[This post was originally titled “Does the Zcash Foundation support the ZEC holders?”. I wish I had used this more specific and less upsetting title in the first place.]
Folks, here’s something that’s been bothering me for a long time, and the current discussions in which some people are advocating that ECC release Orchard under a permissive (MIT) licence, which allows anyone to do anything with it for free, is reminding me of this long-standing concern of mine.
First some context and where I’m coming from, and then I’ll get to my long-standing concern:
I’ve heard a certain argument from many different crypto investors over the years for why they don’t invest in ZEC. It goes something like this: “Well, Zcash has the best technology, but that doesn’t make it a good investment, that makes it a science project that real products will later benefit from. Eventually ETH [or whatever tokens the investor is hot about] will adopt the technology and use it to produce value for users and for ETH holders, so I’m going to just keep an eye on the Zcash technology while buying and holding ETH [or whatever] instead of ZEC.”
I think that’s a pretty good argument for an investor! It could turn out like that. If it did, it would mean the Zcash experiment would eventually wind down, as the price of ZEC declined, and other projects would have to take up the torch of providing global freedom.
The main reasons that I personally continue to invest in ZEC instead of anything else — both in my personal finances and also in committing every day of my life to it — are:
The Dev Fund pays out amounts of ZEC instead of amounts of dollars-worth-of-ZEC. Since the Dev Fund pays out to support orgs an amount of ZEC — meaning that the orgs receive less funding when the price of ZEC is down and more funding when the price of ZEC is up — those orgs ought to be focused and empowered to support the price of ZEC long-term. That’s why one of the only “hard lines” that ECC took during the Dev Fund decision process was when someone (I think it was Eran Tromer?) proposed that ECC receive a certain amount of dollars-worth-of-ZEC instead of a certain amount of ZEC, and we stated that since we didn’t believe that would be a long-term successful model, that we wouldn’t take that job: Dev Funds Should Be in Zcash, Not United States Dollars.
The Zcash community is a mission-driven community. All of us are here because we care about the fate of our society and the promise of freedom, safety, and prosperity for our children and grandchildren. This means the Zcash project is more long-term sustainable throughout the ups and downs of market cycles and the storms of media-driven narratives, and it produces more fundamental value (and less hype) than most crypto communities.
The Zcash community has a healthy balance of openness and the practice of charitable interpretations of other people’s intentions, but also a willingness to exclude disruptive participants and saboteurs. Finding a balance of that is incredibly hard, and the Zcash community has done a fantastic job of it. I want to give a shout-out to @Shawn, for both serving as chief moderator and also for setting an example for other Zcashers to follow since the very origin of the project. In the long-term “Culture eats strategy for breakfast.”, so the Zcash community’s culture is one of the biggest reasons why I’m bullish on ZEC. (By the way, this is also the single biggest reason why I’m bearish on the Monero’s project’s long-term prospects, is because their culture is toxic.)
Privacy comes from money at rest, not from money in flight. This means that the more people who want privacy in the future, the more people will buy and hold ZEC. People buying and holding is a “demand sink” that increases demand for ZEC, which puts upward pressure on the price of ZEC. In contrast, with other services that provide “privacy for money in flight for all tokens”, like Tornado Cash, there is no inherent economic reason why that project getting more and more users who use it more and more would provide any reward to the investors who support that project. (Except possibly an EIP-1559-like fee mechanism? It’s unclear if that would be enough to really reward holders without being too much that it prevents usage. I assume that all of those projects are iterating on their tokenomics by trying to find such a solution, so I would expect future upgrades of those projects to improve on this. Interestingly, deploying ZSAs on top of the Zcash network might produce a similar model as the Tornado Cash model.)
Okay that’s the context of where I’m coming from. This is why ECC states that “ZEC is the engine of the sustainable growth of our mission”, and it is this same strategy which Zcasher BlocksAdvisors recently stated as “Positive feedback loops create positive externalities.”.
Now here’s my long-standing concern:
I don’t know if the Zcash Foundation supports this strategy.
I can’t be sure — based on the Zcash Foundation’s public statements and their track record of actions taken — whether they are okay with the strategy of the Zcash technology being transferred to other tokens and the original, ZEC-fueled Zcash experiment winding down. Their mission statement and their stated values do talk about “Zcash”, but it’s unclear to me whether that means Zcash-the-technology, which could serve as a positive externality to bring benefits to the holders of other tokens by other projects copying the technology, or Zcash-the-network — which, if ZSAs get deployed on it without substantial compensation to ZEC holders — could do the same, or if they mean Zcash-the-coin: ZEC!
Now, before you jump to any conclusions about the Zcash Foundation’s intentions, let me hasten to add that there are strong political pressures from the United States federal government that might be keeping them silent about that even if their personal financial alignment and their long-term strategy does include ZEC as the engine. There are (at least) two of those political pressures: one from the Securities and Exchange Commission and one from the Internal Revenue Service.
First, with regard to the SEC, I concluded about two (I think?) years ago, based on my own observations plus very extensive (and very expensive) legal counsel that ECC has gotten, that ZEC is obviously not a security, and that there is basically zero chance the the SEC will ever attempt to — much less succeed to — claim jurisdiction over ZEC. However, if the Zcash Foundation has a different estimation, then it’s possible that fear of the SEC may be keeping them silent about supporting the ZEC holders. Their public statements give us no way to tell.
Second, with regard to the IRS, the Zcash Foundation and the Bootstrap Project — the sole owner of Electric Coin Co — are classified by the IRS as 501(c)3 non-profits. That means that money that those orgs make, from donations, from the Dev Fund (which is itself a donation), or from other sources such as selling goods and services, are not taxed by the IRS. It also means that the actions those organizations take must support the public good (and “the public good” as defined by the IRS, not as defined by you and me).
Speaking as a Director of the Bootstrap Project, I am comfortable with a very simple answer to why Bootstrap supports ZEC: it’s that ZEC is the source of our funding! Therefore in order to continue serving our public goods mission long-term, we must obviously also support ZEC.
However, it’s possible (I have no way to know), that the Zcash Foundation might have a different assessment of those legal risks, and so fear of the IRS might be deterring them from taking a clear stance in support of ZEC even though in their hearts they want to support ZEC.
This is why I believe the most important single thing that the Zcash community can do in the next couple of years is to institute a Zcash support organization that is outside of the USA jurisdiction, so that organization can be free from those — and many other — strong (and generally hidden) political pressures.
Or, maybe the Zcash Foundation’s official position really is to prioritise maximizing the public goods (positive externalities) produced, even at the cost of undermining ZEC long-term. If that were the case, I would think that it is an understandable, public-good-oriented position to take, I would just question what is the long-term game plan, and I would question if they’re being honest with their donors (the ZEC holders) about that.
I also, by the way, don’t think that every organization in the Zcash support system needs to have the exact same strategy. It can be good for different people and organizations to have different trade-offs and still to work together effectively. My long-standing concern is just that since I’m unsure of the Zcash Foundation’s long-term strategy, I’m not sure when disagreements that we’re having are merely tactical differences about how to achieve the same long-term goals, vs when they are intentions to move toward different goals.
It would help me to understand, if the Zcash Foundation is advocating for something that, in my view, would undermine the positive feedback loop of ZEC, whether they are also intending to support other actions that would strengthen that feedback loop, or whether they just don’t care about that feedback loop and would be fine with it winding down entirely.
In that diagram, ECC strongly supports both halves: the left half in which our work increases the price of ZEC, which in turn increases our ability to do future work, and the right half in which our work produces benefits (public goods/positive externalities) for others. My question is if the Zcash Foundation supports the left half.