Quick take;
- The fourth major network upgrade and first block subsidy halving is scheduled to take place on the Zcash network in October 2020
- How the block subsidy will be split between miners and funding software development is a key talking point for the upgrade
- Ycash has executed a hard fork from the Zcash network to cap the funds contributed towards software development at 10% of the maximum supply
Discussions are taking place among the Zcash community ahead of its first block reward halving scheduled to take place in October 2020. A key topic of the discussion is how the block reward will be split after the first halving. To date, only 80% of the block subsidy has gone to miners with the remaining 20% being split between other entities such as founders and developers.
There are two major entities which have served an important role in getting the Zcash network to the point it is at today. The Electric Coin Company (ECC) is a for-profit organization spearheaded by Zooko Wilcox, the founder of the Zcash protocol. This organization has been almost entirely responsible for developing the protocol to the point it is at today.
The Zcash Foundation is a separate not-for-profit entity whose objective is to spur adoption and growth of the Zcash network and privacy technology. For example, one of the roles the Zcash foundation partakes in is providing grants to developers seeking to build applications on the Zcash network.
Zcash Community Deliberate 2020 Halving
The Zcash network will undergo its fourth major network upgrade at the same time as the halving. The default plan for the network was to change to 100% of the block reward being contributed to miners after the first halving. This is the same model which Bitcoin has applied since its genesis block.
However, the eradication of development funding has become the subject of much debate. Strong arguments are being brought up that an alternative may better serve the future success of the Zcash protocol from the community including from Zcash Foundation board member Andrew Miller.
In the case that the block subsidy going towards entities such as the ECC is cut off, a key part of these entities funding will be cut off and they will likely be forced to work on other projects, possibly competitor networks. The ECC organization comprises of the developers with the deepest knowledge and expertise of Zcash and also have a successful track record of meeting development plans.
Analyst Chris Burniske (@cburniske) wrote a forum post on the topic on behalf of Placeholder VC who built a position in zcash (ZEC) earlier this year. Placeholder VC proposes that the best scenario is one where a portion of the block subsidy continues to go to funding development:
“In our opinion, therefore, reverting to Bitcoin’s approach and sacrificing block-reward funding is not the optimal path… Provided there’s proper governance over the treasury, a partial allocation of the coinbase reward to software development feels like the cleanest solution”
Protocol changes in Zcash are currently decided through an off-chain governance process. In the lengthy forum post, Burniske marked the importance of the Zcash community effectively reaching consensus over the details of the next upgrade and how funding will be allocated.
“it’s important to the network’s long term health that there be general consensus on the legitimacy of the decision-making process, as well as the decisions themselves. As part of a legitimate process, the community’s opinions should be collected and quantified so that the network can get a decent snapshot of its preference before NU4 [network upgrade four] decisions are made final.”
Ycash Forks
Amid these discussions, the Ycash network hard forked from the Zcash network on July 19th. The hard fork was announced in April in a forum post by long-term Zcash support Howard Loo. The motivation for Ycash was to maintain the original plan of capping the amount of funding which developers will receive. Loo anticipated increased pressure to continue developer funding as the halving date for Zcash draws closer. Loo noted in the forum post:
“We are also launching Ycash to uphold a promise – that the Zcash Founders Reward would be forever capped at 2.1 million coins – that we fear will come under increasing pressure between now and the expiration of the Founders Reward in October 2020”
Source: Bitinfocharts.com
The Zcash hash rate slightly dropped by 3.37% in the two days following the Ycash fork on July 18th. The hash rate has since rebounded with the Ycash fork having little impact on the security of the network provided by Zcash miners.
The discussion regarding how the block subsidy will be split in Zcash continues. Placeholder VC’s advocacy for continuing development funding certainly holds significant weight. Although the halving is not scheduled until October 2020, the expiry date for Zcash Improvement Proposals (ZIPs) to be included in the fourth network upgrade is the end of August. This means we can expect much more discussion on this matter over the following month.
