This is the first in a series of articles that will discuss the brief history, current status, and future of the Ycash digital currency.
Shortly after Ycash was announced in April of 2019, it didn’t take long for us to hear the first (but certainly not the last) utterance of the regrettable pun, “Why Ycash?” Pun aside, it’s a legitimate question: In a world with thousands of digital currencies — including Bitcoin, Zcash, and several code forks of Zcash— why launch Ycash?
In this first article of the “Understanding Ycash” series, we’ll discuss the original motivations that led to the launch of Ycash.
Challenging Bitcoin’s Dominance
Ycash is not trying to be a better version of Zcash. Ycash is trying to be a better version of Bitcoin. Challenging and ultimately supplanting Bitcoin is the ultimate goal. That goal may sound trite to some readers, but as we will see throughout the “Understanding Ycash” series, it inspired the launch of Ycash and going forward it will continue to have a profound impact on how Ycash evolves.
When Zcash launched in October 2016, we believed at the time that it was best positioned to challenge Bitcoin’s market dominance. At launch, Zcash had the following characteristics:
- A cap of 21 million coins (just like Bitcoin), with 90% of those coins allocated to users over time via the free market mining process
- A mining algorithm (Equihash) tailored to mining on commodity hardware
- The ability to send and received encrypted (shielded) transactions
We believed that all three of these characteristics were essential for Zcash to challenge Bitcoin:
- Leveraging Bitcoin’s Economic Model. By adopting Bitcoin’s supply cap (21 million coins), Bitcoin’s issuance schedule (halving every four years), and Bitcoin’s distribution mechanism (proof-of-work mining), Zcash leveraged Bitcoin’s proven economic model. Although Zcash introduced the concept of a 10% Founders Reward to fund development, it approximated Bitcoin’s fair distribution model by promising to allocate a full 90% of the capped supply to users via the free market mining process. (We call this promise the “90% promise.”)
- A Return to Mining on Commodity Hardware. At the beginning of Bitcoin, it was possible to mine bitcoin using commodity hardware (at first CPUs and then later GPUs). But well before 2016, specialized computers called ASICs (application-specific integrated circuits) began to completely dominate Bitcoin mining. The balance of power had swung too heavily towards ASIC manufacturers and those with close ties to those manufacturers. By restoring mining on commodity hardware, Zcash would shift power back to users, enabling a larger percentage of users to participate in the mining process. Casual users could mine Zcash with their existing GPUs, and more involved users could buy additional GPUs to mine even more Zcash.
- Encrypted (Shielded) Transactions. Bitcoin’s lack of support for encrypted transactions raises transaction costs (broadly defined) for its users. For example, before broadcasting a Bitcoin transaction, a Bitcoin user must expend mental energy to consider the implications of the transaction being viewable by the entire world. By implementing encrypted (shielded) transactions, Zcash would lower transaction costs and achieve true fungibility.
Unfortunately, over time, Zcash lost two of those three characteristics:
- 2018: The Emergence of Zcash ASICs. In 2018, specialized ASICs targeting Zcash’s Equihash(200,9) mining algorithm emerged on the Zcash network. Eventually, it became cost prohibitive to mine Zcash without an ASIC. Although the Electric Coin Company— the principal developer of Zcash to date — could have changed the parameters of Equihash to restore GPU mining, it instead chose to keep the parameters as is.
- 2020: Breaking the 90% Promise. The Electric Coin Company (ECC) frontloaded the distribution of the Founders Reward coins so that they would be allocated in their entirety within the first four years, ending in November 2020. But this year, the Electric Coin Company and the Zcash Foundation — the two major stewards of Zcash — agreed to create a new development fund that will continue to siphon off 20% of newly minted coins for an additional four years, starting in November 2020. This new development fund breaks the original “90% promise.” With this promise broken, Zcash no longer approximates Bitcoin’s fair distribution model.
So let us step back and take a look at the current state of Zcash. Zcash’s encrypted transactions are a groundbreaking technical achievement that enables superior fungibility relative to Bitcoin. But like Bitcoin mining today, Zcash mining is totally dominated by ASICs. Furthermore, with the ECC and Zcash Foundation recently agreeing to create a new development fund, the promise that 90% of the coins would go to users via the free market mining process has been broken.
Two of the three characteristics of Zcash that we thought were essential for competing with Bitcoin are now gone.
We are not bitter about how Zcash has evolved. After all, who are we to tell the Electric Coin Company and Zcash Foundation how it should evolve Zcash? As the current stewards of Zcash, the Electric Coin Company and the Zcash Foundation deserve the chance to see their vision through.
Likewise, we deserve the chance to see our own vision through, a vision of a coin that began with the Zcash Genesis Block, is mined with commodity hardware, and honors the original 90% promise. We believe that our vision is best positioned in the long run to challenge and ultimately supplant Bitcoin.
The Power of Permissionless Participation
We view mining on commodity hardware and honoring the 90% promise in a unified way: both promote permissionless participation.
Bitcoin pioneered proof-of-work mining as a means to distribute coins to users. A truly revolutionary aspect of early Bitcoin mining was that was entirely permissionless: At the very beginning, anyone with a computer and an internet connection could mine bitcoin without needing to first receive permission from anyone. There were no gatekeepers.
One problem with ASIC mining is that it introduces a powerful class of gatekeepers: the ASIC manufacturers themselves. The manufacturers and those with close ties to the manufacturers have a strong incentive to mine with the ASICs themselves. Those with special access to the latest ASICs come to dominate the mining process. In this way, the emergence of Bitcoin ASICs eroded the permissionless nature of early Bitcoin mining.
At launch, Ycash thwarted ASIC mining by implementing Equihash(192,7), a proof-of-working algorithm that currently cannot be mined by ASICs. And if ASICs for mining Ycash arise in the future, we are committed to changing Ycash’s mining algorithm to combat them.
More Coins Allocated in a Permissionless Manner
But giving users the power to mine effectively on commodity hardware is only part of the story: The overall percentage of coins allocated to users in a permissionless manner is an important measure of the overall fairness of the currency’s allocation system for newly minted coins. A bigger slice of the pie gives users a greater incentive to participate in the permissionless mining process. That is where the 90% promise comes into play.
Ycash honors the 90% promise by allocating a full 95% of every block reward to users via the free market mining process (starting at the fork block height of 570,000 and continuing indefinitely). (The remaining 5% is allocated to the Ycash Development Fund, managed by the nonprofit Ycash Foundation and subject to all United States laws governing nonprofits.) The result is that, when all is said and done, 18.9 million of the 21 million coins (exactly 90%) will have been initially allocated to users via the free market mining process.
Why a chain fork?
A question remains: Why a chain fork? After all, we could have just forked the Zcash codebase and started a brand new coin with its own genesis block, as many before us had already done.
Self-Determination and Building on a Shared History
By pursuing a chain fork, we asserted our right to self-determination. Our right to be free from the Zcash decision-making apparatus that failed to combat Zcash ASICs in 2018 and failed to uphold the 90% promise in 2020.
A blockchain is more than just a ledger, it is a shared history. At a given block height, the set of holders of the underlying coin likely disagree about various issues (like block size limits, ASIC resistance, and how to best evolve the coin), but they all implicitly agree on one thing: that the shared history of transactions — as recorded by the blockchain — is authentic and correct.
This implicit agreement is very powerful. It binds together a set of holders spread throughout the world. All the holders of Zcash at block height 570,000 — including us — were bound together by this implicit agreement. It was important to us that this implicit agreement serve as the initial foundation upon which to build Ycash. Indeed, some of the most important contributors to Ycash thus far were holders of Zcash at the time of the fork.
A Changing of the Guard
Of course, the set of holders changes at every block. Once the Ycash/Zcash fork occurred a little over a year ago, Zcash holders who were not interested in Ycash were free to sell their Ycash at any time, and clearly many of them already have. At the time of this writing, Ycash has been consistently trading at around 10 cents per coin for several months. This low price for an extended period of time has enabled a new class of Ycash users — many who were not holders of Zcash at the time of the fork — to accumulate meaningful Ycash stakes at affordable prices.
Thus, in practice, being a Zcash holder at the time of the fork ended up conferring little advantage (financial or otherwise) to those holders. New Ycash holders who obtained Ycash solely post-fork (via earning, mining, or buying Ycash) have had the opportunity to acquire Ycash at a very low cost. The coins have flowed to those who care about Ycash the most. The balance of power has shifted dramatically.
In this inaugural article of the “Understanding Ycash” series, we focused on the motivations behind the launch of Ycash. We put forth an ambitious goal: challenging and ultimately supplanting Bitcoin. We explained how our foundational commitments — to mining on commodity hardware and to approximating Bitcoin’s economic model (by honoring the 90% promise) — promote permissionless participation. We also explained how Ycash leverages the shared history that began with the Zcash Genesis Block in 2016, and how the low price of Ycash during its entire first year after the fork has put post-fork newcomers to Ycash on equal footing with earlier Ycash holders who held Ycash at the fork.
Stay tuned for the next article in the “Understanding Ycash” series, coming soon!