Proposal for the Zcash 2020 Network Upgrade – Blocktown Capital

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Projected Value of Founder’s Reward

As of August 2019, the cumulative Founder’s Reward is estimated to be 1.4M ZEC, which, if sold on the corresponding days it was received, aggregates to 250M USD. This breaks down to a Founder’s Reward averaging 90M USD annually since the launch of Zcash in October 2016.

At today’s low ZEC price of 55 USD, the Founder’s Reward still amounts to 80k USD daily or 30M USD annually.

Current State of the Market

Sentiment in the altcoin market is low, and it’s even lower for the Zcash community. ZEC has been one of the worst performing large cap assets in 2019. Below are a few statistics highlighting ZEC’s subpar performance.

ZEC YTD performance is down 1% (USD denomination, Figure 1)

  • The average YTD performance of the top 20 large cap altcoins is up 99%
  • Competitor privacy-centric coins, Dash and Monero, are up 31% and 89%, respectively
ZEC underperforms most altcoins in 2019

ZEC is down 94% from ATH (USD denomination, Figure 2)

  • The average large cap altcoin publicly traded since 2017 or earlier is only down 83% from ATH
ZEC is down 94% from ATH in January 2018

ZEC is down 66% YTD (BTC denomination, Figure 3)

ZEC underperforms bitcoin in 2019

In summary, ZEC has vastly underperformed most large cap altcoins in 2019, including privacy coins Dash and Monero, as well as bitcoin. Sentiment and interest in Zcash are likely near an all-time low.

We followed advancements in zero-knowledge proofs long before the Zcash network was launched in 2016. We are invested in ZEC. We staunchly believe that privacy is fundamental to cryptocurrencies and have a positive outlook for Zcash. We point out the above statistics not to dishearten the Zcash community and ZEC investors, but rather to highlight that the despondent state of Zcash may affect the community’s projections on the future value of ZEC.

ZEC Projections

In the cryptocurrency sector, 5 years is not an insignificant amount of time. It is nearly half the lifespan of bitcoin. Entire market cycles in cryptocurrency last less than 5 years, with the most recent cycle, peak-to-peak, lasting about 4 years (Q4 2013 — Q4 2017). Looking forward, it is probable that a bull market will come to pass before the second halving of Zcash in Q4 2024, especially considering that we are already over 1.5 years out from the end of the last bull market in January 2018. We believe that it would be a mistake to make projections on the USD value of the Founder’s Reward based on the speculation that the exchange price of ZEC will remain in the vicinity of 50 USD over the next 5 years.

Moreover, bitcoin’s history has shown us that a decrease in the USD value of mining rewards after halvings are short lived. Actually, USD denominated rewards are often magnitudes higher merely a year or two after halving events (Figure 4).

USD value of mining rewards increases after halvings

A magnitude peak increase of 10x for ZEC from present value after the halving would result in a Founder’s Reward averaging an estimated 75M USD annually for an aggregate sum of 300M USD from the years 2020–2024 if the Founder’s Reward is extended at its current rate of 20%. Mind you, this conservative scenario would result in a peak price of ZEC of only ~600 USD — still far from its former ATH of 920 USD.

If, however, we reduce the Founder’s Reward to 10% of the miner’s reward, there would still be a projected 37M USD annually and an aggregate sum of 150M USD. We have yet to see a budget proposal from the Zcash Foundation that necessitates more funding than this, nor do we think more funding than this is fiscally responsible.

Fiscal Responsibility

First, it is our understanding that after the halving in 2020, the new “Founder’s Reward” will be entirely allocated to funding research and development as well as any other direct efforts to advance the Zcash network. That is, funding will no longer be allocated to early investors in Zcash. This alone should increase funds available for the Zcash Foundation and ECC to continue operations after 2020.

Secondly, at risk of ad nauseam, we want to stress that every dollar allocated toward the Founder’s Reward decreases decentralization, chain security, and ultimately, censorship resistance. While the efforts by the Zcash Foundation and ECC this past year — specifically in research and development — deserve applause, we find recent expense reports released by the Zcash Foundation and ECC concerning.

In late 2018 and early 2019, most blockchain and cryptocurrency companies dramatically downsized operations. While operating at a loss, the Zcash Foundation and ECC, increased operations and expenses during this time. We are concerned that this spending behavior is reminiscent of that of state departments and governments. That is, a nation state will be spiraling into debt, yet state departments rapidly exhaust resources near spending deadlines in order to justify budget renewals/increases and avoid spending cuts.

It is the community’s responsibility to ensure that this behavior does not plague the Zcash Foundation and ECC at the expense of network decentralization and security. Decreasing the Founder’s Reward to 10% would be a step in the right direction.

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