Folks, I and others from ECC have been listening to the dev fund discussions carefully, in public and in private conversations, and we’re working on updates to share with you about our current operations, our plans for the future, and also our assessment of how the current crop of ZIPs would impact ECC.
We hope it will help inform the discussion by giving information that the community can use to plot its course. Stay tuned for that! https://twitter.com/ElectricCoinCo/status/1189958700972138497
Right now I’m posting just to bring up an issue that is bothering me a lot: potential adopters/users/hodlers of Zcash need to have confidence that the monetary base supply schedule is extremely predictable and immune to manipulation. 21 million eventually, 10.5 million in the first four years, half as fast of an issuance rate after each halvening, etc.
I’m bringing this up because a few of the dev fund ZIPs suggest changing that supply schedule by burning coins in certain cases. I believe that if one of those proposals were to be adopted that it would severely undermine confidence in ZEC, and cause large numbers of people around the world to stop buying and holding ZEC, or to refrain from beginning to buy and hold ZEC.
This is because a lot of those people will perceive such a “burning coins” protocol as artificially limiting the supply in order to artificially pump the price. Even if there are solid reasons why burning coins is a good idea, and even if it isn’t being used to artificially manipulate the price, most people around the world will not learn, understand, or believe those reasons and will instead just shy away from owning ZEC because that additional factor introduces complication, uncertainty, and the possibility that they are somehow getting exploited.
The monetary base needs to be extremely predictable and it needs to be extremely simple. It takes many years for people to become confident enough in a network that they are willing to trust it as a store of value, and we should be very, very cautious about making any changes that undermine that.
It isn’t clear to me that there are solid reasons why the community would want the protocol to limit the coins going to core support orgs, but if there are, then I would suggest we implement that by distributing those coins to the previous year’s worth of miners. This achieves the goal (which again, I question) of limiting funding to core support orgs, it makes no change to the monetary base so it will not undermine confidence among potential coin-holders, and it gives additional incentives to miners to maintain their operations over time instead of exiting the ecosystem.
Oh, one more thing: SEC risk. The word “burn” is a red flag to the SEC. Artificially limiting supply — or even talking about artificially limiting the supply! — is one of a handful of things that are red flags to SEC. Now, as we said in https://electriccoin.co/blog/an-update-from-ecc-on-the-initial-assessment-of-community-proposals/, we believe Zcash is not a security, and that it is very far from being mistaken for a security by SEC, because we never had an ICO, because ZEC was never tradable before it was useful, and because Zcash is decentralized. The fact that ZEC is unlikely to be classified as a security and de-listed from all USA exchanges and businesses is one of the under-appreciated strengths of Zcash.
However, like we said in https://electriccoin.co/blog/an-update-from-ecc-on-the-initial-assessment-of-community-proposals, it would be a shame if the Dev Fund process accidentally increased the risk of Zcash being mistakenly perceived as being a security. That’s another reason to stay away from changes to the monetary base supply schedule.
However, like I said above, I think a much more important reason to stay away from such changes is that they would undermine confidence in ZEC as a stable long-term store of value.