Crypto Non-Profits Are Flawed – Zcash Thinks It Can Change That

On the eve of the Zcash Foundation’s first major gathering, cryptocurrency aficionados worldwide are watching to see if the year-old non-profit can rehabilitate a long-maligned model of governance.

Earlier this month, dozens of privacy tech fans from across the ecosystem, from lawyers to monero community veteran Justin Ehrenhofer, joined the foundation’s online forum to vote for two new additions to the board of directors by the Monday deadline. The election will bring the total number of board members up to five, in addition to one elected runner-up in case any member steps down.

The ballot results will be discussed at length during Zcon0, which kicks off the next day in Montreal, drawing 145 attendees.

The election is noteworthy for several reasons. One is the relative transparency of the process. The community panel voters, many of whom are not affiliated with the Zcash Foundation or the startup that created zcash, are clearly listed on the foundation’s online forum.

More strikingly, one of the nine candidates for the two board seats is Robert Viglione, co-founder of zencash – a competing privacy coin that uses some of zcash’s source code.

His presence on the ballot is no fluke: Zcash Foundation director Josh Cincinnati has made a point of inviting members of competing projects to help govern his cryptocurrency’s community.

Despite the bitter rivalries between crypto tribes, Cincinnati told CoinDesk his foundation would also gladly sponsor research related to other rival projects, such as monero.

He explained:

“Having privacy and fungibility technology on a payment system, worldwide, is a net benefit to society. Whether that work comes from zcash or monero or mimblewimble, it doesn’t matter to us in the end which coin has the higher market cap.”

By offering such opportunities for external input, and taking other steps to ensure transparency and independence from the company that created zcash, Cincinnati said he aims to dispel the notion that crypto foundations are nothing more than a legal workaround for nepotistic funding or free marketing for startups.

“I hope we can demonstrate over the long-term that this is not the case,” he said.

Shaky foundations

Yet the foundation model to date has been plagued by countless mishaps related to governance and management.

Stepping back, the Zcash Foundation is one of a long line of non-profits that have been created around cryptocurrencies since the Bitcoin Foundation was established in 2012. These early organizations have had varying degrees of success (with the Bitcoin Foundation even failing entirely).

However, the idea was given new life when ethereum creator Vitalik Buterin established the Swiss-based Ethereum Foundation with proceeds from a token sale in 2014, with many projects following his footsteps to Switzerland.

In the view of skeptics such as Stephen Palley, a partner at the law firm Anderson Kill in Washington, D.C., some of them did so to exploit legal workarounds.

“People looked at the Ethereum Foundation’s model and thought, ‘if we want to avoid U.S. securities laws we can create this thing in Switzerland and use that to sell in the U.S.,'” Palley said.

Regardless of motive, using a distant foundation to manage a cryptocurrency created by a startup complicates governance.

For example, the Tezos project illustrated a worst-case scenario after its $232 million token sale when the president of the project’s Swiss foundation had a falling out with the California-based token creators, leading to a complex legal battle that delayed development for almost a year.

Despite the Ethereum Foundation’s numerous accomplishments, Twitter trolls often disparage Buterin and ethereum co-founder Joe Lubin, who currently heads the startup empire ConsenSys, because events sponsored by the nonprofit offer superb marketing opportunities for startups like ConsenSys and OmiseGo, the latter of which Buterin is himself an advisor for. (The Ethereum Foundation declined to comment.)

Several other foundations suffered from rumors of deliberate secrecy and nepotism. For instance, critics accused the Bitcoin Foundation’s board of keeping quiet about early evidence that the early bitcoin exchange Mt.Gox was bankrupt.

“There seems to be very little advantage to setting up a foundation at all,” monero project lead Riccardo Spagni told CoinDesk. “It just seems to create this facade of being a super benevolent, decentralized, not-for-profit.”

Funded, yet independent

The Zcash Foundation is hoping to avoid the pitfalls of its predecessors, in part because it has an unusual setup.

For example, instead of a token sale, its main source of funding is a fixed share – 1.44 percent – of all the zcash that is mined. This comes out of the 10 percent “founders reward,” collected from all zcash miners, that goes to the creators of zcash, several of whom work at Zerocoin Electronic Coin Company (ZEC), the startup that still indirectly profits from and promotes the currency…

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