Dash: What It Is, How It Works, Difference From Bitcoin

What Is Dash?

Dash is a cryptocurrency that was launched as a payment method with a privacy focus, intending to provide more anonymity than Bitcoin. Dash provides its users with the option of transacting directly between wallets or using its CoinJoin service, which allows users to anonymize transactions.

On May 5, 2024, Dash ranked #186 by market capitalization ($341 million). Its market value was $28.98.

History of Dash

Launched in 2014, the cryptocurrency Dash was originally known as Xcoin. After being rebranded as Darkcoin, it landed on its current name, Dash, in March 2015. When it was initially created, it was designed to ensure user privacy and anonymity. The cryptocurrency’s whitepaper, co-authored by Evan Duffield and Daniel Diaz, describes it as a privacy-centric cryptocurrency based on Bitcoin founder Satoshi Nakamoto’s work.

Dash aims to become a medium for daily transactions, and it has cast a wide net to realize that ambition. In 2018, the digital cash company expanded into Venezuela, the cryptocurrency's first foray into an economically distressed country.

Following an increase in popularity in Venezuela in 2020, Dash experienced a widespread exchange delisting as it was widely promoted by media as a cryptocurrency that supported illicit uses because of its privacy features. Its developers strongly opposed the notion that it was designed for this purpose and pointed to ongoing developments as a payment method rather than a privacy token. However, it maintained the option for users to mix their tokens for additional privacy.

Since 2020, Dash developers have been working to become a medium for daily transactions as a digital currency that can be used as cash, credit card, or via PayPal.

Concerns About Dash

Dash is still considered by many to be a cryptocurrency that facilitates illicit users because it still allows users to choose its CoinJoin services. CoinJoin is a concept where users can exchange their tokens for a blockchain's native token.

On Dash's blockchain, a user can do this up to 16 times, which makes the token and address very difficult, if not impossible, to trace. Blockchain providers that have services like this are commonly called mixers, which law enforcement agencies in many countries are targeting. Mixers are commonly used for money laundering, regardless of the developers' intent behind the blockchain.

Dash vs. Bitcoin

The main difference between Dash and Bitcoin lies in the algorithm that each technology uses to mine coins. Dash uses the X11 algorithm, a modification of the proof-of-stake (PoS) algorithm that uses 11 different hashing functions. It also uses a technique called CoinJoin, a strategy that mixes transactions and makes more privacy possible on its blockchain. Bitcoin uses a proof of work (PoW) algorithm.

Bitcoin Nodes/Miners

The two cryptocurrencies have different systems for handling transactions. Transactions on Bitcoin’s blockchain need to be validated by all nodes within a network. The process, which is designed to ensure consensus without authority, requires substantial investment infrastructure for full nodes (full nodes are nodes dedicated to mining). In this system, Bitcoin miners running full nodes commit to increasing amounts of time and money to ensure optimal operations.

This process is time-consuming and fails to prevent clogging. Slow processing results in a backlog of transactions within Bitcoin’s memory pool.

Dash Masternodes

Dash uses a different system for handling transactions. Dash is run by a subset of its users, which are called "masternodes." Masternodes simplify the verification and validation of transactions. All masternodes have a starting stake, which is equal to 1,000 DASH in their systems. In the cryptocurrency's whitepaper, the cofounders state that this allows the users to pay for the services and earn a return on their investment.

It also solves a scalability problem—the number of nodes required to successfully approve a transaction is reduced to a manageable number. Masternodes are responsible for approving transactions and providing services, such as payment and privacy, to the Dash network.  

On May 5, 2024, there were 3,017 masternodes in Dash’s network.

Governance

The second innovation within Dash’s ecosystem lies in its governance model. Unlike Bitcoin, Dash pioneered a self-funding model by splitting block rewards between three stakeholders—masternodes, miners, and treasury. The first two get a 45% share each. The remaining 10% share accrues to the treasury and is used to finance future development projects at Dash. Masternodes play an important role here as well: their votes determine future development directions for the cryptocurrency. 

The Bottom Line

Dash is a cryptocurrency designed as a payment method and to enhance privacy. Its developers claim to focus less on privacy and more on payment system developments. In the past, it has been the subject of regulatory scrutiny due to its privacy-enhancing design, but the developers hope their redesign will bring it out of this scrutiny and turn it into a regularly used cryptocurrency.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC and LTC.