How much decentralisation is enough?

With the recent tensions in the ZCash community i started to give much more thought to this question. Mostly due to the fact that it felt like it was ZCash’s current governance structure that was causing the issues we were experiencing, and not the people involved.

For a community with such strong beliefs in decentralisation we were experiencing the downsides of both a very centralised and undemocratic system, one where people in charge are able to make decisions affecting everyone else in the community and those most affected are powerless to do anything about it. Token holders are entirely beholden to the very few people at the top of these controlling organisations and there is no mechanism to challenge them in any way, which resulted in token holders showing their disdain in the only way they could, venting on social media.

I believe there are 2 main area's we could improve on:

1. The Structure of our governing bodies

2. The System we use to make decisions affecting the protocol

Governance Structures

In trying to work out how much decentralisation is enough, i found the USA governance structure a very good example to work out what is and what is not enough decentralisation.

For those with an economics background we can think of decentralisation as a continuum, with 4 distinct milestones along it:

• Monopoly
• Oligopoly
• Ample Competition
• Perfect Competition

Not enough decentralisation - Monopoly

This can be viewed through the state level politics of California. The democratic party in this state is so powerful, that no matter how poorly they perform in their job of governing, they are 100% guaranteed to remain in power. The people in this state have no say in how their society is governed because even if they were to vote for any other party in an election they would be in such a small minority that their views would never be heard or considered.

They can voice their dissatisfaction by leaving the state, which many have done, but they have no power to fix the state if they want to stay.

On the flip side Wyoming is exactly the same, the difference being it is the republican party that holds the ultimate say here. If you lean to the left and vote democrat you have no chance of making any notable impact here either.

Not enough decentralisation - Oligopoly

We are all very acutely aware that the 2 party system in the USA is not working in an optimal way that benefits all of its citizens. Even though this was a very significant concern of many of the founding fathers, they were unable to design a system that would prevent this from happening, and over the course of history it has devolved and consolidated power in such a way that there are now only 2 surviving ‘big tent’ parties.

While both parties are ruthlessly tribal toward each other, they are also quite capable of colluding whenever there is an issue that is more along the lines of 'the people against the controlling elite'.

A perfect example of this is the stock trading rules and the rampant and flagrant insider trading perpetuated by many members of congress.

This is even worse than a monopoly, because constituents are fooled by the false pretense of there being competition, while it actually yields the same results as a monopoly

Ample decentralisation - Ample Competition

On the other hand the way in which competition between the 50 states themselves has occurred over the USAs history is quite the opposite. It shows a perfect case study of the principles the founding fathers desired in action.

There is currently an exodus of people leaving California, moving to Texas and Florida, the primary driver being our political culture wars and increasing polarisation between democrat run states and republican run states, but this wasn’t always the case.

Before this people were moving to California in droves chasing the lucrative silicon valley tech jobs, from places affectionately known as the rust belt states.

These rust belt states however were, from the late 1800s to the early 1900s the states that were attracting people en masse from all over the country with at the time cushy indoor factory & auto industry jobs, compared to the less desirable agricultural jobs working out in the fields in the sweltering sun or freezing cold.

Complete decentralisation - Perfect Competition

There are not many examples of perfect competition because although it is the desired end goal we almost never achieve it. In addition to this, all the benefits are achieved long before we reach a perfectly competitive marketplace. The closest industry we have to use as an example is that of the commodities markets. When buying rice it really doesn’t matter which grains of rice you get, they’re all going to be pretty much the same as the next.

In a governance setting this would be the same as having no government and everyone voting on every decision, which might sound great in theory, but would be exhausting for participants. Once at this extreme people would likely want to move back to some sort of delegated system of governance where they could find someone who’s voice aligns with theirs and only make changes on important issues where their delegates views differed from their own.

How does this relate to ZCash / ZEC?

I’ll be the first to admit that i don’t know what the magic number is, but we can probably be safe in saying that 2 is not enough and 50 seems like a good number to aim for, where we would likely start to see the benefits.

In comparing this to the governance structure of ZCash/ZEC we can see that we have moved from a Monopoly, where the ECC controls everything, to an Oligopoly with both the ECC and ZF. While this is a step in the right direction it is by no means enough.

We need to have 10-20x more governing bodies, and for them to be of equal scale to both ECC & ZF so we can get to a critical mass of decentralisation.

In the short term this will create more tension due to fighting between the few oligopolistic powers, where before there was harmony. A monopoly has noone to fight against, and just does what it wants, creating a deceptive tranquility.

This is why it feels like the ZCash community is having issues when it is just natural turbulance, a known expectation on the path to truly decentralised governance.

As long as we don't stop here thinking our work is done we'll come out the other side much stronger than before. We're currently at that counter intuitive point where things will get worse before they get better as we move from a 1 party state through the phase of a oligopoly to eventually arrive at a sufficiently decentralised governance structure.

How successful ZCash/ZEC becomes, will depend to a certain degree on how quickly we can move through this less desirable stage and acheive truely decentralised governance

Regulatory risks

One other glaring deficiency when looking at the ZCash governance structure is the regulatory risk it has currently. Not only are both governing bodies domiciled in the USA, but both are the exact same type of charitable organisation.

We need to have a mix of governing bodies located in different jurisdictions all over the world, and also a mix of entity types. A registered charity in one country where that is a beneficial structure, possibly a DAO in a different country where that is most appropriate, or even a for profit company in a different country where that supports the needs of the community.

This i believe is the most crucial next step in the evolution of the ZCash/ZEC governance structure. The very next organisation added to the ZCash/ZEC governance structure absolutley needs to be outside the USA and also needs to not be a charity. Some obvious places to start would be Singapore, Dubai & El Salvador due to their crypto friendly environments.

The way i view decentralisation in the ZCash/ZEC context is that it protects against regulatory attacks, which we know are coming soon. We want ZCash/ZEC to be like the printing press, a never ending game of whack a mole that regulators will eventually give up on fighting against, once they realise they are powerless to stop it. It's nowhere near there yet, but we need to aim to get there before they come for us, which they inevitably will.

Some things to consider would be:

• How fast can we spin up a new governing body (such as the ECC or ZF) in a new jurisdiction, have it be allocated a portion of the dev tax and be operational?
• How quickly could we transfer funds from an existing governing body to a new one if it comes under attack from a hostile government it is located in? So we don’t lose the ZEC it has accumulated.

Consensus Mechanisms

How consensus between these organisations should be determined is something that still needs to be discussed by the community and as much as i believe it can have some element of free decision making, i do believe binding token voting at least in some form should comprise at least some part of the process. A few ideas i have are:

1. A system where the dev tax is not allocated across entities in proportion (like ZIP 1014), but by your choice. You would select in each wallet you store your ZEC what your organisation of choice is, and all the transaction fees you pay from that wallet have the dev tax you pay going to your desired organisation (possibly you could even provide a split you want your dev tax to go to: ECC 50% ZF 50%)
2. A staking system that works like a perpetual voting system, you stake your ZEC with a particular governing body which determines your affiliation/support at any point in time and your vote would count to whatever that organisation's position was. If you change your mind you just move where your ZEC is staked and it would change your vote. This decreases admin required for voting and would mean you only needed to do something if you wanted to change who you wanted to support
3. I also believe the governing bodies of ZCash/ZEC need to be treated in the same way the founding fathers of the USA treated the governing bodies they were setting up, hoping for the best, but preparing for the worst. We should have a ZCash Constitution and a ZEC Bill of rights. A constitution that sets out the limits of power the organisations governing our protocol have and a set of explicit rights all ZEC holders are entitled to.

If we moved from the current dev fund allocation method to the one suggested in option 1 this would encourage more governing organisations as it would make it easier to start new organisations and garner financial support without waiting until the 4 years is up to reallocate the dev tax and where it is allocated

While i understand there are some real drawbacks to token voting that have been raised by our community, of which we do want to avoid, we can’t have a system without any checks or balances on power. Currently we sit at the opposite extreme where our 2 organisations can poll token holders, then enact policies directly opposing these wishes if they want.

I’m not saying they do, and i believe they do follow what the polls they do say, but we want to design a system that is resistant to abuses of power, not one that we need to rely on participants acting on good conscience.

Friendly Forks

This was something i didn’t really consider until the recent issues with wallet performance convinced me to switch to using YWallet. As the name suggests this wallet is actually developed by the team behind the ZCash fork YCash, a wallet that allows you to hold both YCash and ZCash.

I always thought that a chain split would fracture the community in a negative way, like BitcoinCash & BitcoinSV did to the Bitcoin community, but the more i see the ZCash & YCash communities interact the more i think that there is a positive alternative.

If done correctly it could strengthen our community. Instead of thinking of a fork as a splitting of the community, instead we can conceptualise it as a group of community members trialing something different away from the main chain, and then if it works, amalgamating this back into the main chain at a later date. We might see forks so friendly that they both have a dev tax that people voluntarily allocate to organisations that sit in between and work on updates for both chains. For example if some one wanted to allocate some of their ZEC dev tax to the YCash Foundation.