Note: This letter was written as a response to the intense conversation that was initiated and is being driven by members of the Zcash community, starting with mineZcash, Gareth Davies, Aristarchus, et al and joined by an increasing number of other community members. If you’re not following the Zcash community very closely then this might be the first you’ve heard of it, but they’ve been working on it for months. They are the ones who are serving the Zcash mission by driving this discussion.

It’s an exciting time for the Zcash community! The Zcash community is currently having a major conversation about what to do ahead of October 2020, when the first halvening occurs and the Zcash Founders Reward ends.

I hope that the community will decide to renew the “Dev Fund” structure, allocating coins from future block rewards for core support functions such as software development, user support, business development, regulatory and government outreach, security auditing and monitoring, educational and marketing initiatives, new protocol development, and so forth. And, I hope the community offers to hire the Electric Coin Company to do that work. But it is far from certain that the outcome from this process will be what I personally hope.

Here are my thoughts about what I personally — and we as the Electric Coin Company — can do to support this process.

First, a quick backgrounder for people who may not have followed all the details:

The Story So Far

Unlike an “ICO”, in which a project raises a bunch of money from the public on the promise of delivering future results, Zcash followed a very different model.

Funding the Launch (2015)

Image source: Coindesk

The Zcash project was originally funded by a group of professional investors who put in a total of $3 million to fund the creation of Zcash. Zcash was designed to follow the same issuance schedule as Bitcoin — issuing 21 million coins in total — half as many coins in each four-year-long period. We agreed that during the first 4 years, 2.1 million coins (that is, 20% of the 10.5 M coins issued during that period, which is also 10% of the 21 M coins ever to be issued) would be distributed to the founders and the rest distributed to Proof-of-Work miners.

In return for their $3M, we agreed that the investors would receive a small fraction of the Electric Coin Company’s equity (much too small of a slice to give them any control over the company, by the way), and with that equity they would receive rights to a small slice of the Founder’s Rewards coins, to be paid out to them over the course of the first twelve months of the coin’s existence.

Image source: Blog post

Launch (2016)

This initial bootstrap structure was a success: we delivered Zcash 1.0 on time and under budget in October of 2016. I’m extremely proud of our team for both inventing break-through protective technology and simultaneously delivering a live, secure system that has survived years of active attack in the wild while delivering around ten billion of dollars of transactional value for its users. There are few other teams on earth that can claim this kind of achievement — either within the cryptocurrency industry or any industry, and probably none that have accomplished something like this on such a small initial budget. And, this was only the first of many wins for our team.

Because, in addition to the initial bootstrap structure, we had also made a plan for ongoing development. Nathan Wilcox (the company’s co-founder and CTO) and I decided to have ECC buy a small share of the founders rewards back from some of the founders so that those coins would be used for funding ongoing operations instead of distributed to founders. That share was called the “The Strategic Reserve” in our original blog posts, but that is a confusing name because it turns out that money wasn’t held in reserve, it was used to fund ongoing operations! So I sometimes refer to that share of the coins as “The Dev Fund”.

At the same time, a couple of the founders including me pledged to donate a portion of their founders rewards to fund a new non-profit charity — The Zcash Foundation. The vast majority of the coins for the Zcash Foundation are due to a pledge from myself and my family. I pledged to donate more or less half of all of the wealth I ever expect to see in this world to create the Zcash Foundation. We decided to do this because we thought that having an independent entity from the Electric Coin Company would be an important part of the Zcash community’s decentralization and stability in the long run. Having two independent organizations working for you is a lot more resilient than having one. Therefore, we made Zcash Foundation wholly independent of me and outside of my control.

Focused Delivery and Execution (2017–2019)

Meanwhile, back at Electric Coin Company, using the Strategic Reserve/Dev Fund, we continued to support and improve Zcash. With that funding, we developed and launched Zcash “Sapling”, in which we made another advance in fundamental computer science. Some of the technologies we pioneered in Zcash “Sapling” are now becoming the global standard for zero-knowledge proofs, not only in the cryptocurrency industry but in every industry. Along the way, we discovered and fixed a critical mistake in the underlying computer science which — if it had not been caught and corrected in time — could have harmed not only users of Zcash but also users of other applications built on zero-knowledge proofs.

At the same time as advancing the science and the core protocol and supporting more and more users of the software, we also invested in extensive government outreach, business development, and educational projects around the world. We made the strategic decision to invest heavily in educating regulators about this new technology, how it is compatible with existing laws and regulations, and how it can protect individual security, corporate security, and national security.

This resulted in United States regulators officially approving Zcash as one of only a handful of approved cryptocurrencies, and Zcash being listed on Gemini and Coinbase, as well as Zcash being supported in almost every one of the biggest and best exchanges, wallets, payment processors, and other such products around the world.

A Positive Alternative For Society (2019)

Most importantly, this unique combination of successful scientific innovation and government outreach has given us a unique opportunity to present a working example of a positive alternative for society. In every nation on Earth, society is currently convulsed by a crisis of run-away information technology. The current model in which everyone in the whole world is vulnerable to Facebook and whoever can exploit them is no longer considered tolerable. Alternative models that are being pushed, such as the model in which everyone in the world is vulnerable to the Chinese Communist Party or everyone in the world is vulnerable to the United States Department of Justice are not going to solve our problems.

Zcash demonstrates that a better model is possible, in which people are protected by their products and services instead of endangered by them, and which fits laws and regulations, and honors the great American traditions of civil rights, free enterprise, trustworthy institutions, and the rule of law.

(I say that because I’m an American, but Zcash is — of course — a global technology that serves the needs and the values of all peoples.)

Our work is far from done. A great work is never done. We are currently in the midst of helping our business partners world-wide upgrade their users to the newer protective technology, and in the early stages of developing yet another scientific breakthrough — one that will allow decentralized networks to — for the first time — scale up to being able to serve all people on Earth without compromising their safety or their sovereignty.

The Costs Of Core Support Functions

As of May 2019, the Strategic Reserve/Dev Fund, plus the coins that were being distributed to active employees of the Electric Coin Company added up to about 4% of all the coins issued per month. Thanks to financial prudence on our part plus a bit of luck, we were able to come through the Great Bear Market of 2018 without having to do any layoffs — unlike many others such as Ethereum Classic, Dash, Steem, SpankChain, ShapeShift, Consensys, and countless others (layoffs article 1, layoffs article 2).

However, during the Bear Market, as the price of ZEC hovered around $60/coin, that 4% proved to be inadequate, and we went back to the founders who own the equity in the Electric Coin Company and negotiated a dilution agreement in which fewer of the coins were distributed to them and more were used for funding operations. That new agreement kicked in in June of 2019, and as of now about 8% of the monthly issuance is going to fund operations and to compensate active employees.

We’re currently focusing on hiring great people to fill critical roles in the next stage of our mission (see our hiring page!) and ramping up our team. It will probably take six to twelve months to build our team up to full power and velocity using our current funding from the blockchain.