Using miners’ taxes to support developers: Zcash’s decentralized governance dilemma

Original author: William Foxley

Compiled by: Alice, Jiang Xiaoyu

Editor’s Note:

01 About Zcash

Zcash is the first blockchain system to use zero-knowledge proof mechanism, which can provide complete payment confidentiality. Like Bitcoin, the total amount of Zcash tokens (ZEC) is also 21 million, but the difference is that Zcash transactions automatically hide the sender, recipient and amount of all transactions on the blockchain. Only those who have the viewing key can see the content of the transaction. Users have full control and can choose to provide viewing keys to others. On July 19, 2019, Zcash successfully carried out a "friendly fork" at block height 570,000, forking out Ycash.

02 Background of Friendly Forks

Howard Loo, the founder of Ycash, is also a member of the Zcash development team. In April 2019, he posted a post on the Zcash community forum detailing the main motivations for the fork: 1. To rebuild the goal of mining on commercial hardware, a goal that seems to have been abandoned on the Zcash blockchain. 2. To deliver on the promise made at the beginning of Zcash’s creation: the founder’s reward will never exceed 2.1 million.

In fact, as the Zcash project develops, the "Founder's Reward" set by Zcash, which was born in 2016 (20% of the mining rewards in the first four years are allocated to founders, investors, employees and consultants) will expire in November 2020. According to the plan, around November 2020, when the 570,000th block is mined, the Zcash supply will be halved and the reward for the founder will be cancelled. Zcash will also face the dilemma of having no money to continue research and development.

In this context, after Howard Loo proposed his new project Ycash, it quickly received full support from Zcash founder Zooko Wilcox, who tweeted that Ycash was a "friendly fork" of Zcash.

The concept of a "friendly fork" was first proposed by Zooko Wilcox in 2017. A friendly fork is one where two chains are generated after a fork, but the community does not split. Zooko said in a blog post: "I hope that when the time is right, the Zcash community will have a friendly fork, deploying different technologies that fully adapt to different needs, but continue to be tolerant and mutually cooperative for the benefit of everyone."

At the same time, Zooko Wilcox said that he personally has nothing to do with Ycash, and the Zcash team has nothing to do with the Ycash team. Ycash is actually a similar product with almost the same code base as Zcash, and is a competitor of Zcash. The "friendly fork" mentioned by both parties refers to Ycash not having any disputes with the original chain Zcash, and also being recognized by the original chain team. It is different from the concept of "friendly fork" proposed by Zooko in 2017.

After the fork, Ycash made four major changes:

1. Founder Reward: The founder reward is reduced from 20% to 5%, and Ycash miners can always receive 95% of the revenue from mining.

2. Address distinction:

• Transparent addresses begin with "s1" instead of "t1".

• Multi-signature addresses start with "s3" instead of "t3".

• Shielded sprout addresses start with "yc" instead of "zc".

• Shield sapling addresses start with "ys" instead of "zs".

3. Never distinguish timelock coins

4. Reduce transaction fees, not limited to block expansion or limiting block size

The following is the translation:

According to the voting results announced by the Zcash Foundation on January 30, the Zcash community has agreed to continue funding the development of the privacy coin ZEC, led by ZCC (Electric Coin Company) and the Zcash Foundation.

Both organizations are facing imminent funding problems, and the decision marks a two-month financial relief for them.

In order for ZCC and the Zcash Foundation to continue developing Zcash, this funding is a timely help in continuing to employ top R&D personnel, especially as the use of privacy coins faces increasing scrutiny from international regulators ( Carbon Chain Value Note: In order to comply with international anti-money laundering standards, Nordic digital asset exchange BitBay will no longer allow trading of privacy coins monero (XML) from February 19, 2020. All users must withdraw all remaining XML by May 20, 2020. ).

However, for others, voting means breaking the promise made at the beginning of Zcash’s creation, that the founder’s reward was limited to 2.1 million ZEC (10% of the total ZEC supply). The result of the broken promise was the first “friendly fork” of Zcash in July 2019 (Carbon Chain Value Note: The so-called friendly fork refers to a fork that has not caused any dispute with the “original chain” and has been recognized by the original chain team. Different from the concept proposed by Zooko in 2017.) The new product Ycash ( Carbon Chain Value Note: After the fork, Ycash will reduce the founder’s reward from 20% to 5%. ).

It is worth noting that this vote also means raising funds for the public chain through miner taxes. Compared with other funding mechanisms (such as ICOs, treasury bills, or external grants from third parties), Zcash's innovation depends on the performance of the token.

Zcash co-founder and ECC CEO Zooko Wilcox called for a new regular development fund, saying in an August Medium post: “I am choosing to step down from the initial development fund so that in the future, if Zcash is successful and a community grows enough to support it, that community will have to collectively decide what to do next.”

Despite the constant controversy, the performance of ECC and Zcash in encryption technology over the past year is still noteworthy, such as their breakthrough in Zcash zero-knowledge proof technology bottleneck ( Carbon Chain Value Note: In early September 2019, ECC CEO and Zcash founder Zooko Wilcox said that the discovery of a trustless zero-knowledge proof recursive combination is a long-term breakthrough in cryptography and may be the key to protecting and expanding the blockchain. ), innovatively building a bridge with Ethereum (Carbon Chain Value Note: At the Devcon Developer Conference held in Osaka, Japan in October 2019, ECC Vice President of Marketing and Business Development told the media that in the next six months, the Zcash community will develop a ZEC token that can be used on the Ethereum network). Although it has outstanding technical performance, it has been in a loss during the bear market.

Without further funding, the future of the project is unclear.

The community report clearly shows that ECC is running out of money, and in order to increase revenue, the developer returns in the early stage were adjusted. An unnamed source told reporters that a poor financial record is not conducive to a company raising community funds. He said of the voting process: "Good intentions do not always create a good process."

If the current price of the coin remains around $65 per coin, ECC expects to receive about $480,000 per month after the first zcash halving in November 2020. (However, Zcash's recent price performance has been disappointing: 2020 began with a drop, with prices down nearly 45% from the beginning of 2019, although the price has since doubled since January 1.)

03 A Milestone Year

The Zcash Developer Fund was established in 2016 for a period of 4 years and will expire in November 2020. Known as the "Founder's Reward", 20% of the block reward is obtained from miners and is distributed to Zcash founders and investors, providing some help for the continued development of the project.

The newly passed Zcash Improvement Proposal (ZIP) 1014 will split 20% of mining rewards between miners and a general community fund for development, in a similar manner to the original Founders Reward. The 20% pool is divided into three categories: 35% for ECC, 25% for the Zcash Foundation, and 40% for third-party developers.

Steven McKie, CEO of Amentum Investment Management and a member of the Zcash community, said the presence of third-party developers is intended to promote product decentralization.

The vote was conducted by members of the Zcash Community Forum and a 72-member Community Advisory Panel. 88 of the 112 eligible voters cast their ballots, with an overwhelming majority calling for continued funding.

“I’m pleased that the Zcash community has converged after a long and fruitful debate,” Josh Cincinnati, executive director of the Zcash Foundation, told CNBC.

Both the Zcash Foundation and ECC have accepted the community proposal, which is expected to take effect when the fourth Zcash network (NU4) is upgraded in November 2020. ( Carbon Chain Value Note: In late August 2019, due to a dispute between Zcash development company ECC and the Zcash Foundation over the transfer of the Zcash trademark, the fourth Zcash network upgrade NU4 was postponed. )

04 Why should we implement block subsidies?

McKie said: “For a project like Zcash that is as research-heavy as it is, it is imperative for the Zcash Foundation and ECC to ensure that they are well funded. Also, since the product itself is the token, it is not realistic to bet on the future success of the token and get funding from it. Compared with other options, the developer fund is a more mature method for Zcash to continue to raise funds.

“Zcash is one of the most technical public chains out there,” McKie said in a phone interview. “Zero-knowledge proofs require top-level math on top of low-level programming. If you want to make a product, you might as well just buy the finished product.”

Zcash co-founder and cryptography expert Ian Miers echoed this sentiment, noting that decentralizing voting power to distribute public goods is difficult: “The cryptocurrency community has learned a lot over the past four years, and one thing that has become clear is that there needs to be some way to fund ongoing development.”

Josh Swihart, head of the ECC, said the community’s efforts represent a model for the future of democratic governance done right. “ Transferring power, decentralizing authority, is very difficult ,” Swihart said.

05 Token Politics

In addition to the Ycash fork, the Foundation and ECC also have their own difficulties on the road to development.

Since no miners participated in the first round of voting, there was no miner participation in the final vote. An email from Cincinnati stated that due to the lack of miner participation, the foundation did not count the miners in the second round of voting.

Trademark negotiations for Zcash ( Carbon Chain Value Note: Since late August 2019, ECC and the Zcash Foundation have been negotiating on the transfer of the Zcash trademark. The negotiations lasted nearly three months, and Zcash agreed to donate the trademark to the Zcash Foundation. According to the agreement signed on November 6, the Zcash Foundation will be financially responsible for the costs associated with trademark allocation and protection. ) also took longer than expected, and Wilcox called it an "emotionally painful" process.

Defining the electorate itself is difficult, as some believe that “die-hard holders” of ZEC should participate as representatives.

McKie said that while ZEC’s “die-hard holders” voted, it was actually more of a straw vote than a political bloc. While the ECC took the results into consideration, the Zcash Foundation did not. As Ethereum co-founder Vitalik Buterin and Miers pointed out in the Zcash community’s main chat forum, blockchain voting does not yet solve the challenges associated with manipulation or Sybil attacks.

Finally, the initial improvement proposal (ZIP) passed in the first round of voting was eventually rejected by the ECC. The improvement proposal (ZIP) proposed to raise funds for the ECC through a new block reward distribution and set a cap. The ECC stated that for a company with privacy technology at the forefront of the industry, any cap would limit the organization's ability to attract talent. Therefore, the ECC stated that it would not accept any proposals with similar constraints.

“The ECC is a very principled organization and its actions are unconsciously holding investors hostage,” said one source who wished to remain anonymous. “Calling for action against the ECC would only lead to ‘strained relations’ and was not worth the cost. The vote was still passed and the community continued to operate. The good news is that the ECC is giving up control of Zcash, which I wish had happened six months ago.”

Original link: https://www.coindesk.com/Zcashs-funding-vote-and-the-problems-with-decentralized-governance