Network Sustainability Mechanism (NSM)

Technology
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First off, to clarify, there is no specific “burn address” in the context of the NSM. Instead, burned funds are identified through a new burn_amount field that allows for the explicit burning of ZEC. See ZIP 233 for additional information.

In terms of guaranteeing the correct identification of lost funds, unclaimed miner fees and transaction fees are automatically accounted for by the way the Money Reserve is defined in relation to current chain_value. See ZIP 234 for additional information.

When miner and transaction fees are claimed in coinbase transactions, they increase the total on-chain value. Conversely, if the funds remain unclaimed, that increase does not occur. Since the current value of the chain is used to calculate the Money Reserve, unclaimed funds effectively function as if they were burned, which means they are not reflected in the chain value and thus increase the Money Reserve available for future block issuance.

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Posting from my previous account just to verify @shielded-nate is indeed me. (I’m creating new accounts for this new phase of work just to compartmentalize history and credentials, and because it’s fun to be all pseudonym-happy.)

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The important thing to remember is that the NSM does not change the destination of newly issued ZEC. So, if the NSM was implemented today, the distribution of block rewards would follow the proportional split outlined in ZIP 1014, with 80% allocated to the block miner and 20% distributed to existing Dev Fund recipients. After the halving when NU6 is activated, 80% will be allocated to miners, 12% to the lockbox, and 8% to Zcash Community Grants.

Any subsequent changes to block reward allocations will be decided by the community and will require thorough discussion, as these are important governance decisions.

Removing ZEC from circulation (i.e. burning) does, however, provide an increased rate of coin creation over the long term. This helps ensure that there will be more ZEC available for future block rewards further along the emissions curve, while still adhering to the 21 million coin cap.

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Anyway it’s not like there’s a choice. Either you end up popping the 21M cap like BTC will have to do (to the horrors of all the maxis) or you try to be proactive and implement something like the NSM early enough.

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Thank you for the explanation.

Just so I am understanding this correctly, this means the Money Reserve will simply build, per block, and potentially never be used because we wont be able to agree on something? ( effectively keeping the supply lower )

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You are correct that the Money Reserve will increase per block as ZEC is burned. However, it is not accurate to say that burned ZEC may potentially never be used if we can’t come to an agreement.

Removing ZEC from circulation ensures that there will be more ZEC available for future block rewards later in the emissions curve, while still adhering to the 21 million coin cap. For example, burning 1 ZEC now causes 0.5 additional ZEC to be issued in the next 4 years, 0.25 additional ZEC to be issued in the following 4 years, and so on. This is one reason why it’s better to think of the NSM as a mechanism and not as a fund that makes disbursements.

For additional information, see ZIP 233, which establishes the voluntary burning mechanism, and ZIP 234, which defines how ZEC is reintroduced into circulation in future block rewards.

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Is this iron clad, or could it potentially be changed by governance? I’ve already voiced my support for the NSM, I’m just trying to think critically of what could go wrong

Appreciate your time

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As always this is my personal opinion.

I think that there are 3 things that need to be evaluated, and each have their own nuances:

  • NSM as a concept
  • NSM as proposed in those three ZIPs
  • The proposal to activate those ZIPs before ZSAs, or along with ZSAs

NSM as a concept

It makes sense, it feels like a good idea, and seems like a useful mechanism. It is not clear how useful it really is though. It feels like an economics thing that I don’t have confidence in evaluating. What seems to be clear is that its usefulness will only show up much later in the life of Zcash and will have minimal impact right now.

NSM as proposed in those three ZIPs

ZIP 233 is straightforward and seems good.

ZIP 234 is weird. The smoothing of issuance may have unintended effects, maybe not in the protocol itself but also on people’s expectations. Everyone is used to halvings and so on. Having each block issue a different amount of ZEC seems confusing. The impact on when it is activated does not seem to be analyzed, since it may cause a big immediate increase or decrease in issuance. (I’d love a interactive graph where you can play with the issuance curve but changing when it is activated and seeing how it looks like). The ZIPs currently even propose to be activated simultaneously with a halving which we know won’t happen in time for the next one in November. Additionally, it also feels like there may be a simpler solution that adds NSM issuance without smoothing the curve. Was that explored?

ZIP 235 seems harmless enough, but it does have negligible impact right now. I like the argument about how changing it now is much easier than changing it in the future when fees might be higher. But it sill feels like there is no urgent need to do this now since fees won’t change by themselves.

The proposal to activate those ZIPs before ZSAs, or along with ZSAs

As I stated in the other thread I think it is not feasible to activate this before ZSAs. If we did that then ZSAs would be delayed and I have the impression people care much more about ZSAs than about the NSM.

Activating this along with ZSAs seems feasible, but it is still work that might delay something that people really want for little current benefit. I do support doing ZIP-233, which requires changing the transaction format which will already happen with ZSAs (and would be a pain to change it later again). The rest could be done in a future update.

I appreciate the “if we keep postponing this it won’t ever be done” argument but I don’t think it’s valid and is basically a slippery slope argument. This is a particularly bad time to implement those. I don’t see a reason why these couldn’t be done in the next network upgrade.

To finish, if you allow me being a bit tongue-in-cheek… sometimes this NSM dicussion feels like I’m living the CIA sabotage manual. We have spent many forum posts and ZIP syncs reviewing, explaining and discussing this (and very few of those are people actively expressing support) and the effort just doesn’t seem to match the current benefit of the NSM. It’s like planning your retirement when your house is on fire.

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Your arguments are valid and one has to ponder on them. But I disagree with the “now is not the right time” bit. It’s exactly what has crippled Bitcoin to date. Each time someone was coming up with a proposal, be it for privacy, scability, security, “now it’s not the right time, we’ll do it later”. We know after 15 years how it has turned out.
Life being a succession of crises and emergencies, guess what there’s never a right time.
Also trying to chase only one rabbit at a time is very dangerous, and the exact definition of putting all your eggs in the same basket.

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I agree with many of your points, but I’m puzzled about why you think that the house is on fire. I can’t recall a time before 2024 when Zcash was in a better position, sure there were times when the price was 20x of what it is today, but tech wise? While governance challenges have always existed, the cooperation between ECC and the Foundation has never been stronger, at least from an outside perspective. Ywallet, Zashi, and Zingo are arguably the best Zcash wallets available (I haven’t used Edge or Unstoppable this year). With ZSA on the way and PoS on the horizon—both highly requested features—there’s a lot to be optimistic about. So, while I think NSM is not urgent, I also think this is the right time to implement it (if ever).

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Drum roll please! I agree here, and unfortunately I think that we need another round of ecosystem polling to determine priority/ preference for ZSAs vs NSM.

Will there be a permanent burn function also? For situations where some ZEC owner wants their ZEC to be sent to an address, never to be usable again?

(fwiw, this is my long running understanding of how the term “burn” is used)

“Burning” may lead to confusion, it feels like “storing” or “archiving” would be more accurate, since these ZEC will ultimately be usable again in the future.

Where/ how was the authority established to let the NSM take the unclaimed ZEC, from the miners who deserve them (or perhaps who deliberately left them unclaimed)?

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Fair enough :rofl:

I like the pushback. I think we were missing explicit support for this so if you (whoever is reading this and haven’t said antyhing) like the idea and the current plan for the NSM, please say so!

Like I mentioned, I think this is not a convincing argument. The time being bad now does not mean that the time will be bad forever. Zcashd deprecation will only happen once!

But I guess my main objection is truly the smoothing of the issuance curve. It’s completely unrelated to the NSM itself and is a big conceptual change for Zcash.

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I don’t think a poll is necessary to determine the community’s preference for ZSAs vs. the NSM. It is clear that there is overwhelming and broad consensus for ZSAs.

This is out of scope for our proposal, but a future upgrade could theoretically reduce the chain value when ZEC is sent to a provably unrecoverable address, which would impact total issuance.

The coinbase transaction is the only opportunity for a miner to claim fees from a block. It is not possible for miners to claim previously-unclaimed transaction fees. If a miner misses the opportunity to claim them, those fees are lost.

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Yes. We need a way for burned ZEC to be reintroduced into future block rewards. Smoothing the issuance curve with an exponential decay model offers a straightforward and relatively predictable way to reintroduce burned coins back into circulation.

There is no simple way to increase future block rewards without smoothing the issuance curve. What alternatives do you suggest?

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Yes, theoretically, any aspect of the protocol can be changed through governance, but there is a high bar for making such changes. Any proposed modifications must go through the ZIP process, which requires demonstrating consensus among various stakeholders and community members.

This is a common topic in crypto projects like Bitcoin, where some people question the integrity of the 21 million coin cap. However, significant changes to fundamental aspects of the protocol require substantial agreement within the community, including from miners, node operators, exchanges, and other stakeholders. Such a major change is unrealistic because it would undermine the foundational principle of scarcity that the community values.

With regard to the NSM, smoothing the issuance curve is necessary so that burned ZEC can be reintroduced in future block rewards in a straightforward manner. The design of the issuance curve intentionally approximates the four-year half-life reflected in current halving cycles. In ZIP 234, we state, “Future protocol changes may not increase the payout rate to a reasonable approximation beyond the four-year half-life constraint,” to demonstrate a commitment that safeguards against arbitrary changes that could alter the protocol in a meaningful way.

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Appreciate the response, this makes sense to me.

:+1:

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@zooko, @shielded-nate and I are hosting a Twitter Spaces event on Tuesday, November 5 at 10:00am PST / 1:00pm EST / 18:00 UTC to discuss the Network Sustainability Mechanism (NSM). We are inviting engineers from ECC, ZF, and the community to join as well.

Here is the link to set a reminder for the event.

We will record the event for those who are unable to attend live. Community members are welcome to join to listen in, ask questions, and contribute thoughts and ideas. Hope to see you there!

In the meantime, please keep sharing your feedback. I’d like to continue using this thread as an opportunity to educate the community about the benefits and use cases of the NSM, clarify any misunderstandings, and answer any questions you may have. Thanks!

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live now :zebra:

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Interesting. I like the many use cases. I guess some kind of quadrantic voting could also be one of them, where you could burn ZEC to have additional voting power since you are actually making a donation to the network.

My only concern would be with the upcoming halving + NSM + Crosslink, how many rewards would be left to the miners exactly? Would it be even worth doing it?

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Last week, I conducted an initial sentiment poll with ZecHub DAO members about the NSM. The results reflected unanimous approval for including it in NU7. The Helios poll link is provided below. Please review the background information and question, and let me know if you have any feedback. I also plan to poll the broader community in the coming weeks and am working with Hanh on a coinholder petition.

Link: Network Sustainability Mechanism (NSM) - ZecHub

Thanks to all the ZecHub DAO members for participating!

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