The Dash Budget System (DBS) is truly revolutionary. Never before has a blockchain supported itself; nor has there ever been a time when people supported themselves via payments from a blockchain. (Of course, blockchain technology itself didn’t even exist a few years ago.) But with anything new and innovative comes the potential for weaknesses and flaws, and sometimes such weaknesses can be exploited by individuals for personal gain. From this follows calls to prevent these flaws, but sometimes suggested “improvements” are actually steps in the wrong direction.
Scamming the DBS
One of the most common criticisms of the DBS is the possibility that proposal owners can scam the system. For example, a bad actor could ask for 100 Dash to set up a marketing campaign in Europe to promote Dash. He spends perhaps 10-15 hours working up a proposal, creating charts showing ROI, and presenting some of his past work. His proposal passes, and he receives 100 Dash in the following budget payout.
Now what? He has already received his funds, and by the very nature of blockchain technology, those funds cannot be recovered if he doesn’t deliver. So if he simply walked away, he would be 100 Dash richer for just a few hours’ work. There is nothing the Dash network or Masternode owners can do to get that Dash back.
Situations like this have led to calls to “fix” this perceived problem. Typically, the suggested improvements involve some type of official middle-man who will vet and endorse proposals. However, would a rip-off like the hypothetical one described above actually mean that the DBS is broken? Not necessarily. Obviously no one (other than the project owner) benefits when a bad project is funded. However, I would argue that the DBS’s reputation-based system for awarding funds, while sometimes messy in the short term and for single projects, is a stronger system in the long term than most funding mechanisms in existence today.
Centralized Allocation Equals Corruption
Take, for example, how most governments allocate funds. Typically a small committee (sometimes even just one person) determines where money is distributed. In theory, there are safeguards put in place to prevent fraud, but anyone who is paying attention knows that these safeguards are usually a joke—they’re created by the very people who are supposed to be put in check! ($1,000 wrenches, anyone?) Such a centralized system is ripe for corruption, and history has shown these type of funding mechanisms are usually systemically exploited for fraud.
The DBS, however, is not a small cabal of elites who determine who gets funds and who doesn’t. Instead funds are allocated by the vast Masternode network—a globally-distributed and diverse network of individuals who control the 4,500+ Masternodes. The possibility of collusion and corruption is far less likely; in fact, most Masternode owners stay anonymous, so they have no practical way to secretly communicate with each other even if they wanted to.
But that doesn’t mean the DBS can’t be scammed. As in the original example, a person could defraud the network and receive some Dash. However, a built-in reputation prevents this from becoming the systemic problem it would be with a centralized mechanism. Consider the following:
- If a person scams the network, she can only do it once successfully; the Masternode owners won’t trust her in the future (i.e., his reputation plummets).
- The larger the request for Dash, the greater a reputation a person will need to have in order to be successful. For example, if someone unknown to the network were to ask for 1,000 Dash, it is highly unlikely his proposal would be successful, no matter how promising it might seem. On the other hand, someone with a strong reputation in the Dash community (for example, someone like Amanda Johnson) were to ask for a large amount of Dash for an upcoming project, her proposal would be taken into serious consideration.
- People with a strong reputation in the Dash community will be diligent before endorsing projects without complete knowledge of the players involved, for they know their own reputations will take a hit if such a project fails or is a scam.
Let’s see how this plays out in real life.
Case Study: The Dash “Shremcard”
Back in March, Charlie Shrem, an early-adopter of Bitcoin and a well-known individual in the cryptocurrency world, submitted a proposal for a Dash-branded debit card, which would be managed by Payza.com. The initial response to this proposal was highly enthusiastic (full disclosure: as a Masternode owner, I too was enthusiastic and publicly endorsed this proposal). In his proposal, Shrem noted, “I estimate that I can get the cards into your hands in 3 months” and “I will also provide weekly status updates.” The proposal passed easily (1236 Yes votes to only 62 No votes). It actually received what was at the time the 5th highest number of Yes votes for any non-Core-submitted proposal.
Clearly this was based on Shrem’s reputation (as well as the desperate need for a Dash-based debit card in the U.S. at the time). Shrem bolstered that reputation by enthusiastically embracing the Dash community, quickly answering any questions during the proposal phase, and working to craft his proposal based on suggestions from the community. If an unknown person had made the exact same proposal, it is highly unlikely it would have received as many positive votes, and might not even have passed.
However, soon after the proposal passed, Shrem went mostly silent. He responded here and there on the Dash Slack or on Twitter, but did not provide the “weekly status updates” that he promised. Further, he essentially vanished from the Dash community, which he had been so involved in during the proposal process. A few months later his partner Payza announced it would be offering debit cards for many altcoins, not just Dash. The announcement led some to speculate that the DBS had unwittingly paid to integrate competitors into the Payza network. At this writing, it has been almost four months since the proposal paid out the 450 Dash for the project (worth approximately $31,500 at the time of payout), and there is no Dash-branded debit card, nor any clear timeline for delivery, nor any clear statements from Shrem about its status.
I’m not suggesting Shrem scammed the DBS. Sometimes projects begun with the best intentions are delayed or even fail completely. It is quite possible that things beyond Shrem’s control went awry, and that perhaps things came up that made it difficult or impossible for him to give the promised weekly status updates. There is no evidence that Shrem didn’t, at the time of the proposal, plan to deliver the promised debit card. And perhaps the card will some day be delivered. But the fact remains that the commitments Shrem made in the proposal were not kept and as a result, his reputation has taken a large hit in the Dash community. It will be difficult for him to get another proposal passed in the future.
Short-term Messiness Better Than Systemic Corruption
So, in the case of Charlie’s Shrem’s proposal, did the DBS itself fail? I would argue no. It worked as intended: it passed a proposal based on a strong reputation, and now that the proposal hasn’t been delivered, that reputation is no longer so strong. Yes, in the short-term the DBS might have succumbed to a bad proposal, but long-term it has become stronger for the experience. Compare that to a system in which a small group of people can continually reward their friends and benefactors, as happens in most centralized funding situations.
Again, the Dash Budget System will always have room to grow and improve. But I would hesitate before embracing far-reaching changes that might inadvertently lead to centralized funding allocation. The DBS’s reputation-based funding mechanism already prevents major and systemic frauds from overwhelming the system, making it far superior to centralized solutions.