Blockchain technology has long been looked at as a brilliant way to transform the world of finance, however, we are steadily moving beyond payments and settlements.

Allowing secure storing, moving and managing of not just information but basically, anything of value, including money, titles, deeds, identities, the system enables building trust through mass collaboration and clever code, instead of centralized powerful intermediaries.

Ethereum Blockchain, in particular, has attracted a keen interest thanks to the option of building automated smart contracts allowing building nothing less, but a democracy on the Blockchain.

Building democracy on Blockchain

We know that a smart contract is an agreement between two or more parties, who verify the data and act according to whether or not the conditions set by the contract are met. To avoid centralized leadership, a special type of organization was introduced, which is decentralized and democratic and called Decentralized Autonomous Organization, or DAO.

Although it does have an owner, who decides on voting members of the organization, every member possesses the right to make proposals and making them available to other members for voting. There may be endless amounts of examples of how smart contracts can be applied and how the DAO can look like.

CreditBit which is among those inspired by the Ethereum’s software solution and the idea to build a democracy on the Blockchain. They have recently carried a migration of CreditBit to advanced Ethereum Blockchain seeking to eliminate the technology blindness and make it possible to run advanced and complex smart contracts.

Currently, CreditBit is working on establishing CreditDAO, a decentralized autonomous organization responsible for facilitating decision-making process within the CreditBit Community. This way the team aims to ensure the full transparency of their project while giving the community a decentralized power to influence the future of the network in a safe and fair manner. Cointelegraph had a chat with the devteam to get an insight into recent developments.

The project was launched in 2015 aiming to provide financial services built on top of Blockchain technology to every individual on the planet. Developed on an independent Bitcoin-like Blockchain, it offered solutions for much faster transactions thanks to the hybrid Proof of Work/Proof of Stake consensus mechanisms, making it possible to use ASICs to mine CreditBit tokens. The network itself has been created with the idea that there will be no central authority or an omnipotent group of developers or owners carrying the decision-making process, instead, it will be moderated through a decentralized mechanism – CreditDAO.

Show me your trust

CreditDAO is a platform built deploying smart contracts which enable each and every owner of CreditBit tokens to contribute to decision-making process. As explained by the devteam, a prerequisite for voting is the Proof of Trust algorithm, which implies the voluntary lock of a part or whole amount of owned CRB Tokens.

They explain to Cointelegraph:

“Most of the projects on the Ethereum have chosen the ‘ICO’ distribution model where they distribute the newly created tokens in the beginning. Most of them also do not let the community and investors decide where the project should go, the investors are there only for a ride. In this sense, CreditBit is different - we have created a Proof Of Trust concept that rewards users for giving us the trust to lock their coins for fixed period of time. In return, they are allowed to participate in the DAO voting process and even become one of the leading members of the project if the community finds them worthy of such position. With locking, users are also eligible to get some of the newly minted coins from the contract. To put it short, the network rewards users that believe in the project and are ready to make something about it.”

The advantages of this kind of model are mainly laying in the opportunity to get users on the board of the project, to get them involved into co-creation of the project and community.

Different trust levels

A voting mechanism is powered by a smart contract, which is fully transparent and contains terms and conditions for executing an action or granting certain community members privileges and permissions. In the CreditBit network, these privileges are defined by the DAO Trust Levels. Trust Levels are distributed during the voting process which allows reaching a consensus on which addresses will be granted a particular Trust Level.

Upon release of CreditDAO, users (holders of CreditBit tokens) will be able to vote for their representatives who are to manage the Credit 2.0 project. Simply put, CreditDAO is a sort of a democracy operating on Blockchain. Users who have locked their coins will be able to vote for the community members who are trustworthy, who will elevate those members to a higher Trust Level and in turn give them more power in the Credit 2.0 project.

CreditBit team expresses hope that this kind of democracy will help them making a fair and friendly ecosystem around and inside of the project. CreditDAO introduces three Trust Levels, including an Executive Board (EB), Elected Commons (EC) and Voters.

Executive Board is the Trust Level with highest powers and privileges. It consists of five addresses owned by different users, who disclose some of their identity. EB has regular meetings, they can initiate new votings and execute some Smart contracts.

Elected Commons is an entity of 30 elected addresses, that have the power to elect EB, prepare proposals for voting and tasks for Development Support Fund. Category of Voters includes all addresses with a Right to vote.

Inviting community to co-create the project

Cointelegraph was curious whether there is a risk of a centralized concentration of power, which might not necessarily be exercised in the network’s best interests.

CreditBit comments:

“The argument is similar to Proof Of Stake systems, the concentration of power (locked coins in our case) will only happen if someone will be willing to buy 50%+ of the tokens on the market, this kind of investor will on the one hand drive the price so high that he will end up with lower amounts of tokens because of the price increase. On the other hand, this kind of user has the right to co-create the project, because his investment into the project cannot be ignored.”

Each vote within the CreditBit network costs a small amount of “gas” or ETH. This implies that each voter will have to sacrifice this gas to express their right to vote. Voting quorum and timeframe In order for voting to be valid, a minimum quorum of addresses, that cumulatively own at least 20 percent of all tokens in existence, must submit their vote. It is not a requirement that all tokens in their possession must be locked - the quorum is calculated independently of the state of tokens.

As explained by CreditBit devteam:

“We wanted users to know that gas exists and that on every smart contract user must pay it. So this is not a fee of any kind, this is only the support for the nodes/miners to process our transactions. Votes in CreditDAO are weighted with the amount of locked coins in the account. With this, we are certain that there will be a fair and healthily voting process because people who believe in the project so much that are willing to lock their coins will be the ones that will choose the direction of the project while the speculators will not lock their coins and will not be able to vote.”

The first trial of the vote has been carried out by CreditBit during the migration to Ethereum, and according to the team, went flawlessly.

Once beaten, twice shy - rethinking security of DAOs

CreditDAO appears to be a useful mechanism for reaching a consensus on various matters concerning pressing issues or further development of the network. However, when it comes to any sort of accumulation of funds, the first thing that concerns the community is the security of the funds. The DAO hack which took just a few hours but put developers into a panic mode and drained $53 mln worth ETH from the fund, has changed the Blockchain perspective and forced developers to reconsider security mechanisms.

CreditBit explains to Cointelegraph how they guarantee the security of CreditDAO funds:

“CreditDAO will be a little bit different than ‘the DAO’ because it will only hold the power to distribute the locked reward of its funds. We will lock the funds for a long time so even if hacker will try some funny business he will not be able to withdraw the funds. Besides that, we will create its own smart contract that will not have the ability to withdraw the funds that CreditDAO holds, only the rewards. Besides, CreditDAOs decisions can be made only with majority consensus, so practically the whole CreditDAO is a multisig organization if you look it that way (Financial decisions are also in this category).”

What’s coming next?

Right now CreditBit is working hard to release the CreditDAO (decentralized democracy), CreditGAME (provably fair and lossless decentralized gaming), CreditID (identity on Blockchain) and CreditDAPP (user interface and wallet that users will use to interact with all parts of the CreditBit network.

Moreover, CreditBit will soon launch a CreditGAME, which is a part of the Proof-of-Trust distribution system, where users can play betting coins.

They say:

“The stake is not the coins invested but the stake that the winner will get from the bet. With that, we believe that we will be able to grow our community to gaming spheres and attract gaming population to play the games where they cannot lose money. The worst thing that can happen is that users can lock their coins for fixed period of time but if you win you get the future locking reward of the losing player.”

Those projects will be part of core solution and CreditBit teams hopes that community will pick them up and start using it:

“When this is over we will start with the development of CreditBAY, which will be our take on decentralized commodity market without intermediaries that take such outrages fees. Just pure free market for all. We are also compiling the Credit 3.0 development plan that will have some projects in that will challenge the boundaries of what is possible to do on smart contracts. This development plan will be released when most of Credit 2.0 projects will be completed and released, but mark my words it’s going to be huge.”

Generally, CreditBit team believes that smart contracts allow development of a new and creative space which is maturing and expanding from day to day:

“A few years ago we couldn't imagine that we will be able to run code on the Blockchain and now we are building the future of democracy on decentralized supercomputer. We are diligently following what guys at Ethereum foundation (and other projects for that matter) are doing and calmly waiting for next release to see what will be possible then. But in general, we only scratched the surface of what is possible to do on top of this technology. But what we know is that CreditBit will be there utilizing everything that Ethereum foundation will give us an option to make even better decentralized solutions for our community.”

Indeed, especially given that the Bitcoin community is on the verge of revolt because of too much of disagreement. When it comes to deciding on the future of the network, the concept of DAO and smart contracts might provide a better way to build a kind of vastly distributed democracy system, which can easily be translated into real life.