A brief history of Zcash decentralization

[tromer]

A brief history of Zcash decentralization

To help contextualize the current Dev Fund process, how we got here and where it may lead us, here’s a simplified schematic representation of the major events in creating and decentralizing the Zcash cryptocurrency. Crucially, this focuses on the in-protocol funding stream and its governance, and thus does not include the many important ecosystem players that are not funded by the consensus-rules funding stream. It also does not represent the miners who fulfill a critical decentralized function and receive the majority of the block rewards.

It all began when a bunch of engineers, scientists, entrepreneurs, investors and cypherpunks got together to make the Zerocash protocol more than an academic paper…

ECC founded (2014)

The Electric Coin Company (ECC) is created as a Delaware LLC, funded by shareholders’ investments.

Pre-launch (2014–2016)

ECC works on all aspects of the forthcoming coin. It also commissions security audits and creates the Open Source Miner Challenge.

Launch (10.2016)

The Zcash blockchain starts operating, using decentralized and permissionless mining incentivized by 80% of the block rewards. The embedded Founders’ Reward (20% of each block reward) starts flowing to ECC and its shareholders, baked into the consensus rules.

ZF created (2017):

The Zcash Foundation (ZF) is established and receives non-profit status. It is funded by donation pledges, by some of ECC shareholders, of some of their Founders’ Reward ZEC. Initial focus is on community activities and communications.

ZF grants commence (2017)

ZF starts distributing dozens of grants, in two structured rounds (2017Q4 and 2018Q2) followed by an ongoing ZF Grant platform.

ZF in-house engineering commences (2019)

ZF builds an in-house engineering team and announces its first engineering roadmap.

Trademark governance (11.2019)

Following a community governance process, ECC donates the “Zcash” trademark to ZF, under an legal agreement where no party has independent authority to declare that a specific chain of Zcash can actually be called Zcash. Changes to Zcash require agreement from both parties, and neither party can unilaterally override the will of the community.

From this point on things are speculative, and subject to change by the ongoing community process (whose latest stage is discussed here).

Dev Fund starts (11.2020)

The Founder’s Reward ends as scheduled. It is replaced by a Dev Fund (20% of each block reward, now halved), split as follows:

• 35% (7% of the block reward) to ECC (but not its shareholders)
• 25% (5% of the block reward) to ZF (directly, this time)
• 40% (8% of the block reward) to Major Grants (see below)

This Dev Fund will have been decided by a community process, encoded into a ZIP (based on draft ZIP 1014 with the final version being finalized), and implemented in the consensus code deployed by Network Upgrade 4.

Major Grants start (11.2020 or soon after)

Major Grants are awarded to large ecosystem participants (excluding ECC and ZF), chosen and supervised by a community-elected Major Grants review committee. ZF performs the financial administration of the funds to execute the committee’s decisions.

That was fund, let’s do it again! (11.2024)

The Dev Fund ends after 4 years. A community process decides whether to let it expire, extend it, or replace it by a new mechanism.

[Anton1]

The owner of the trademark (Zcash) determines the future of the coin (protection) - a part is allocated from the coin for development and is distributed to an increasing number of people, miners who are decentralized and mine and also keep coins concentrated in one region and more than 55 percent of all coins mined are located at 200 richest addresses. What happens if the trademark owner no longer wants the protocol to exist?
Is decentralization and budget allocation the same thing? I think that after the company hired a large number of people, it did not become more decentralized.
As far as I can tell, decentralization happened once, when a trademark agreement appeared, and I don’t know if the trademark owner can sell it without a second side, and the general decision is vetoed.

[mika]

@tromer

That was fund, let’s do it again! (10.2024)

This can’t be real, is this the creativity we spoke about?
I would remove it, it makes the purpose of this post questionable.

Anton1 raised some good questions meanwhile.
How much of a decentralization is this really?

[Autotunafish]

(Typo “Major Grants committee becomes community-elected (by 12.2011)”)

[tromer]

@Anton1, I’ll need to ponder the deeper questions you raise, but meanwhile I added a “Trademark governance” entry to the timeline. Thanks for the important reminder!

(Accompanying graphics await inspiration…)

[tromer]

I updated the top post with the new timeline and structure following the Final text of ZIP 1014 announcement.

And also corrected the Dev Fund activation date to 11.2020 (yes it’s a bit more than 4 years since launch; how could I forget the slow-start!).

[joshs]

Nice. We are also working on a microsite to memorialize the history. Stay tuned.

[nathan-at-least]

@mika

How much of a decentralization is this really?

Compared to what?

If we compare Zcash across time, then to me it certainly seems that each step in the evolution of this funding & governance structure introduces more “decentralization” from the former step because a greater number of independent organizations control smaller proportions of the original fund. Because the flow of funds is somewhat hierarchical, this might not meet some definitions of “decentralized”.

If we want to compare across similar projects, then I believe there are several categories to consider: public cryptocurrencies with built-in funding, “ICO warchest cryptocurrencies”, and all other public cryptocurrencies.

Public cryptocurrencies with built-in funding: Some examples in this domain I’m aware of would be Decred, Dash, and Beam. At a 10,000 foot view, I would say all of these are similar: there’s a way for a community to vote or express sentiment, and there’s an executive organization. Off the cuff, I would say Zcash has lacking ways to gather sentiment and that should be improved. OTOH, I would say Zcash’s executive layer is top-notch in this category.

Tezos is an interesting outlier that might need its own category, although I may have mistaken beliefs about Tezos. My beliefs are: a. protocol upgrades are automated by stake-based voting, and b. there is a community norm that protocol upgrade authors can include rules to issue new currency units for themselves (which only takes effect if the stake-vote approves the change). In terms of funding (not voting) this seems very decentralized (except there is a very high up-front cost compared to say a Zcash grant, so that could mean fewer applicants who already have seed funding vs Zcash grants). In terms of voting, I and others would have concern about the robustness of stake-based voting.

So the second category is warchest cryptocurrencies. These are the ones with giant piles of funds with no restrictions, often ICOs. I don’t see this model as promoting decentralization (nor even incentivizing development!). I do see some projects succeeding well, most prominently Ethereum. But I think those projects are succeeding despite a poor development funding design.

Symptoms of warchest models include teams fragmenting and spinning off new separate projects. This totally makes sense to me due to the incentives involved.

Finally there’s the last category of cryptocurrencies without any innate funding. These are arguably the most “decentralized” in development, but at what cost?

Prominent examples: BTC, BCH, LTC, Grin, ETC. It is my personal assessment as of today that this approach is not working well.

I see public evidence of development strain / momentum issues in all except BTC. BTC may be unique in that the network effect and price appreciation might offset the problem of no funding. Or, it could be the case that the lack of funding is hampering BTC at a growing rate which will eventually supercede the network effect and price appreciation. (I try to keep both hypotheses in mind and look for falsifications either way.)

PS: A completely different direction to explore is sustainable public goods funding outside of innate consensus-rule funding. Gitcoin is the only example I’m aware of active in this area. If people know others please point me to them!