A word about ZCash

I met a lot of people who bought ZCash as well as read about people who mine primarily ZCash. Actually these happen to be the people that I trust the most with my investment decisions. So I got some and it kept slowly grinding down, leave me questioning my investment.

And then it striked me. What is the coin that will do everything to protect itself from being shut down? What team do you trust the most to succeed with that goal? For me and many others that is ZCash. That brought me to the question what will happen if there is a alternative to fiat currencies that is truly unstoppable?

Resilliance trough decentralization

A comparison to file sharing networks can answer the question, what is needed to have a truly unstoppable system. In a way the files haring networks have been the first DAOs. In fact the AppleJuice files haring network predated Bitcoin and allowed to accumulate token for sharing bandwidth to download files faster later on by paying with these token for extra bandwidth.

Law enforcement and filesharing led to more and more decentralization. We used to share music files on Napster, but it got shut down. We switched over to Kazaa, but it got shut down. Someone came up with eDonkey and its successors Overnet and eMule which were quite resilient but slow. As long as it was slow it didn’t achieve the mainstream adoption that was necessary to attract the authorities again. The default take on nerd sport employed by regulators is to tolerate it to not make the larger public aware of it. With Bittorrent this changed again since Bittorrent was fast enough for decentralized streaming of cinematic movies and threatened established business models.

Especially after Bittorrent became completely decentralized inheriting the decentralized database from Overnet, the copyright industry was forced to go after each user separately. This was not only a hassle, but finally led to political debates and decisions in favor of the users of the system as the bigger interest group. Everyone was doing it or knew someone who did it for him.

Going after the users

But the key problem that still allowed the copyright industry to go after the users one after another, was that the actions of users where relatively easy to monitor with a large enough technical infrastructure. So what would have happened, if Bittorrent was not only user friendly, fast and reliable but also untraceable?

Before we got there, the copyright industry changed and found a way to commercialize movies and music by establishing platforms like Spotify and Netflix. These solutions are a good enough compromise for most of the users and the technical development stopped for now.

The fiat bubble drives the crypto bubble

But let’s come back to Crypto. My thesis is that the only thing that has to be provided for Crypto to succeed in replacing fiat currencies is to survive the takedown by governments. The following thought experiment will help to illustrate that.

Imagine Bob has apples and Alice has oranges. In the beginning they have the same amount each. So if Bob wants an orange he walks over to Alice and trades with her preferably 1 apple for 1 orange. Now Peter comes along and has 9 times as many oranges than Alice but also wants to trade for apples. With 10 times more oranges available for trade than apples, the price of 1 apple will converge to 10 oranges.

Apples are a synonym for a resiliant crypto currency. Oranges are a synonym for a fiat currency of your choice. They are called fiat currencies because they require someone to take a loan at the central bank to create new money. This money has to be paid back to the central bank with interest. But the money that is needed to pay back all the loans is more than what has been created yet. This is because of the interest on top. More loans have to be taken to have money to pay the interest of older loans and thus the money supply steadily growths.

Out of control

Now you could say that governments will ban the use or possession of cryptocurrency to stop devaluation of fiat currencies. I think they will, just as they did with the possession of gold. But how much is a ban worth that can’t be enforced?

If I send ZCash coins to my friend and we never talk about it to someone else, no one will ever know that we transacted. So even if governments don’t allow us to do so, it will be

• impossible to detect.
• impossible to prove.
• impossible to prevent.

The commitment to protect these properties is the core value proposition behind ZCash. Governments can ban ZCash from trading on licensed exchanges, but peer to peer trading will always remain intact. Decentralized exchanges using atomic swaps have a good chance to keep a way open to trade privacy coins in public without getting caught by law enforcement. Meanwhile the central banks will keep printing money to keep the ruling class in power.

Politicians can motivate the public to comply to their ideas by two means: either by punishment of bad behavior or by rewarding good behavior. It is much easier to achieve compliance by distributing new money to everyone using tax refunds or investments in infrastructure. Using force is ineffective and expensive and is generally only applied successfully in police states. I doubt that western societies will accept to fall back in the dark ages of dictatorship.

TLDR;

So the only way to stay in power for the ruling class seems to be by printing money, what undermines the value of their currency compared to Crypto. This assumption holds as long as there is a single cryptocurrency that is unstoppable and I think that ZCash will be able to keep up the good work to comply to this promise. Please leave a comment if you find flaws in my thoughts. I’m happy to discuss them here and prepare a talk for a meetup from the debate.