SUMMARY

Dash is one of the very first privacy-focused cryptocurrencies. It came about as a reaction to Bitcoin’s lack of true anonymity. Bitcoin is pseudonymous, which means that despite all transactions being public, there is no direct means to identify who is involved. Only the public keys involved in the transaction are published, not anyone’s identity. However, it is potentially possible over time to match real people to their public keys. Dash increases privacy by making it difficult to match the parties involved in a transaction to any identifiable information. Overall, the goal of Dash is to be the cryptocurrency for peer-to-peer transactions – a decentralized, digital cash.

Xcoin was launched in January 2014 by Evan Duffield as a fork of the Litecoin protocol, which itself is a fork of the Bitcoin protocol. In February 2014 the name was changed to Darkcoin to emphasize its privacy features, and then in March 2015 to Dash (short for digital cash). The issuance of Dash is highly controversial in the cryptocurrency space. Over two million coins were pre-mined within the first 24 hours. This event is known as an “insta-mine.” According to the Dash team, the insta-mine was an accident and the result of a bug. Interestingly, the Dash team could have simply proposed a relaunch, but they chose not to, indicating that they may have received most of the pre-mined coins. Despite its controversial past, the Dash team is very talented, and the technology offers an intriguing value proposition. At the moment, Dash has over 75 employees and is headquartered in Scottsdale, Arizona.

 

­­ UTILITY

There are a few key differences between Dash and Bitcoin. First, block times are 2.5 minutes versus Bitcoins 10 minutes, which enhances transaction speed. While the transaction time for Bitcoin varies widely depending on network use, it usually takes a few minutes. With Dash, users have the option to send funds using InstantSend, in which transactions can take less than one second. Fees are negligible for normal Dash transactions (.0002 DASH), but one can pay a fee to use the InstantSend feature and verify that the transaction has occurred in less than one second.

Users also have the option to send funds using PrivacySend. PrivacySend jumbles the sending and receiving data of three transactions, making it unclear which of the three are matched together in the transaction, which increases the level of anonymity on a public ledger. However, it seems that Dash has shifted its marketing focus recently from privacy to ease of use as the “coin your grandmother can use.”

 

INCENTIVE SCHEMES

Dash uses a proof-of-work consensus algorithm, so it relies on outside parties using compute power to maintain the network. These outside parties are called miners, and they need to be incentivized in order to maintain the network. Whenever a miner verifies a block of transactions, they are entitled to a block reward.

The incentive structure operates such that block rewards are split up among three parties: 45 percent to miners, 45 percent to Masternodes, and 10 percent to funding the overall growth of the ecosystem. The miner reward is fairly straightforward in all proof-of-work systems, but the Masternode concept in Dash is different from Bitcoin. Masternodes are individual Dash wallets that hold over 1000 Dash and constantly run a node to verify transactions. They are responsible for carrying out InstantSends and PrivateSends.  Masternodes also have the right to vote on where that last 10% of the block reward is spent, as they are inherently responsible for voting on what is best for the network. Dash frames the Masternode program as earning interest on Dash, which was about 11% in 2016, but falls each year as the amount of mined Dash decreases.

There are three relevant parties, and each party has a specific incentive:

1. Users are incentivized to use Dash if they value the privacy features, low costs, ease of use, and/or fast transaction speeds.

2. Miners and Masternodes are incentivized to maintain the network by fees, block rewards, and voting rights. Also, a well-maintained network increases the number of users and number of transactions, which increases the value of Dash.

3. The Dash team needs to continue working on the protocol to make it a competitive cryptocurrency. Interestingly, due to the Masternode voting system, some people who have jobs working on Dash in various areas are directly funded by the currency, giving them a unique incentive to help the brand and product.

 

CONSENSUS ALGORITHM & SCALABILITY

Since Dash is a fork of the Bitcoin protocol, it has the same underlying scalability properties. However, the use of Masternodes allows for the creation of ultra-large blocks since those controlling nodes have an economic incentive to quickly process transactions and thus buy higher quality hardware. About 3.5 million transactions can be handled in a day with the current block size of 2 MB, based on a recent stress test performed by Dash. Duffield is also very concerned with having sufficient block sizes before it becomes a network clogging issue. His goal is to grow the network to 50 million people by 2020. Essentially, Dash is attempting on-chain scaling instead of waiting for improvements in hardware.

Like Bitcoin, Dash uses a proof-of-work consensus algorithm to verify new blocks. As already noted, Dash also uses Masternodes, which are termed “proof-of-service” as owners of these nodes are paid if it can be verified the node is doing the requisite work to verify new blocks. While Dash is as susceptible to a 51% attack as any other proof-of-work system, it recently introduced LLMQ- based chainlocks. This system attempts to stop “selfish mining” by making it harder for malicious actors to withhold long secret chains. The impact of LLMQ-based chainlocks is uncertain, but it could be an important safeguard against bad actors.

 

SENTIMENT ANALYSIS

Dash’s following includes 320,000 followers on Twitter, 35,000 followers on Facebook, 23,200 subscribers on Reddit and 11,200 followers on Instagram. They also have active boards linked to the website where community discussions take place. Dash has a variety of different merchants that accept the currency on their websites. The team regularly provides updates on Dash itself and other news in the space.

 

MARKET OPPORTUNTIY

Dash is a direct competitor with Bitcoin and any other peer-to-peer focused currency, which is clear from Dash’s name “digital cash.” At the time of writing, the market capitalization of Dash is $637 million.[1] Compared to the market cap of almost $63 billion for Bitcoin, Dash has a very high ceiling if it can succeed as an attractive alternative. [2] Transaction speed, low costs, privacy, and fungibility are the big selling points.

The market opportunity for Dash has high potential in Latin America. In general, this region is one to watch as countries like Argentina, Brazil and Venezuela have each had severe hyperinflation over the past century. Dash is particularly strong in Venezuela, where some fast food restaurants accept payments in the digital currency. Moreover, the governance system that incentivizes Masternodes may help separate Dash from its competition. For example, Masternodes may vote to fund content creators to spread the word about Dash in developing economies. An example of this is the YouTube user “Dash Dinhiero Digital”, who received funding to spread the word about Dash in Latin America.  This kind of marketing opportunity is non-existent for most competitors.

 

ADOPTION FRICTION & EASE OF USE

As noted earlier, in many ways Dash’s adoption is dependent on the adoption of cryptocurrencies as a whole, or the adoption of cryptocurrencies is dependent on Dash. While those using cryptocurrency often care about privacy, the next wave of users may be indifferent, and value other features instead. This is especially true in Latin America, where the main concern is not anonymity but having a reliable store of value. Moreover, Dash arguably does not focus on privacy to the same extent as other coins, e.g. Zcash, so those most concerned with privacy probably won’t make Dash their coin of choice.

The ease of use of Dash is comparable to most other cryptocurrencies: one needs to learn how to buy, sell, send and store Dash. Businesses in Venezuela accepting Dash is a great sign, and if Dash becomes accepted by businesses in more countries, more and more people will use it. As mentioned before, Dash markets itself as a coin anyone can use, and while this is technically true, people need to feel the urge to acquire Dash in the first place. This is a compelling narrative in countries where fiat is unstable, although lack of access to technology is an glaring barrier to entry.

 

Near-Term and Long-Term Growth Opportunity

Dash has followed the general price path of most other cryptocurrencies, with a wild increase in 2017 followed by a comparable decrease in 2018. The key for Dash to separate itself from the pack is likely its marketing focus on privacy and ease of transactions. That Dash is one of the more prominent coins in Latin America might be a major factor as well, as currencies act similarly to network effects in that the more people that use the currency, the more beneficial it is for others to use the currency, creating a positive feedback loop.

Dash continues to actively pursue partnerships with merchants and payment platforms. The developers are also working on a new project called Dash Evolution, which proposes to make payments easy for consumers who are not technologically savvy by allowing them to send Dash using names instead of wallet addresses. Going forward, Dash intends to focus on ease of use rather than privacy. That Dash is working on these types of projects is a very healthy indicator for the future of the digital currency.

[1] https://coinmarketcap.com/currencies/dash/

[2] https://coinmarketcap.com/currencies/bitcoin/