Next week, the Zcash community will begin laying the
foundation for a new phase of ecosystem development that is worth watching for
those interested in cryptocurrency governance and financial privacy. The
community is selecting members for a committee that will allocate millions of
US dollars-worth of Zcash (ZECs) for development of the Zcash ecosystem. It is
an opportunity for an important cryptocurrency variant to move up in the world
— if Zcash’s Major Grants Review Committee focuses not just on technology but
Zcash is a variant of bitcoin, the leading blockchain-based
cryptocurrency. The most important difference between the two is the greater availability
of transaction privacy on the Zcash network. Because bitcoin transactions are
published openly to a public ledger, transaction amounts and the addresses
sending and receiving such cryptocurrencies are easily and routinely used for
surveillance and tracking. Zcash transactions can be “shielded,” hiding
transaction details while allowing users to selectively disclose them for their
own auditing and compliance purposes, for example.
In my first public assessment, I credited bitcoin as being “surveillance-resistant.” It may still offer better privacy to law-abiding users than the legacy financial services system, but saying so damns bitcoin with faint praise. A widely-used, naturally private cryptocurrency would open up profound economic vistas for people around the globe while improving financial privacy, which is an essential protection for the wealth, security, and freedom of law-abiding people.
Calling Zcash “naturally private” gives short shrift to a lot of work. Its privacy-protective nature is intensively curated by a for-profit enterprise called the Electric Coin Company (ECC) and the non-profit Zcash Foundation. The two guide the development of this particular cryptocurrency in its use of zero-knowledge proofs to offer the benefits of blockchain-based value transfer and privacy at the same time.
When Zcash was created in 2016, the software allocated 20 percent of newly mined ZECs to the ECC, the Zcash Foundation, and people who helped create Zcash. Bitcoin had no such “founders reward,” relying entirely on volunteerism and the self-interest of contributors expecting growth in the value of the coins they hold. The Zcash community appears to have navigated the jealousies that direct funding of ecosystem builders can create, and a new allocation of funds will begin when Zcash’s block reward halves in November. The new allocation leaves 80 percent of new ZECs to miners and gives 7 percent to the Electric Coin Company, 5 percent to the Zcash Foundation, and 8 percent to a new grant-making body, the Major Grants Review Committee (MGRC).
The MGRC, largely autonomous but housed within the
foundation, will have about $8 million worth of funds per year at the current
ZEC price. There is a lot of volatility and (I think) upside in cryptocurrency,
so it could end up being quite a bit more, or possibly less. The question — reflecting
the virtuous incentives that cryptocurrency ecosystems seek to create — is what
will make that fund and all ZECs worth more.
The word “technology” is formed from the Greek words techne, meaning art, craft, or
skill, and logos: “to speak of.” These roots
suggest that the most important contributions to a cryptocurrency result from
virtuosity with technical infrastructure. That is important, of course. But a
technology gains significance from having users. For a network technology such
as cryptocurrency, having lots of users is of the essence. So it would be wise
for the MGRC to focus at least some energy on “techanthropy”: how cryptocurrency
as a craft serves anthrōpos: “man or mankind.”
Engineering decisions in the dominant version of bitcoin
have reduced its amenability to large-scale uses such as day-to-day payments.
Bitcoin as “digital gold” is arguably more secure, but it leaves open a
competitive door to cryptocurrencies that can serve far more popular use cases
such as payments. Zcash has the added benefit of supporting payments that are less
amenable to surveillance.
There is not an easy path to toppling the first-mover and
dominant iteration of cryptocurrency, bitcoin, but the field is more open to
competitors than it otherwise would be. Public goods that would benefit Zcash include
popularizing privacy-protective cryptocurrency, drawing in and educating users,
developing user-friendly interfaces, and teaching people to secure their crypto
assets and their privacy at the same time. Perhaps Zcash’s MGRC will support
such badly needed “technanthropy.”