeah, sure. Yeah, that would be great. I would love it. So, let's just bump the discussion of your second article, which is unchained altcoins as free market Bitcoin side chains. That's good. Yeah, thank you. Let's bump that to a future date so that we're not on content overload today. And in closing, why don't you give us a sort of like, I guess, where do you see, do you see other cryptocurrencies picking up on Dash's governance model, or do you see other governance models aside from Dash that have you just as excited? Well, I would say Dash is definitely the most exciting for the governance model. But what I love about cryptocurrency is it's a 100% free market. And so, if somebody out there who is a smart person thinks of a better governance model, they could introduce it to Dash, they could create their own cryptocurrency, do whatever they can introduce it to another cryptocurrency, and the market will decide, is that better? And that's the thing is nobody should, no cryptocurrency should feel like, okay, we're the end all be all, we're Bitcoin, you know, we're always going to be the king of the hill. Maybe you will, maybe you won't. But the fact is the market will say, okay, this is the governance model we like the best. This is the cryptocurrency we like the best. I'm personally most excited about Dash's governance model, but I know in a year, somebody else, a newcomer come on board and overtake it, or Dash just could innovate and add more to their own, which they're doing right now and make theirs even better. So I like to say, just let the market decide. You know, I mean, it's true. I've said this to Andreas Antonopoulos before, like that's why I feel a sort of like job security in the daily decrypt, because I just have no idea what the hell is going to happen next. There's like nobody does. Yeah, with all of this stuff being open source, yeah, like you say, like someone could put years of effort and lots of money into developing some fantastic thing. And you know what? Thanks, buddy. Like people are going to start copy and pasting it and pasting it, pasting it. And yes, you know, like maybe that is, oh, not quite what everybody has been used to in terms of wealth creation in the past, you know, like, oh, we need intellectual property. But the fact of the matter is, is that through the open source aspect and competition of it all, it's like, okay, even if someone forks your project and like does a better job than you do, like we all have the opportunity to become wealthier via like a rising tide. That's right. That's right. And honestly, if you could do better, do better. I mean, that's what I say. If you think you can do a better project, go fork somebody's code and do our start one from scratch where you want. And if it is truly better with this open source, complete decentralized environment, it will be the one that succeeds in the end. Yeah. All right, very good. Well, we will schedule a future talk about your sidechain article. And until then, Eric Sammons from ericsammons.com. Thank you so much for your time. Thanks, Amanda. 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