Blocktown Proposal for Zcash 2020 Network Upgrade

This serves as Blocktown’s proposal for Zcash’s fourth network upgrade (NU4). Last week we published a Zcash forum topic and Executive Summary supporting our selection of a 10% allocation of the miner’s reward for a “Development Fund” that will go into effect after the halving in October 2020 and replace the soon to be terminated 20% Founder’s Reward (FR).

Proposal for a Development Fund—not a Founder’s Reward

For the past 3 years, the majority of the 20% fee taken from the miner’s reward was allocated to early investors and vested employees in a “Founder’s Reward.” This was compensation for those who took either time and/or monetary risk on Zcash without knowing if Zcash would capture value or even successfully launch. The FR is hardcoded to terminate at the time of the first halving in October 2020.

We are in agreement with the vast majority of the community when we advocate termination/no extension of the Founder’s Reward at the time of the first halving. That is, the Development Fund we propose for NU4 does not allocate a single dollar to angel investors, VCs or vested employees. We consider that debt to be paid in full by October 2020.

The NU4 Development Fund will be strictly allocated toward the advancement of the Zcash network and ZEC currency, and not for the enrichment of equity investors, VCs or vested employees.

10% allocation toward Zcash Development Fund

For reasons articulated here, an allocation of 10% of the miner’s reward toward a Zcash Development Fund—instead of 20% or 0%—will unite the community and provide sufficient resources for continued development while maintaining the network security and decentralization characteristics of bitcoin. This proposed 10% allocation would be hardcoded in the Zcash codebase for the approximate years 2020–2024 (period between first and second halvings).

A Development Fund of 10% will set a precedent for a more mature “social contract” whereby the allocation toward a Zcash Development Fund rapidly decreases every halving. We believe that this is superior to extending the 20% allocation that is currently in place. If a 20% allocation is integrated in NU4, there would be an 8-year precedent of a FR/Development Fund at the same rate. Eight years in cryptocurrency is nearly the entire lifespan of bitcoin. Another 4 years at 20% will likely result in part of the community coalescing around a social contract of a perpetual 20% allocation toward a Development Fund while alienating a significant minority of the community. Most agree though that a perpetual 20% allocation is not suitable for a decentralized, privacy-centric cryptocurrency such as Zcash.

We want to re-emphasize that our proposed 10% allocation would be hardcoded in NU4 to terminate by the second halving in 2024. It will be up to Zcash’s decentralized governance model to reach consensus on additional funding as the second halving approaches. Nevertheless, following the precedent of halving the percent allocation, every halving event could result in the following Zcash Development Fund timeline:

  • 2016–2020: 20% (FR)
  • 2020–2024: 10%
  • 2024–2028: 5%
  • 2028–2032: 2.5%
  • 2032–2036: 1.25%…

We propose that 10% of the miner’s reward should be allocated to a Zcash Development Fund in NU4. This allocation will be hardcoded to terminate at the time of the second halving in 2024.

Zcash Foundation and Electric Coin Company

The Zcash Foundation (ZF) and Electric Coin Company (ECC) are best positioned to advance development and exposure for the Zcash network over the next several years. We propose allocating the entirety of Development Fund to the ECC and ZF.

As the ECC and ZF mature with dedicated funding, it is likely that their missions will evolve over time. For this reason, it is not reasonable to formally decide today exactly how the funds will be divided between both entities (e.g. 70/30 split). Nevertheless, during Zcash’s infancy, we do attribute greater importance to advancing protocol development, which supports a greater proportion of funds allocated to the ECC. We hope though that the ZF and ECC will work synergistically toward the shared goal of increasing value capture of the Zcash network and ZEC currency as greater clarity on the division of resources develops.

The entirety of the Development Fund should be allocated to the ECC and ZF.

Decentralized governance

Sound money should be resilient and resistant to change. This has been one of the most important characteristics of the Bitcoin network—effectively resisting any increases in block size or coinbase cap.

In his article on governance Zcash Governance: A Step Toward Decentralization, Josh Cincinnati provides an insightful analogy between decentralized governance and American democracy. With a largely 2-party system—Democrats and Republicans—, power in the American democratic system is divided such that radical changes are effectively vetoed by the opposing party, much to the frustration of passionate constituents in either party, but likely for the good of the entire democracy.

As an American, I’ll be the first to admit that we have political problems, but the law grinds slowly for a reason. Systems that can be changed suddenly or drastically are risky in multiple ways, and especially dangerous if a tyrant can gain control.

-Josh Cincinnati, Executive Director, Zcash Foundation

We agree that 2-of-2 multisig consent by the ECC and ZF for changes to the Zcash protocol is superior to 1-of-1 consent. That said, the alternative 2-of-3 multisig consent is another viable option gaining traction in the community with the advantage of offering a “tie-breaker” in the event of an impasse or deadlock. Prior to creating a formal ZIP, we are open to further discussion on these two viable options.

Over time, more sophisticated and complex solutions for greater decentralization may emerge, but for now this division of power should be sufficient while reducing any unforeseen technical or fragmented consensus risks.

Decentralized governance for changes to the Zcash protocol should be made in either a 2-of-2 multisig consent by ECC and ZF or a 2-of-3 multisig consent between the ECC, ZF, and a third entity (to be specified at a future time).

Issues and Discussion

This proposal is not in accordance with the current Zcash protocol, which is currently programmed to allocate 100% of the coinbase to miners indefinitely upon the first halving in 2020. However, at least during Zcash’s infancy, we believe it is advantageous to have a funded and dedicated development team.

On the other hand, likely because the original Founder’s Reward was set at 20%, a number of proposals have also chosen 20% as the allocation for the new Development Fund. For reasons we have explored in depth here and summarized here, we believe 10% instead of 20% is superior for network security, decentralization and uniting the Zcash community.


Herein we outline a proposal for 10% of the miner’s reward to be allocated toward a Zcash Development Fund after the first halving in October 2020 that will terminate by the second halving in 2024. Funds would be allocated to the ECC and ZF. The two viable options for decentralized governance are either 2-of-2 or 2-of-3 multisig consent between ECC, ZF and potentially a third entity.

Of course, prior to formalizing a ZIP, we welcome all feedback and assistance from the Zcash community and other interested parties!


I want to also mention a special thanks to Steve @mistfpga for his help on the formalities of the preparation of this proposal. It is much appreciated!


Good proposal, but in my opinion it misses some important/interesting points:

  • accountability? Transparency?
  • 3rd entity? Who, when, how?
  • ECC for-profit or non-profit or doesn’t matter at all?
  • more details about governance?

Just my opinion what i personally miss or would have to be adressed more detailed.


Hi Blocktown,

Glad you put this forward - I think it aligns a lot more with what proposals should look like to encourage healthy debate. Thanks for the hat tip, it is appreciated.

(I got a preview of this so have already asked these questions, but I think it is better they are answered in the thread so will post them here)

Just to be clear to everyone they are questions not a critique.

  • can you include a section on what is not covered by this zip? i.e. governance kind of is, but only some aspects. (I should have suggested this last night, but I got home quite drunk and fell asleep - I was just about to look over it again when you had posted it)

  • Why does funding have to come from block distribution, block rewards are distribution +fees, are fees to be included?

I feel that this would address some of the balance in who is seen to be paying for what.

  • Could this move on a scale from distribution to a fee based mechanism?

I feel this would help incentivise adoption and give (eventually) a perpetual dev fund (when it moves to 100% fee based) Where and when this happens I don’t know. It is just a thought. - I think approximately 6% of all bitcoins transferred a day is in transaction fees.

could you just use fees? rather than block distribution. (although this probably wouldn’t be enough)



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James Prestwich, former cofounder of Storj and recipient of a Zcash Foundation grant highlights many of our same concerns with the new Dev Fund in his article here.

Of note, he is also very critical of the ECC’s aggressive spending recently while knowing full well that they were overextending their budget with the plan/full intention of securing a renewed, large reward after the halving.

Furthermore, the ECC began a marketing campaign for a sizable new dev fund many months ago (while trying to appear “neutral” on the matter), still controls the Zcash trademark, and as Prestwich points out the “ECC is not negotiating in good faith.”

Anyone on board with a 20% dev fund (unchanged rate from the original FR) is rewarding this behavior and setting a trajectory that will likely result in a fairly small community that is okay with a perpetual 20% centralized fee on the network, and who do not understand the importance of decentralization and network security in a SoV/currency.

-James Todaro


I added yesterday the full text to the forum, visible here now after it got removed from the dev fund mega thread:

As there are references to James Prestwich’s article as well in the

thread it might be worth discussing the issue not only under your proposal but in generally.


This is not accurate. We cut spending and worked with FR recipients to dilute their share so that we could keep our team employed and continue other important work through next October. The forthcoming transparency report will highlight Q1 income, spend and use of funds.

I’m not aware of any such “marketing campaign.” To what activities are you referring?

If, in this post, you are asserting that we have not been good stewards of the dev funds received, I would sincerely appreciate that feedback and specifics on where you believe funds would be better allocated. Thanks James.


Did you or did you not increase expenses in 2019?

Less than a month ago, Zooko published an article asking for more funding for the ECC:

“I hope that the community will decide to renew the “Dev Fund” structure, allocating coins from future block rewards for core support functions such as software development, user support, business development, regulatory and government outreach, security auditing and monitoring, educational and marketing initiatives, new protocol development, and so forth.”

Are you seriously going to tell me the ECC isn’t pushing/marketing for additional funding?

It’s also blatant through social media interactions (e.g. Twitter) what proposals Zooko/ECC supports.

Absolutly agree on this one. I have mentioned this as soon as i got aware that 20% get “showcased” forth and back by the ECC, Zooko and ECC members as well and the foundation than back too.

At least the foundation reacted immediatly and took these links down from the twitter account and later replaced them with a link to the thread where all proposals are mentioned which i consider a fair step.

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We decreased them.

See my note on the other thread:

The ECC was spending $700k a month in the last half of 2018, but will average $1.1M a month in 2019 (per your reports). It has also been hiring new personnel. How exactly is the ECC decreasing expenses in 2019?

We decreased expenses in Q1 (started in H2 18), froze hiring, cut marketing, etc. We worked with FR recipients to help increase funding to help us continue and accelerate rather than cut further. That took place in June. The plan was to ramp to $1.1M (hire more engineers, invest in Asia, etc.) through Oct of next year, but that’s dependent on the market. We aren’t anywhere near that now. Also note that some expenses are one-time / once-a-year, such as external security audits.

When do the expense reports for Q1 and Q2 2019 come out? Can you really say that both of those quarterly reports will average under $700k monthly for the ECC?

Likely Thursday, but maybe before for Q1 reporting. The Q2 report will come out in Q4.

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So you aren’t sure if operating expenses in Q2 2019 for the ECC are more than the $700k monthly from 2018?

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Near $1.1 or the 2018 last months $700k?

Sorry, but it isn’t clear to me to which number you are referring.

I don’t have the final Q2 numbers for you now. We’ll release those in Q4.

So this implies that Q2 2019 expenses for the ECC could very well be above $700k a month…

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No, it does not. 20 chars.

If you don’t know the answer, then, yes, it could be above or below $700k.

If you do know the answer, what’s the harm in stating that Q2 is below $700k (as you are willing to say for Q1 2019)?

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