TokenInsight Inc. Gives BB for Dash, Which has a Stable Outlook

10 min readNov 28, 2018

Overview

Dash is a payment token featured with InstantSend and PrivateSend function that allows users to make instant and anonymous payments. Rebranded from Darkcoin in March 2015, Dash is widely recognized as the codebase fork from Litecoin. Compared with Bitcoin, Dash allows users to make payments in a faster and more private manner by adding a secondary network of masternodes network. From technology perspective, Dash utilizes Proof of Work consensus mechanism along with X11 hashing algorithm to issue tokens and incentivize its miners.

In terms of market capitalization, with Bitcoin leading the way, the payment token industry accounted for 79.8% of overall token market. As a payment-oriented token, Dash ranks 8th overall within industry with a total capitalization of $1,362,705,147 dollars up to the date of the report. Dash was outperformed by several of its major competitors, including Monero, a major competitor in privacy feature.

Without compromising the network democracy, the masternodes driven network significantly improves Dash’s performance in terms of transaction speed and privacy. However, Dash has suffered a long standing impact by the price fluctuation since one of the key roles of payment token is being the exchange medium. In general, TokenInsight gives a rating of BB to Dash, which has a stable outlook.

Token: DASH

Rating: BB

Price(USD): 111.99

Market Cap(USD): 0.95 Billion

Label: Payment

Ranking: 12

Content

1.Project

2.Ecosystem

3.Features

4.Conclusion

Project

Masternodes Network

The key factor that differentiate Dash from other privacy cryptocurrencies is its deployment on the secondary network, which enables instant and anonymous payments, as well as the autonomy of the network. Other than ‘miners’ network, which is composed of full nodes working on packaging transactions and data into blocks, Dash added a secondary network called masternodes network. To become a masternode, users are required to deposit 1000 DASHs as collateral and perform specified tasks such as propagating instant transactions and private transactions. Such an innovation to the network improved the overall performance of payment system without compromising the democracy of the network.

Proof-of-Service

To consolidate the service provided by masternodes and to validate the state of masternodes, Dash utilizes Proof-of-Service mechanism. For each block, the masternodes network select two Quorums, Quorum A and Quorum B to perform tasks by order. Quorum A, the closest nodes to the current block hash, will check the service quality of Quorum B, the furthest nodes to the current block hash. The masternode network sets up a minimum of 6 violations to deactivate a node and those violations must be continuous. In other words, when an attacker attends to perform malicious attack on the network, attacker’s nodes must be selected 6 times in a row. The tradeoff between the possibility of success and the cost of attack is naturally defined through this function and makes the attack infeasible in practical situation.

Through Dash’s Proof-of-Service Mechanism, the state and the service quality of masternodes are both verified.

Denial-of-Service (DOS) may happen when there is no sufficient fee provided. To address this problem, users are suggested to submit a transaction as collateral which is used to pay higher fee to miners. The collateral acts as a two-way regulator in this case, anyone who maliciously does not sign the transaction, as punishment, will lose the collateral in which they originally staked.

X11 Hashing Algoritm

First implemented on Darkcoin, X11 hashing algorithm is a PoW hashing algorithmthat was developed by Evan Duffield in 2015. As the name ‘X11’ implies, the X11 algorithm is comprised of 11 hash functions which are BLAKE, BLUE MIDNIGHT WISH (BMW), Grostl, JH, Keccak, Skein, Luffa, CubeHash, SHAvite-3, SIMD and ECHO. Those hashing functions are executed in a chain structure where inputs will be hashed sequentially. The X11 hashing algorithm was originally developed to resist ASICs (Application-Specific Integrated Circuits). The basic mechanism behind is that, hardware designed with mass parallel computing will be inefficient to solvesequential problems. Nevertheless, ASICs that are capable of efficiently solving X11 hashing algorithm were successfully developed and widely adopted at a later stage, as a result, making the X11 hashing algorithm no longer ASIC-resistant. Hobbyist mining with regular GPUs or CPUs are put in a competitive disadvantage while mining blocks.

Ecosystem

Usage and Supply

The supply of Dash is capped at 189,000,000 and will be mined out around the year of 2150. Unlike Bitcoin, deflation is achieved by halving the block reward every210,000 blocks where the supply of Dash is reduced by 7% each year.

Dash Currency Supply and Mining Reward Schedule

Community

Dash Dao is a decentralized autonomous organization that communicates with each other through predetermined protocol such as masternodes protocol. Unlike Bitcoin’ s incentive mechanism, rewards distributed among Dash DAO are divided into three parts: 45% of total block rewards goes to miners, 45% of total block rewards goes to masternodes who provide a certain level of services, and 10% of total block rewards are assigned to fund that is used for research and development expenditures. Such distribution of the total rewards incentivises participants to offer more quality services such as PrivateSend and InstantSend so that the overall performance of the network will be improved.

Merchants

Dash is supported by over 3000 merchants around the world. These merchants are currently distributed in 6 countries covering 20 industries. The largest market is in Venezuela, with 2831 merchants actively accepting Dash as a payment method. One of the reasons why Venezuela takes a large proportion of the market is the high inflation rate (96%) of its currency. People from Venezuela suffer from the devaluation of their currency to the degree where a gallon of milk would cost more than a hundred dollars. The urgency of seeking an alternative to store capital wealth was a significant reason for the wide adoption of Dash.

Regulation and legalization

Regulation and legalization have always been major issue associated with the adoption of cryptocurrencies. Such topics are especially sensitive when the idea of privacy cryptocurrencies came into a question. Due to its untraceability and anonymity features, privacy cryptocurrencies are widely adopted in illegal activities such as dark net transactions and money laundering.

In July 2017, a legal enforcement action by US government was initiated to shut down the dark net, AlphaBay[1]. Served as major exchange medium in AlphaBay, Monero brought huge setbacks on counting the total number of Moneros involved in illegal activities which makes the confession of crimes even more difficult.

Coming into effect on June 18, 2018, Japan’ s Financial Security Agency (FSA) proposed an embargo on cryptocurrencies with privacy-rich feature[2].

The ban was triggered by the theft of 523 million NEM tokens (worth around $400 million) on Japanese cryptocurrency exchange CoinCheck. Due to the privacy nature of cryptocurrencies, it was difficult to trace the origin of hackers, thus making the retrieval of lost funds more difficult. As a result, several major exchanges operating in Japan were managed to delist Monero (XMR), Zcash (ZEC), possibility Dash (DASH) and some other cryptocurrencies featured with privacy attribute. Japan was the first country to embrace cryptocurrencies and nearly 60% of the exchanges on fiat currency to Bitcoin accounted to Japanese Yen. The regulation imposed by Japan is expected to be a benchmark that would be followed by authorities around the world, along with the fact of the wide adoption in dark market, there will be many more policies and laws to be published to regulate privacy cryptocurrency across the globe.

Governance

Owned by Dash DAO, Dash Core Group Inc. is a legal entity fostered to serve, develop and maintain the Dash project. The control of DCG Inc. belongs to Dash DAO masternodes and the existence of DCG Inc. can be removed or replaced if necessary.

Features

PrivateSend

PrivateSend is a function embedded in Dash that allows users to send Dash anonymously and protect the overall privacy. The methodology used in PrivateSend is an improvement on CoinJoin[3], which is the common method used to keep privacy of transactions on the Bitcoin network. Common implementations of CoinJoin are theoretically traceable either by doing math on amount of the transactions or traced through linking. The following two graphs provide examples of the flaw on CoinJoin method.

Bitcoin transaction example

Linking and forward linking

The common flaw in such implementations is that the source of the funds in certain steps of the manipulation is identifiable, thus observers can technically censor the transaction path from the ultimate output until they trace back to the origin of the transaction. Such an attribute makes the result of backward searches deterministic by applying mass calculation in the future. In PrivateSend, however, funds in each mixing session are mixed by switching identities of the denomination, which denominations are specified as 0.1DASH, 10DASH, 100DASH or 1000DASH prior to the mixing in order to achieve consistency of the network. By obscuring the source of the fund, the process of tracing through the path becomes probabilistic. In each mixing session, the number of users is limited to three, thus the observer has a 1/3 chance of being able to guess the correct answer. As the depth of the block increases, the chance of being able to be tracked through the correct path decreases geometrically.

Possibility of success vs Depth of the chain

Take security into consideration, the honesty of masternodes is essential since masternodes are the operators of the mixing session. The process of fund mixing enables masternodes to censor transactions. As a solution, randomly selecting masternodes to operate the mixing pool as well as the 1000 DASH collateral deposited prior to the approval of masternodes plays a significant role in preventing masternodes leveraging such advantages through the process. The following chart gives the cost and probability of success regarding the number of mastersnodes controlled and the depth of the chain.

InstantSend

InstantSend is the function specially designed to accommodate a daily use scenario since no one likes to wait minutes for the confirmation of a payment for a cup of coffee. The function enables users to finish transactions within seconds usually associated with slightly higher fees. The mechanism underlying with InstantSend composed of two factors, the consensus of masternodes as well as the transaction locking. The following diagram illustrates the process of InstantSend.

Conclusion

The two-tiered network, including the masternodes network, enriches the functionality of Dash and makes Dash stand out among all payment tokens in terms of user experience. Besides, with the support of over 3000 merchants around the world, Dash is on the right track to carry out payment functionality by expanding its payment system. Nevertheless, it cannot be ignored that the high volatility on price is the common threat to most of the payment tokens. This factor brings huge setbacks on the development of Dash since it is influential when Dash functions as exchange medium.

In terms of privacy, Dash is in a highly competitive market along with other privacy cryptocurrencies such as Monero and Zcash. As Dash’s major competitor, Monero’s privacy feature is naturally defined by implementing encryption techniques on any stage of its transaction process, whereas Dash only applies improved CoinJoin method at the intermediate step of the transaction.

Even though the growth of Dash masternodes community is in an upward trajectory, the entrance cost of being a masternode in Dash is significantly higher than other masternodes-driven project, with 1000 DASH required as collateral (approximately over $150,000 in USD). Considering the uncertainty of the price, the growing speed on the total number of masternodes may diminish in the future.

For these reasons, TokenInsight gives Dash a rating of BB. The outlook is stable.

Appendix

Appendix 1 Symbols and Definition of Risk Ratings

Limitations and Disclaimers

TokenInsight Inc. hereby makes the following statement in connection with the issuance of the rating report:

1. There is no relationship between TokenInsight Inc. (including TokenInsight Rating Project Team Members, and Review Committee Members) and the subject of this rating would affect the objectivity, independence, and impartiality of the rating.

2. The project team members of TokenInsight Inc. take their due diligence obligations seriously and have a good reason to ensure that rating reports followed the principles of objectivity, truthfulness, and impartiality.

3. This report is an independent judgment made by TokenInsight Inc. in compliance with applicable laws, regulations and reasonable internal credit rating processes and standards, and there are no changes in rating opinion due to improper influence of the rating target or any other organization or individual.

4. All information contained herein is obtained by TokenInsight Inc. from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical errors as well as other factors, however all information contained herein is provided ‘AS IS’ without warranty of any kind. TokenInsight Inc. checks verifies, as necessary, the authenticity, accuracy, completeness, and timeliness of the information relied upon in the rating report, without making any representations or warranties, express or implied, as to authenticity, accuracy, completeness, timeliness and feasibility and appropriateness for any commercial purpose.

5. The inclusion of a credit rating or secondary market price analysis in this rating report should and can only be interpreted as an opinion and not as a statement of fact or a recommendation to buy, sell or hold any token.

6. The risk ratings indicated in this rating report are valid from the date of issuance of this report until the date of the next adjustment; at the same time, TokenInsight Inc. will periodically or irregularly track the ratings of the rating recipient to determine whether to adjust the credit ratings and will publish them in a timely manner.

[1]

https://www.investopedia.com/news/what-does-increased-government-regulation-mean-privacyfocused-coins/

[2]

https://www.investopedia.com/news/what-does-increased-government-regulation-mean-privacyfocused-coins/

[3]

https://en.bitcoin.it/wiki/CoinJoin

Analyst

Shize Qin