Zcash is a unique cryptocurrency that uses zero-knowledge proofs to encrypt transaction information that other blockchains like Bitcoin show to the entire world: How much does an address hold? How much was transferred in a transaction? Which address was the sender and which the recipient? Zcash was the first major deployment of zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) as a novel way to encrypt the transaction data on a public blockchain.
In addition to innovative encryption of private information with zero-knowledge cryptography, Zcash has experimented with economic models from it's beginning in 2016. Among these, its block reward and development fund mechanisms stand out as significant experiments that have yielded valuable insights. Zcash was one of the first blockchain projects to attempt to fund ongoing development through its block reward. The community now has big decisions to make as we approach a crucial block in November 2024. How should the block reward be issued after the next halving in November 2024? Understanding the history of the Zcash block reward becomes essential to make good decisions for the future. Let's take a look at the Zcash block reward system from its inception, highlight successes and failures, and discuss the potential changes that could shape its future. From launch in 2016 to November 2024, 15.725 million Zcash tokens (ZEC) will have been issued. From November 2024 to 2028, 2,625,000 ZEC are set to be emitted via the block reward.
Understanding the Zcash Block Reward
In the world of cryptocurrencies, the block reward is the amount of digital currency given to miners for adding a new block to the blockchain. This reward not only incentivizes miners to secure the network and validate transactions but also gradually introduces new coins into circulation. Zcash, launched in 2016, is a privacy-focused cryptocurrency that, like Bitcoin, uses a proof-of-work consensus mechanism where miners compete to perform a significant amount of computational work to add new blocks. Unlike Bitcoin, part of the Zcash block reward has been issued to founders, developers, investors, and community projects.
Founder's Reward Era 2016-2020
From 2016 to 2020, 10.5 million ZEC were issued. 8.4 million to miners and 2.1 million to founders. For a detailed breakdown of the network upgrades and a block-by-block accounting refer to https://free2z.cash/skylar/zpage/the-zcash-block-reward-before-november-2020
Summary of block reward issuance 2016-2020
From launch in 2016 to November 2020, ~10.5 million ZEC were issued.
| Amount of ZEC issued | |
|---|---|
| Miners | 8,400,000 |
| Founders | 2,100,000 |
Dev Fund era 2020-2024
A halving took place in November 2020, at block height 1,046,400, reducing the block reward from 6.25 ZEC to 3.125 ZEC. This event also marked a significant change in the distribution model of the block reward.
Post-2020 Halving Distribution - The Dev Fund
After the first halving, the block reward was distributed differently to support the Zcash ecosystem:
- Miners: 80% of the block reward (2.5 ZEC per block).
- Major Grants Fund: 8% of the block reward (0.25 ZEC per block) for funding significant development projects.
- Electric Coin Company: 7% of the block reward (0.21875 ZEC per block) for ongoing development and operational costs.
- Zcash Foundation: 5% of the block reward (0.15625 ZEC per block) to support community and ecosystem development.
Between the 2020 halving and the anticipated halving in late 2024, 5,250,000 will be issued in total.
| Percentage of Block Reward | Total ZEC Issued | |
|---|---|---|
| Miners | 80% | 4,200,000 |
| Major Grants Fund (ZCG) | 8% | 420,000 |
| Electric Coin Company (ECC) | 7% | 367,500 |
| Zcash Foundation (ZF) | 5% | 262,500 |
Total ZEC Issued 2016-2024
The total ZEC issued up to the anticipated halving in November 2024 will be 15,750,000.
| Total ZEC Issued | |
|---|---|
| Miners | 12,600,000 |
| Founders | 2,100,000 |
| Major Grants Fund (ZCG) | 420,000 |
| Electric Coin Company (ECC) | 367,500 |
| Zcash Foundation (ZF) | 262,500 |
Zcash Block Rewards after November 2024
As Zcash approaches its next halving event in November 2024, the community faces significant decisions about how the block reward should be allocated. Without a change, the current development fund will expire, and 100% of the block reward will go to miners. This presents several options for the future allocation of the block reward to ensure the sustainability and growth of the Zcash ecosystem.
Key Options for Future Block Reward Allocation
The community has several paths forward for determining the future allocation of the block reward:
Do Nothing:
- Allow the current development fund to expire, resulting in 100% of the block reward going to miners.
Continue Funding Existing Organizations:
- Maintain funding to some or all of the existing entities: Zcash Community Grants (ZCG), Electric Coin Company (ECC), and Zcash Foundation (ZF).
Fund New Organizations Directly from the Protocol:
- Allocate a portion of the block reward to new organizations to support the Zcash ecosystem directly from the protocol.
End Direct Funding in Favor of a Decentralized Disbursement Mechanism (Lockbox):
- Establish a "lockbox" where funds will accumulate in anticipation of implementing a decentralized disbursement mechanism. This mechanism could involve a DAO, coinholder voting, or a threshold signature system, but will require development beyond November 2024.
Decentralized Disbursement Mechanism Concept
While the full implementation of a decentralized disbursement mechanism is unlikely to be completed by November 2024, the community could take the following preliminary steps:
- Create a Lockbox:
- Set up a secure "lockbox" to accumulate funds. These funds will be disbursed through a decentralized mechanism once it is developed and implemented.
By considering these options, the Zcash community can engage in meaningful discussions and make informed decisions about the future of the block reward system.
Let us know what you're thinking in the comments!
