The Zcash Posterity Fund

Technology
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Hello Zcash community,

I love this community, so active and productive.

However, Zcash in its current form is perfect with PoW. The transformation to PoS is too early. I believe once all the Zcash cap mined it would make more sense because the owners of the Zcash currency already there, the cap is all circulating, no need for competition among miners. Also, the transformation in that time will reduce the fees since we all know the fees are the only reward a miner will get when the network is running at that time.

For the Posterity Fund, I would say is a great idea if the fund is coming from outside network and be used to prospectively automate the mining process in order to reduce the cost as well ( it can be done using smart contracts). In addition, miners should receive guides to reduce their costs by using the advancement in renewable energy instead of keeping part of the reward for the generation which is clear will end up with the same results. By those two steps mining will never stops becuase the price as well will compensate the lower reward they are receiving.

Since ZPF is about taking a portion of the miner’s reward and add it the ZPF, the process for the miners of rethinking being a miner in the network wiil start and that not realy desirable since it is an important part of being “decentralized.”

Zcash is one of the best Decentralized Electronic Cash System in the crypo market. PoW is providing choices for miners to reduce their costs by using alternatives to produce electricity whereas PoS is relying mainly on the amount of stake which will centralize the network eventually if it used in early stages. Unless the network is moving toward having EVM compatibility in the soon future and looking to speed up the network to host dapplications.

Important point: what motivate miners to operate when all the cap of Zcash is mined?

I wish the Zcash community the best, and happy to share my thoughts with all of you,

Ahmad

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I would love to know what “outside network”-source of fund that you’re talking about

Does PoW decentralize the network more than PoS? Is a system where only a few actors with lots of money can profit from mining more decentralized than a system where everyone with small amount of ZEC can help secure the network and profit from their actions?

Also, Zcash is not at an “early stage” anymore. Moreover, miners have received more than 50% of all ZEC that will ever be minted (assuming the community sticks to 21m cap).

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Thanks for your reply,

Yes PoS will minimize decentralization, after this point of upgrade, the network will notice that and will start to let users delegate to create more chances for lower stake validators (less money), but users will look for the highest stake because they have more chances to mint a block and make more rewards. Money here will give more authority over the network.

Unless Zcash will propose a customized PoS that will force the network to choose a validators based on other factors beside MONEY.

*Few people with high stake is PoS, ( Few: lowering the number of people with authority) toward centralization.

More people ( more accepted, more adopted), competing with the same equipment but using various resources to run that equipment is Fairness (PoW). Resources distributed over the whole world. "Most the money with 1% of the whole world. The case now in Zcash.

I know Zcash isn’t in early stages, the more the upgrade postponed the more decentralized the network will be. However, once the network mined all Zcash, PoS makes more sense because the reward of the mining is the service fees not new minted Zcash.

The proposal of ZPF points out to outside support, I just wanted to say this outside fund much better for the future than taking portion on miners, who might not be able to act maliciously but can stop working becuase his cost of operation is high.

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This talk by Zooko at zcon3 answers a lot of your concerns.

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I like what Zooko presented. I see his point of view, Zooko is looking for stable minting process from the transaformation from PoW to PoS since PoS is much easier to engage people in the minting operation. Despite the fact that in PoW, you have to set up your own equipment to start mining. This is a valid point but will not increase decentralization, it will minimize it. And usually all networks started with this process they are trying to avoid the decrease in miners by having known validators, which any user can elect and delegate their crypto to increase their chances in minting and making sure the operation is on even with lowest number of validators.

To conclude, once you apply ZPF and get some of miners rewards to ZPF, PoS makes more sense, because it will keep the network running becuase it will use the crowd stake in addition to the validator which will support the operations.

Both PoW and PoS, are best versions of consensus algorithms. Both secured and imuutable, but the difference here is the level of decentralization.

Anyway, in crypto decentralization is acquired by embedded rules applied over the network through the code not by the technology used.

Good luck Zcash community

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I have a few questions about the ZPF proposal as it might pertain to ZSAs, bridges (e.g. this proposal), and interoperation with other assets and ecosystems:

  1. Could the ZPF accept deposits in other assets? For example, if fee payment is supported with ZSAs directly (instead of requiring all fees to be paid in ZEC) - perhaps with some multi-token EIP1559 variant - could the ZPF take part or all of those fees in deposits, and pay them out following the same “four-year halving” schedule? It seems to me like in principle this should be possible, but it depends of course on the details of the implementation.
  2. Could the ZPF accept deposits of assets sent across a bridge? For example, if another ecosystem wished to donate another asset - perhaps ETH, USDC, some other native token - to support Zcash development, and if the Zcash network (PoW or PoS) via a bridge were able to receive other assets, could these assets be deposited into the ZPF (and paid out in the same way)? Would this be a good way for other ecosystems - which do not in general have a lot of ZEC - to fund Zcash development (and also perhaps to diversify ZPF / Zcash network revenue)?

Note: In general, I don’t think that the security models of proof-of-work or proof-of-stake are dependent on security payments (to miners or validators) being made in a single/native asset, but I haven’t done extensive research here and would like to hear if anyone has.

  1. Could the ZPF, if it accepted deposits in other assets, implement other issuance curves, but pay the same participants?
  2. Relatedly, could the ZPF, if it accepted deposits in other assets, allow depositors to choose the recipients and issuance curves of their deposits?

These questions may seem odd or pointed - the general thrust of my inquiry is this: could the ZPF be turned into a more general public-goods funding mechanism for the Zcash ecosystem? Network security, development, research, and outreach are all public goods - which I expect myself and many others would be interested in funding - but perhaps not all in the exact same way or with the exact same assets.

For example, the Namada network under development by Heliax builds on the technology originally developed by the Electric Coin Company and Zcash, implements a public-goods funding mechanism capable of both proactive and retroactive disbursement, including over bridges, and we would like to find a good way to contribute back to the Zcash ecosystem & community to support both the past research and continued development without which our work wouldn’t be possible. One way I can imagine doing that is by directing a small part of the inflation from our network over a Zcash bridge to the ZPF, where it can be disbursed to the ZPF recipients, who can use it as they would prefer. As compared to an airdrop or once-off funding of individual people/organisations, I like this approach because I think it better captures our desire to fund collective public goods, in a fashion sustainable over time, and to fund public goods in a way approved by the Zcash ecosystem - but there may be downsides (for example, I expect this would increase ZPF implementation complexity somewhat) and I’d like to hear what folks think.

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:clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3::clap:t3:

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I think this is beginning of something. I don’t even have a term for it.

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ZPF to me feels like what I’d call Decentralized, Reserve Banking (non-fractionalized). It provides some conventionally known traits of Fractional Reserve Central Banking, re: The FED, like M1 M2 supply modification. It reaffirms the cherished long term absolute total supply cap. It smoothens out what is the currently harsh emissions rate. It gives the ecosystem more optionality with regard to long term tokenomics.

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I’m not aware of any L1 blockchain using this kind of scheme.

I believe Ethereum is somewhat similar with the combination of [EIP-1559: Fee market change for ETH 1.0 chain] and it’s issuance, because EIP-1559 burns transaction fees, and then issuance creates new units, so there are both flows into and out of the “active/extent” supply. So both schemes have this bidirectional flow.

However, a key difference with Posterity Fund is that it requires these two flows to follow a strict total supply cap, and it rate-limits flows out. I’m not aware of what constraints or limits exist on Ethereum new-token issuance.

Yes, they are very similar. The chart of supply over time shows how similar they are at a long time-scale (where it’s hard to even see a difference). The chart of current issuance (with halvings) vs Posterity Fund (with “disbursements”) makes the difference much clearer.

At some future date, it’s possible that the disbursement rate would be higher than the issuance rate of the halving schedule, but only if significant ZEC was previously removed from the active supply through fees. So the supply remains constrained, and the disbursement rate is always constrained by it’s own “continuous halving” rate limit.

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Thanks for sharing your position about PoW vs PoS.

I want to repeat that this proposal is independent of whether Zcash uses PoW or PoS. In fact, one reason I advocate for this proposal is that by keeping the same “spirit” of the original BTC-style issuance, but decoupling it a bit from PoW, we could have more certainty about the issuance schedule regardless of changes to consensus protocols (*).

This proposal is relatively simplistic and only describes ZEC. So for it to enable funds from “outside the network”, that would either mean some way to exchange those funds for on-chain ZEC, or for a more complex extension of this protocol to support multiple assets (which also requires ZSAs and maybe bridges). I think both are very intriguing and worth exploring further! It sounds like @cwgoes is thinking along similar lines.

If this proposal were deployed on the current PoW consensus protocol with no other changes the only difference to miners is that block rewards would be a smoothly declining amount rather than the halving schedule. If that’s the only change, txn fees remain the same.

In this scenario, near the beginning of halving periods, they would receive more than the current schedule. Near the end of halving periods, they woudl receive less than the current schedule. The current schedule is grey, and the ZPF schedule is green (with an imaginary start date):

2048×939 16 KB

If, in addition to this proposal, some proportion of txns fees are put into ZPF deposits, this has the effect of redirecting them from the current block miner and spreading those out to future miners over a long time window. This means also, that the current amount of disbursements will be larger than the green line if there have been significant fees deposited into ZPF in the past. Over a long time window, I would expect the revenue of miners is roughly the same, the only difference is that the block rewards are much steadier and predictable and fluctuate less immediately with fees.

Given all of that, does the ZPF still seem like it would be unappealing to miners? My intuition is that it would be either neutral or positive. I thought it may be positive because they’d have more predictable revenue, and need to be less concerned with “playing games” around transaction selection to maximize fees.

I don’t understand why you say this. The ZPF proposal itself, including the fund balances or how many fees are collected, is not any different whether the network uses PoW or PoS.

PoW or PoS can change where fees may come from and where funds are distributed to (miners vs PoS block producers), but not the rate at which funds are distributed (which is fixed by ZPF).

Is it clear that if fees pay into the ZPF in the current PoW system, they are also paid out to miners?

There is one important nuance here: currently block rewards are split 80% to miners and 20% to Dev Fund recipients, but all txn fees go to miners. This base ZPF proposal doesn’t change txn fees, but I allude in the blog post, and in comments here, that I think we would want to consider redirecting txn fees into the ZPF (at least partially). So if we do that it would mean miners would receive only 80% of txn fees paid, since 20% would be disbursed into the Dev Fund.

My belief is that because txn fees are minuscule, making this change now won’t make a significant difference to any party. OTOH, if we considered activating that kind of fee change later after fees are more significant, then it would be harder to come to agreement, because the redirection would impact different stakeholders significantly.

Footnote:
(*) Issuance rate and consensus protocol can’t be completely separate, since issuance/disbursement rates affect the security of different consensus protocols, potentially differently. With ZPF however, a proposed consensus protocol would have to make a really strong case for why it needs to deviate.

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Just as a small contribution here (and to allow you to reply again to the thread :smiley:) - I believe, at least in the current version of Eth2, there is a cap on annual issuance, but it is denominated in percent rather than a flat amount (around 1.8% if nearly all the ETH is staking) (source). This is a distinction in terms of not having an exact asymptotic maximum supply, and Eth2 (as far as I know) does not have any sort of protocol-specific public goods funding that comes from supply inflation or fees - but the abstract mechanism of decoupling payments and payouts in EIP1559 to smooth out both the demand and supply side gas price movements is similar (this also e.g. makes mining a specific transaction in a block less valuable, and thus reduces incentive to DoS proposers for the next block if there is a really valuable tx that they can include). Similarly, as I understand it, the ZPF mechanism seeks to smooth out payouts to entities funded by the network issuance and provide more predictability.

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The Zcash Sustainability Fund

Shielded Labs is interested in developing and supporting the Zcash Sustainability Fund (aka Posterity Fund). Over the next month, we’d like to open up a discussion and encourage community members and ecosystem participants to ask questions and provide feedback on the proposal. Please refer to the following resources for background information: (1) ECC’s blog post announcing the Fund, (2) the draft ZIP written by Nate Wilcox, and (3) Nate’s twitter thread summarizing the Fund.

Please note that Shielded Labs believes the “Zcash Sustainability Fund” is a more appropriate name than the “Zcash Posterity Fund” because it accurately reflects the fund’s purpose of ensuring the long-term sustainability of the Zcash network. “Sustainability” conveys the idea of maintaining the network’s viability over time, whereas “Posterity” refers to future generations and does not necessarily capture the idea of ongoing network support.

Background

Recently, there has been increased attention around Bitcoin’s future security budget due to the possibility that miner revenue from transaction fees may not be sufficient to provide adequate network security after the block subsidy ends. Zcash faces a similar problem as its network is sustained by block rewards and operates with a supply cap of 21 million coins.

The Zcash Sustainability Fund (ZSF) addresses this issue by modifying Zcash’s issuance schedule and introducing a mechanism to direct funds towards sustaining the network. It preserves the 21 million supply cap and smooths out the emissions curve while maintaining an approximate issuance rate that replaces the four-year halving cycle. Fees deposited into the reserve are distributed over time in block rewards to help sustain the network.

In simple terms, the ZSF works like an algorithmic savings account or endowment. Funds are set aside for a specific purpose, to provide a sustainable source of block rewards for the Zcash network. Deposits can come from various sources, including transaction fees, which can be used to fund the network. Disbursements are governed by specific rules and policies that allow ecosystem participants to better plan for the long-term. In this sense, the ZSF is a reserve of funds that is managed separately from the circulating supply of ZEC to help ensure the long-term sustainability of the network.

The ZSF is not dependent on any specific consensus protocol, such as Proof of Stake, and can be implemented within the current Proof of Work consensus protocol. However, since it creates a mechanism for deposits that new applications or protocol designs can use to strengthen the long-term sustainability of the network, it may be an important step for future economic upgrades, such as a transition to Proof of Stake or Zcash Shielded Assets, and other potential protocol fees and user applications.

Shielded Labs

Shielded Labs was established with the aim of making the Zcash ecosystem more decentralized and more resilient. By developing and implementing the ZSF, it would be initiating the first network upgrade by an independent developer, which would demonstrate that Zcash is a permissionless network and also help lower the barrier to entry to serious development initiatives.

Shielded Labs believes the ZSF can help improve the long-term financial sustainability of the Zcash network. By creating a reserve that acts as an algorithmic savings account, the ZSF makes Zcash more resilient and helps ensure the protocol meets the future needs of its users. Moreover, the ZSF provides an opportunity for Zcash to continue to improve on Bitcoin’s design. Privacy and the development fund are two important features that define Zcash’s unique identity and differentiate it from Bitcoin. The ZSF allows Zcash to continue that tradition by providing a mechanism for long-term network sustainability while maintaining its supply cap and approximate issuance rate.

In addition, the ZSF is relatively easy to implement from a technical perspective, requiring approximately 6 to 8 months of development work with 1 to 2 engineers. My initial impression is that community sentiment is generally positive based on conversations I’ve had with community members over the past month. Overall, I believe the project is low hanging fruit that is well worth the effort in terms of the benefits it will provide. If community sentiment is in line with my initial expectations, I believe the ZSF would be a non-contentious network upgrade.

Next Steps

If the community supports this initiative, Shielded Labs will incorporate your feedback into a technical specification, which will be written into a ZIP, and look to start development later this year. Since the ZSF is independent from a transition to Proof of Stake, and also works with Proof of Work, implementing the ZSF earlier allows the reserve to accrue value sooner. To that end, it would be reasonable to set the activation block height to coincide with the next halving in Q4 2024.

Please provide questions, comments, and feedback, and let’s get a vibrant discussion going. Specifically, it would be helpful to know (1) general reasons why you support or oppose the ZSF, (2) any questions or concerns you have about the design of the mechanism, and (3) any questions you have related to the economics of the ZSF.

Thank you.

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Love this :zebra: I support the ZSF and would love to dive into the details when ready.

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I support this. And great choice of words/title, correlates well with the core purpose - Zcash Sustainability Fund.

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After reading the draft proposal from Nate, I am overall pretty happy with the direction of where it is going. Just a couple of Qs/thoughts

  1. After the ZSF is deployed, all unissued ZEC goes into the ZSF, and all future “fees” are paid into it also. I assume the fund will have to be publicly viewable, so how does that affect fungibility? is there any data leakage from a shielded tx paying into the ZSF? Nate goes into it under " Comparison to Transaction Outputs" somewhat, but I am not full bottle on the technicalities

  2. Whilst the emission of ZEC is plentiful, I suggest that any deposits into the ZSF are banked, until say another 2 halving cycles are complete before being brought back into circulation. This will ease some of the inflation pressure we currently get, and have a greater impact on the rewards further down the line

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After reflecting on this for some time I think its incredibly important for us all to stay humble and accept that we barely have a glimpse of what the next 5years for Zcash is going to look like. Anything that contributes or strengthens Zcash’s ability to provide sustainable funding for Zcash is probably one of the most important thing the ecosystem can do.

I also think it’s important whatever core decisions are made when implementing the ZSF we consider how ZSAs will fit into the system. Not because we “know” we will need to fit ZSAs into the into the ZSF, but because we “don’t know” if we need to. A large part of sustainability is all about managing risk, and making sure ZSAs fit into the ZSF model reduces that risk. If I had my way I’d like to see them mentioned in the ZIP in some form.

I believe that the long term impact the ZSF will have on Zcash will be enormous, but taken for granted. :shield:

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Agreed. On the one hand, the current plan for ZSAs is that fees will be paid in ZEC, which simplifies things. On the other hand, should a hypothetical future sustainability fund be able to hold and distribute other assets? What consequences could that have for ZEC’s role in the Zcash network?

However, I think we should take a step back for a moment. It feels somewhat premature at this point to start focusing on implementation details and what should or shouldn’t be in a ZIP.

Fundamentally, the key questions are:

  1. Should Zcash’s emission schedule change?
    and
  2. How should newly-emitted ZEC be distributed amongst:
    a. consensus mechanism participants (i.e. miners, stakers, etc.), and
    b. developers and other ecosystem contributors (e.g. current and future Dev Fund recipients), versus
    c. reserved for future distribution (i.e. the “sustainability” part of the equation).

The answer to (a) is fundamentally about security - i.e. How much does it cost to secure the Zcash blockchain?

There are a bunch of different ways to think about that question, and it’s obviously highly dependent on what consensus mechanism Zcash uses. Right now, the answer is probably dependent on things like the capital cost of PoW mining equipment, miners’ operational and energy costs, and the competitive landscape (in terms of alternative chains that miners could switch their hashpower to), along with the implicit cost of mounting a 51% attack. If Zcash were to switch to an alternative consensus mechanism (like proof of stake), other factors come into play, like the need to incentivize consensus participants (and punish bad actors), the security ratio, and the competitive landscape (i.e. to what other uses could consensus participants’ resources be put to).

Ideally, if we can define the key inputs and a suitable algorithm, we can codify dynamic reallocation of newly-emitted ZEC into the consensus rules. However, that brings its own risks, especially while there’s a significant lead time to make changes to the consensus rules.

There are other considerations, like: How do we increase decentralization? Should minimizing the risk of adverse regulatory consequences be one of the goals?

In effect, this is a continuation or evolution of the discussions that took place in 2019-20 that led to the adoption of ZIP 1014 and the implementation of the Dev Fund. The high-level approach of “Discussion → Ideas → Concrete Proposals → Voting → Adjustment → Voting → Consensus → Implementation → Activation” seemed to work well then.

PS: We’ll look at how best to include this on the agenda for Zcon4.

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  1. Only in the form of smoothing the emission.
  2. What about adding an extra 1% to the dev portion of emissions? So 8% 7% 5% 1% = 21% :exploding_head:.
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Are there expectations that these tough decisions are completed going into ZCon4 (and the conference will act as a description of what the implementation will look like) or will ZCon4 be used as a public square to host additional debate?