Zcash — privacy, attestations, and the power of defaults

State of Play

Privacy and Anonymity of Zcash

There are two kinds of addresses in Zcash, T- addresses, and Z-addresses. From Kappos et-al UCL https://www.usenix.org/system/files/conference/usenixsecurity18/sec18-kappos.pdf

Image for post

Transactions within this shielded pool are private (and can be viewed only by a per-transaction viewkey).

Problem is, very few people transact via the shielded pool. Here is a graph by researchers from the University of Luxembourg https://cryptolux.org/images/d/d9/Zcash.pdf

Image for post

Less than 1% of transactions are fully shielded.

Implications of Control

The Rand report commissioned by Electric Coin Company states that

Clear branding of Zcash and the ECC as compliant with
relevant regulations could reduce the incentives for its
use in illicit purposes in contrast to other privacy coins.127
Signalling compliance with AML/CFT regulation may be a
key factor in differentiating Zcash from other privacy coins
in the minds of criminal actors and refuting the reputation
of privacy coins such as Zcash for harbouring illicit

From the RAND report

So one of the factors for non-illicit-ness of Zcash transactions comes from compliance signaling by the ECC. The ECC could update wallets or the protocol to use z-addresses easily.

To preserve current transaction levels, Zcash ( via The Electric Coin Company or the Foundation) would have to ensure exchanges let people transact via the shielded pool.

Forces acting on Privacy Coins

Blockchain native tokens with privacy as a key feature suffer from a dilemma –

  • If transactions are truly private — then categorizing illicit transactions is difficult
  • If any entity can truly differentiate(at scale) illicit vs licit transactions, then they are not truly private.

Zcash tries to get around this problem by having a shielded pool and view keys that enable users to comply with regulations while not being susceptible to mass surveillance.

The fact that most people choose to transact in public, does not make Zcash(the protocol) in theory any more or less private. In practice, however, the bigger the set of people transacting in public, the less private the network appears to be.

Red teaming this report

If I want to transact in illicit things, I would like the following

  • The transaction to be known to as few parties as possible.
  • The proceeds are easily convertible to FIAT money directly or via other tokens.

So assuming I want to use Zcash, I would like to transact via the shielded pool and convert to fiat.

There are no exchanges that let me trade my shielded pool z-cash to fiat, and as we have seen from Kappos et-al, once I transact away from the shielded pool, I can be tracked.

As soon as exchanges start allowing completely shielded transactions and connections to fiat, the use of Zcash for illicit transactions will increase.

If I wanted to prove Zcash is not being used for illicit transactions, the best way to do it would be to assign a purity metric to each transaction and show that there no illicit transactions. If Zcash can successfully show that for shielded transactions, then their privacy use-case is invalidated.

The analysis done here is to look up two databases that RAND has, as concerns dark markets, and searches them for Zcash addresses and mentions of Zcash on the forums.

That leaves behind all the P2P shielded transactions occurring on locations, not on the RAND database.

It also does not explore the use of blockchain tokens is primarily for speculation.

What it correctly points out is that a multitude of factors mostly to do with usability and signaling affect the illicit nature of Zcash. These same factors also affect regular usage of Zcash.

If Zcash is too difficult for people who have shown the motivation to use a privacy coin for illicit users, how will a regular person make use of its privacy features?

To whose benefit this all this?

Zcash’s two-tier privacy system is great for

  • Messaging as “privacy coin” — you want to transact in private, use our shielded pool that you cannot exit to fiat with, and is too difficult for even criminals.
  • Signaling compliance via the majority of transactions that happen in the public.

Why commission a report to quell rumors of illicit use when that report says your privacy coin is not being used by criminals because it is too difficult to keep transactions private?

Did Zcash’s price or transaction count move significantly on either the Chainalysis news or the RAND report? No.

They had to do it because their USP (whether valid or not) is an orientation towards privacy.

Understanding the fat protocol thesis

In August 2016 Joel Monegro (then at USV) wrote about value capture for blockchain vs web protocols. It gave folks a mental model of how to value blockchain protocol tokens.

According to this thesis, applications built on top of web protocols captured more value than the protocol, but when it comes to blockchain protocols, value capture shifts from applications directly to the protocol. Here is a nice picture explaining the difference

Image for post

The Bitcoin network has a $10B market cap yet the largest companies built on top are worth a few hundred million at best, and most are probably overvalued by “business fundamentals” standards. Similarly, Ethereum has a $1B market cap even before the emergence of a real breakout application on top and only a year after its public release.

Joel Monegro, Fat Protocol thesis post.

What Joel rightly points at in the paragraph above, is that the few applications built to service these protocols are valued at a small fraction to the underlying protocol ( as calculated by the price of the token times the number of existing tokens ).

Breaking down this thesis into its core assumptions

  • It is easy to shift between applications as they provide a commoditized service because the underlying protocol has a shared data layer and provides a lot of utility.
  • The price of the token, along with an open network and a shared data layer, incentivizes protocol adoption, and affects value distribution via the token feedback loop.

He also points out the following

  • When a token appreciates in value, it draws the attention of early speculators, developers, and entrepreneurs.
  • the market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer

From the state of affairs in 2016, these statements are prescient. From what was happening then and we have seen transpire in the following years, they are a bit naive.

What has happened since

We have seen two types of businesses have been built, one is an on-chain product ( truly an application built on top of the protocol ) and the second are off-chain businesses built to serve the needs of people using the protocol.

On-Chain applications have opted to go the app coin route with each application capturing more of the value it creates and lending less of it to the underlying token.

For example –

Aragon, an application built on ethereum has its own App coin called ANT which one needs, in order to access it. One would expect the need for aragon tokens increases the need for ethereum tokens, increasing their value.

Two things stop this from happening

  1. The need for Aragon tokens is miniscule compared to the network.
  2. Speculation on the price of Aragon tokens opposes the outflow of value from Aragon to Ethereum

Off-Chain applications (i.e. businesses) cater to speculators as they are by far the biggest audience. This decouples the need to build applications that accrue value to the network.

For example — An Identity application built on top of Bitcoin or Ethereum that does not use its own app coin, adds value to the protocol. However, building a credit facility to service speculators who ultimately exit to fiat, does not accrue value to the protocol. For sure they create value, but most of it goes towards making the market more efficient and liquid rather than accruing to the base protocol.

The token feedback loop gets broken down into two

The two core assumptions of fat protocol thesis have been broken

  1. the token feedback loop did not complete. Price action has brought in speculators and developers/entrepreneurs are building mainly for speculators and not others because there are very few of them.
  2. applications have found ways to capture value by either creating app coins or providing services that make switching between them harder.

Expected Token feedback loop

Image for post

Actual Token feedback loop

Image for post

Reversed Causality

Fat protocol thesis is the first approximation of a venture captial model to blockchain entities. But it reverses causality

From Albert Wenger’s Crypto tokens and the coming age of protocols

Now, however, we have a new way of providing incentives for the creation of protocols and for governing their evolution. I am talking about cryptographic tokens. You can think of these like the tokens you might buy at a fair to get on a ride: different operators can have their own rides and set their own price in terms of tokens. You only need to buy tokens once (in exchange for fiat currency) and then can use them throughout the fair. With blockchains we now have a way of issuing and redeeming these tokens digitally (the underlying blockchain can be Bitcoin or Ethereum or possibly its own as in the case of Steemit).

Albert Wenger, Crypto Tokens and the coming age of protocols

Both Albert and Joel make an assumption that the fair ground has rides that are available for people to use.

What actually happened was, tickets were sold to an empty field with a promise of rides being built in the future.

This caused speculators to rush in and people built tools to take advantage of this price action.The few rides that got built haven’t seen people using them because of the lower hanging fruit of speculation.

We can see causality being broken if we use the core assumptions of the fat protocol thesis to model tech startups (you can say that the thesis does not apply here, but it makes sense to compare what it says)

Applying fat protocols to tech startups, you could conclude that because venture capitalists speculate on tech startups, it attracts entrepreneurs and builders of such startups, causing the startup ecosystem to gain value.

Now we see the core issue with this thesis, builders and entrpreneurs accrue vaue to the ecosystem, their capital needs are not a driver of value. If these business have no outside capital sources, then that argument has more footing.

What this framing also suggests is speculative investments are the main source of capital for block chain tokens and not utility because, if there was utility people would pay for it. The fact that their payment has to be in kind(buying tokens) does not add value to the enterprise but just fetches a higher price for the tokens.

What it leaves out

  • The sheer number of base protocols that emerged, often with no appreciable difference, spread out the value capture.
  • The radical importance of Governance of these protocols. Similar teams building similar applications on similar protocols have huge disparities in value created/captured. Example a #defi application on ethereum vs similar applications built on other protocols.
  • Disproportionate ownership (read hoarding) of network and app tokens by teams building applications, causes further value silos.
  • The importance of forks, and the effect forking has on network value.

A thesis is a mental model — Like all theses, the fat protocol thesis was a way to look at the current state of affairs and model what might happen in the future. It provided folks who wanted a guide to making decisions, a model. Nothing more, nothing less.

Further Reading

Naveen Mishra

Decentralization is for rule breaking.

One way of categorizing networks is by their “connectedness”. The easier it is to get from and to any node in the network, generally the more connected it is. This property is very good for analyzing a network’s structure. The more connected networks are, the better they are at handling sudden losses in connection to smaller parts within themselves.

Image for post

Another way for networks to withstand such losses is Decentralization.

Decentralization at the network level implies the lack of central control over connections or information flow. The more decentralized a network is, the more resilient it is against loss of connectivity.

This is achieved by increasing the connections each node has in the network. In fully decentralized networks, information is broadcasted freely so that any node on the network can listen to it.

The consequences of making networks more resilient via decentralization are that we add a lot more noise. If each node is listening to information from every other node, then there need to be clear rules about how to process duplicate information, how to order received information, and so on.

Network losses are not always passive connection issues. The same decentralization that makes networks resilient, also allows them to continue operating despite rule changes. That is, to a sufficiently decentralized network, there is no difference between a node dropping off because of a technical issue or a node not being allowed to communicate via a rule.

Enter Blockchain networks

Since Bitcoin launch, blockchain networks have been used to transact massive amounts of money (read value). They have also combined the resilience of decentralization with pseudo-anonymity to be one of the best ways to ignore rules about moving money around the world. So much so that blockchain networks appeal to their users, whichever user group they belong to, by pointing to decentralization as the main feature.

What this approach to marketing forgets, are the trade-offs that such decentralization brings. They usually use decentralized as a buzzword to signify better technology, cheaper transaction costs. They might also be putting you in the “decentralized everything” product flow, where you might be looking for a fintech 2.0 or trading product.

Some questions that you should ask anyone pitching decentralization as a feature

  • What current rule or cost structure is the decentralization resilient towards? (usually, the answer is onerous financial regulation)
  • Sure your blockchain network is decentralized, does it need to be if all transactions are fully allowed under current rules?
  • Do you care that two nodes who have nothing to do with your transactions must relay that to you?
  • Should you relay every action, however insignificant to the entire network?
  • Are the throughput trade-offs worth it for this particular type of action?

So if you hear someone pitch decentralization as their product’s core use-case, ask them which rules you can break via decentralization.

Aragon Grants — Openness, Decentralization, and Aragon vs Autark

I wanted to understand the core issues involved in the dispute between Aragon and Autark. I think they give an insight into how decentralization and transparency entangle with current jurisdictions.

State of Play

Aragon Association has claimed to initiate litigation against Autark for delivering on 1 out of 13 deliverables, “Interpersonal issues (including threats), Underperformance, Lack of code quality, Breach of confidentiality (including defamation) ”

Autark LLC claims this is a ” baseless legal action in Switzerland against Autark LLC “

The central issue is regarding disbursement of grants from Aragon to Autark, what contracts and agreements have been made, who is in breach, and how this process should play out.

Open Questions

In spite of Aragon’s efforts towards a fully transparent system, there are many questions that can’t be answered through publicly available data (at least, not that I could find).

  • What agreement was breached? Why was it not made public? Do all Grantees have to sign this agreement? Does the community know that such an agreement existed and was signed to consummate the grant IRL?
  • Is the roadmap file in the grants repo considered a legal agreement ?
  • Do all other grantees pass the hurdles set for this grantee?
  • Who makes decisions about contract completion?
  • Who tracks the work done by each grantee?
  • Given this legal action has caused leaders in the space to reduce the scope of a DAO to only on-chain actions, why is the jurisdiction messaging still on?
  • Why did no one make public a dispute that is by both parties admission an issue since at least January 2020?
  • Why are none of the token holders affected?
  • Why call outsourced product development grants?
  • Is jurisdiction the only reason to initiate a legal proceeding without going through Aragon court?
  • What is the reason for preferring litigation in the swiss courts vs american courts?


Make governance transparent — Aragon the project has many DAOs and legal entities associated with it. That may be required to comply with local regulations, but it makes governance opaque.
More concretely make clear the relationship between Aragon the project, the Aragon association, Aragon one, Aragon black and other entities. Who is in control at each entity, How are decisions made at each entity and which jurisdictions these entities are subordinate to.
ANT holders should be aware of these ownership patterns.

Outside directors: Have independent “directors” who can act as an ombudsman. The lack of these structures of course is in-line with the grand tradition of blockchain entities re-learning the lessons of legacy fintech.

Make the decision process transparent 
In their blog post, Aragon states “most of the data has always been publicly accessible on GitHub” but only the artifacts of applications are on Github.

To audit a nest payment, one has to look at the application process on github, voting process on the DAO voting app, funding in the DAO financing app with no way to track work done.

Name things appropriately –
Calling features and payments what they are lets people understand what the boundaries are and what recourse they have. So calling the payment of independent software vendors Grants and calling what functionally amounts to support ticket escalation “Court” causes people to misunderstand the process.

Understanding what happened

There are three main actors here

  • Aragon — is a collection of open source code, a non-profit Swiss foundation, and a for profit entity.
  • Autark — a Wyoming LLC that develops software for blockchain projects and has their own projects.
  • Token holders — the community of people who own ANT , the token used to participate in decisions about Aragon.

Aragon would like to decentralize (read outsource) as much of product development and Governance (read project management and capital allocation) as possible. This is primarily done by incentivizing various software developers via their Grants program.

Token holders also vote on things like which vendors should be given grants via an aptly named Aragon Grants Process AGP(link to AGP) and funds are then granted via a sub-organization (read business unit) that is managed via a DAO.

For each grant (read payment) the assumption is all three parties (token holders, aragon and the grantee) are aware of this transaction, having voted for it, and are aware of the recourse each party has if there are any issues. So far so good.

Now, there is a dispute, (the issue stated in aragon’s blog post). Autark claims they have not been compensated for work done, Aragon claims breach of contract and other issues.

So What ? Why is this a question, use the resolution system agreed upon that all three parties are aware of. Here is the rub, that dispute resolution system called Aragon Court is still apparently not ready to handle an issue of this magnitude. There is also this pesky detail of no-one knowing that such a dispute had started and both sides were thinking about starting legal actions

What happens next, internal talks break down, Autark apparently threatens to sue the Aragon association (as they are the purveyor of grant funds) firstly in the Swiss courts then later to sue in American courts. The association then initiates legal action against Autark in Swiss courts. Luis cuende co-founder of Aragon project, explains in this youtube video the reason behind doing this was to “establish jurisdiction”.

He further goes on to say Aragon Court is not recognized as a jurisdiction worldwide, and the need to establish jurisdiction first was so that they(Autark) couldn’t sue us in another jurisdiction. (I am not a lawyer but I would think that Autark can sue in the US even after there is a legal action in Switzerland.)

What this angling over jurisdictions makes clear is that the Aragon association doesn’t want this case to be tried in US courts but Autark believes they will have an advantage there.

Why is there not a pre-defined dispute resolution process, where is the need to create and sign an agreement for use of funds, that was then kept secret from the rest of the community?Another reason for going to the courts directly could be that legal action could go against whatever decision reached in the Aragon court. That would be a blow to Aragon Court’s credibility for its users


Aragon is one of the most transparent projects in the blockchain space. Most of the investigation that I did here was directly on applications built for Aragon like Apiary, the Aragon App, and their Github account. They are a private legal entity and certainly do not have to do anything mentioned here.

What bothers me is that Power is still centralized and decisions are made that are fine in any other capacity but look ridiculous when you also say you want to decentralize the project. Asking the community to vote on name changes, while making a significant legal decision on your own is not what decentralization should be about.

Similarly, making some parts of decision making transparent is detrimental to the goal of being a transparent entity. Either make major decisions in public or say that during this phase of development this entity will take charge. Having transactions be public but having confidential Grant agreements just confuses people.

Current regulations may not allow DAOs or Aragon to be as transparent or decentralized as they would want, but that is where they need to innovate. This is the exact problem they are solving.No regulation has stopped DAOs from paying software vendors, but calling them Grants might be an issue. No regulation has stopped DAOs from having an internal ticketing system but calling it a court and applying jurisdiction is an issue.

DAOs were supposed to disrupt organizations by reducing transaction costs, with decentralized decision making, programmatic payments, and a tamper-proof chain of evidence. What we have now are glorified project management systems that are deployed onto ethereum, which is great but is a long way from disrupting the company structure.

Required Reading :

Autark’s side

Aragon’s side

Auditing the Grants

A component model of blockchain networks

Now that I have a framework to look at blockchain niches, I want to logically model the various components of blockchain networks.

Every blockchain network can be broken down into the following components: entities, client software, mining network, and ledger.

Image for post

Entities do not transact directly but via the network. Each blockchain network has a way to identify entities uniquely. This is usually a public-private key pair and by definition unique to the network. Using the same identifiers in different networks causes its own issues, but that is for a different post.

Client software, including wallets and supporting software, allows participating entities to send read/write requests to a mining network. Minimally, all this client software needs to do is to send a syntactically valid transaction to a mining network.

The Mining network is where transactions are added to the chain. Transactions can be added only by a miner, which is compensated for this work. I have modeled a simple miner here.

Finally, the Ledger is THE artifact that describes the blockchain. Like an application has a database, blockchain networks have ledgers. When people refer to network state, they mean an instance of this ledger, either a particular version or its being at a certain time.

Interesting things to note

  • Information flows one way, from entities to miners via transactions that are put into a ledger. I am not aware of a blockchain design where data from the ledger is actively sent to client software, in the protocol. (Experts will disagree here by noting that wallets lookup UTXOs assigned to them, they are right in the specific case of miners but, I want to keep this model as general as possible).
  • Full nodes verify transactions for themselves but are not paid fees.
  • There is no personal information attached to wallets at the protocol level, so an entity can represent one person, zero people (ie., a program) or a bunch of people (company, meetup group, DAO).
  • Each entity can trivially create many identities (addresses) using freely available software.

Let’s subject this model to a few constraints

Setup Costs — Client software is easy to set up, a miner not so much. As the gap between them widens, there will be more intermediaries between the mining network and entities that would like to transact via the blockchain.

This also opens up the client software to do things other than just read/write to a particular chain. Most wallets have the ability to transact with more than one network, use public key infrastructure to send signed messages, act as identity credentials, etc.

Trading — If blockchains are primarily used to trade, then it makes sense to create exchanges that

  • talk to multiple blockchain networks
  • solve the ‘double coincidence of wants’ problem between entities
  • optimize (read minimize) writing to the blockchain which involves paying mining fees
  • add client software as part of their user management systems to have a consistent tracking system
  • let fiat currencies easily enter the system

This can lead to exchanges holding a lot of network token, which gives them influence in network decisions. There are also very few regulations on reserve requirements and fiduciary duties for purely crypto exchanges.

Decentralization — For decentralization to be a goal, people should build things that

  • make it easy for everyone to write directly to the blockchain.
  • allow for greater competition between miners
  • make p2p trading as easy as interacting with a central exchange
  • encourage people to keep a copy of the ledger and verify each incoming transaction

Openness — Each of the components is powered by software, defined by the protocol specification. To maximize openness and verifiability

  • make the protocol specification public
  • Open-source the software that runs each component
  • let the ledger be publicly readable and cryptographically verified

Privacy — Most blockchain network specifications do not record things like I.P addresses of the entities or their emails. They use a public-private key pair to address entities.

Transaction data is more difficult to keep private because miners and full nodes have to verify transactions for authenticity. There are a few privacy-oriented networks like Zcash or Monero that use cryptographical proofs to verify transactions while preserving privacy.

Combining this component model with the blockchain framework, you can identify under-served niches and build for them.

A framework to understand blockchain niches

The blockchain space, when seen as a monolith, is very confusing. It has parts whose priorities are opposite other parts. Each niche while lightly conforming to the ideals of a superset have wildly different views on what decentralization means, which compromises are ok and sometimes if there are even compromises at all.

To make sense of this, it is better to break apart these sub-niches, understand what they value, what they are trying to build towards, and how to judge what each of them is selling.

Let’s dig in

Product Niches

Decentralized Everything

  • the focus here is on users verifying every bit of the stack, push towards more edge computing, protocols and applications not having an admin key, tech-heavy,
  • Things like running your own node, Public key infrastructure based ID, and open source are the defining norms
  • Currently, the smallest target market requires hard tech improvements.

Fintech 2.0

  • The focus here is on building blockchain-based versions of current financial products and services. Defi is a perfect example
  • There is an effort towards compliance and interacting with current regulators.
  • The value proposition is reduced compliance costs and ease of transacting, easy creation of new financial products because of new finance rails,
  • Currently the largest target market.

Experimental Economics.

  • Productizing new economic devices like Token Curated Registries, Autonomous Organizations.
  • These experiments can only work on blockchain networks
  • It can lead to better fintech 2.0 products
  • offers economists and researchers the ability to test theories practically.

Blockchain Tech

  • Focuses on using tech that makes blockchains work to better service a business use-case.
  • For example blockchain data-structures used for entity tracking.
  • Identity solutions based on public key infrastructure.
  • Enterprise software vendors are the major players here.

People can build for more than one niche, but that confuses both the product and marketing message.

User Groups


  • Currently the largest subset of users.
  • Care very much about price movements and will eventually exit to non-blockchain things.


  • Consisting of developers who build applications, hardware, and services
  • Care about tooling, documentation, community, and ease of application development
  • May want to get paid in crypto and can benefit from experimental economic devices.
  • Liability, Incentives are under-discussed here.


  • Products in any niche product tons of metadata.
  • Understanding patterns and delivering insights to people who pay for them is the main goal here.
  • Works very well with all three product niches with academics focusing on experimental economics, data providers focusing on fintech 2.0, and protocol researchers focusing on decentralized everything.


  • Currently the smallest group.
  • When most people talk about adoption they mean adoption by this user group.
  • Care about stable prices, known costs, and most importantly ease of use.

None of the above categorizations have hard boundaries, and people move from one niche to another quite easily. There are of course scams/scammers, whose pitch does not hold up once you ask the right questions, based on which niche they are impersonating

Modeling Blockchain Miners

Miners are critical infrastructure for blockchain networks. I am going to model a minimum viable miner to understand this process better. For this exercise, I will be using a proof of work chain (like bitcoin) for simplicity.

Inputs :

  • Software that implements the mining algorithm
  • Hardware to run the software on
  • Electricity to power the hardware.
  • Other — place to put the hardware, people to oversee the process, etc

Outputs :

  • The token, in this case, bitcoin.
  • Heat as a byproduct, and
  • Expertise in running these types of systems

Goal : Generate and Maximize profits

Image for post

The business of running a miner

Expenses :

  • Initial Capital expenses
  • Recurring
  • Electricity
  • Rent
  • Salaries
  • Compliance

The majority of expenses are in fiat, generally stable.

Revenue Sources: Sell or rent each of the following

  • Token
  • Heat — geographically restricted or not possible
  • Expertise — is situation dependant and may generate competition

A miner can choose how much of the output they need to convert to revenue.

Optimizing Profits

  • Decreasing Costs — Find cheaper or free sources of electricity, access mining hardware for cheaper, Find places with lower rent( but have access to cheap electricity)
  • Increasing Revenue — Find better hardware to produce more tokens per hour
  • Mine other tokens that have a higher price or lower cost of production

Smoothing the Revenue Curve

  • Capital Management — If a miner has a reserve of tokens, then they can hire someone to manage that reserve to generate other revenue.
  • Create relationships with OTC dealers, Exchanges, Funds or any buyers of decent size, who can have more stable buying patterns
  • Financialize things like hashing power, participate in futures markets etc.

External Forces

  • Block Subsidy — All else being equal, miners would like the price of the mined token to be higher. If block reward goes to zero, miners are incentivized for higher fees per block.
  • Electricity prices — All else being equal, miners are incentivized to find the least expensive electricity.
  • Competition — Because the probability of mining the next reward is (somewhat) proportional to the miners share of total hashpower. Miners are incentivized to grow their capacity.

How miners can play offense

  • Given the change in reward is public, miners can change their holding patterns to take advantage of this situation.
  • Invest in more powerful or more efficient hardware ASICs for example.
  • Find monopoly access to electricity
  • Mine empty blocks
  • Invest in creating better mining software
  • Lobby local regulators for favorable treatment
  • Invest in longer-term research like Photonics

Playing with the variables

  • Mining Pools — Spread out cost of electricity, hardware costs but introduces a revenue share
  • Optimizers — Given total capacity remains the same, miners can move to other networks for more profits. Especially if this is done programmatically.
  • Mining as a service — When you have the expertise but not the capital to start mining at scale. There are principal-agent problems.
  • Personal miners — Currently, there are large mining pools that dominate mining. Given the process is public, anyone can set up a miner.This can be profitable on networks with little competition or where the goal is not strictly financial.

There is still a lot of ground to be covered here, like Modelling miners for non-Proof-of-Work networks, Generalized Mining, Participation in Forks, and Implementing updates. However, this model can act as a base that can be expanded as needed.

Decentralization and The Mahatma’s salt tax revolt.

Gandhi’s plan was to begin civil disobedience with a satyagraha (a peaceful protest mechanism , satya=true agraha=force) aimed at the British salt tax.

The 1882 Salt Act gave the British a monopoly on the collection and manufacture of salt, limiting its handling to government salt depots and levying a salt tax.(Dennis Dalton)Violation of the Salt Act was a criminal offence.

This parallels the rise of distributed ledger technologies: until recently governments and large financial service institutions viewed them as extra-legal and that incorporating them was fraught with regulatory risk.

If money or more broadly a “store of value” can be created by any group of consenting adults today, its creation, bearing, and transmission are controlled by large institutions and is protected by law. Violation of this law is punishable but its bending is the source of envy and admiration. So much so that we make movies (BoilerRoom, The Big Short, Too Big to Fail, WallStreet) and T.V shows (Suits,Billions) about it and glorify the protagonists.

The British establishment, while decreeing that making salt was illegal,was simultaneously not disturbed by plans of resistance against the salt tax. The Viceroy himself, Lord Irwin, did not take the threat of a salt protest seriously, writing to London,

“At present the prospect of a salt campaign does not keep me awake at night.”

There was on May 25, 2017, a bill S1241 introduced in the US senate to add digital currency to the list of instruments to be declared while crossing the US border, while simultaneously the Congressional Blockchain Caucus hears testimony about blockchain technologies and displays positive sentiments.
It is this superposition of incentives that makes dealing in blockchain tech supremely tedious and adds to the volatility in price.

C. Rajagopalachari, one of the leaders of the Indian Independence movement in a public meeting at Tuticorin, said about the salt tax revolt :

Suppose, a people rise in revolt. They cannot attack the abstract constitution or lead an army against proclamations and statutes…Civil disobedience has to be directed against the salt tax or the land tax or some other particular point — not that; that is our final end, but for the time being it is our aim, and we must shoot straight.

This requirement of people to need something tangible to rally for is somewhat missed by the masses pushing Blockchain tech as a get rich quick scheme. Speculation seems to be the least barrier to entry usecase for this tech as witnessed by the explosion of ICOs( Initial Coin Offering similar to Initial Public Offering).These have become so commonplace that speculators have poured millions of dollars into untested, unread code purely based on the greater fool theory.There is sure to be a correction in this market causing millions of dollars of loss to hundreds of people.
This event will surely be used by a financial regulator (i.e. the S.E.C ) to take action against these sales and setup rules akin to the JOBS act.

Just like the purpose of the salt tax revolt was Swaraj (Self Rule) and not the tax itself, the purpose of decentralization tech should be and is the creation of user oriented platforms with transparent governance and efficient transactions and not speculation on the value of the token itself.A market correction will force pure speculators to flee which should open up this tech to be used for its ultimate purpose.

Decentralization tech is being compared to the internetLinuxTulips, a commodity, an asset classforeign currency and every other thing.There are applications being built from the ground up that exploit the features of decentralized tech.

One of the most inspiring and certainly the most flamboyant was a rebuild of twitter, which was live tweeted by the builder. Others are tuned to solve distributed filestorage (FileCoin) and prediction markets (Augur), payment for content (Steemit, Yours), or identity (Aid tech, Civic).
This is where the real work is being done, and this is where we are headed into a future of online Swaraj (self rule).

The intended goal of the satyagrah was to move closer to self rule, attract the muslim population to this cause, and create a national movement. While it became a national movement and received international acclaim, it did not cause an immediate move closer to self rule, nor was it successful in attracting muslims. Still, the satyagrah played a vital role in the negotiations about self rule and provided an international stage for the sovereignty discussion.

The aim of decentralization technologies is similar: they promise to bring self sovereignty or at least “math-sovereignty” to the users of its applications.Its goals include an immutable history of records, perfect transparency, and transactions blind to political borders.We are nowhere close to these goals, but are moving closer by the week.
This decentralization will cause of a lot of pain in the short term and may need a cycle of boom-bust to realize its true potential.

The most important thing the Satyagraha campaign did was to force the British to recognize that their control of India depended entirely on the consent of the Indians — Salt Satyagraha was a significant step in the British losing that consent.

The most important accomplishment of the decentralization phenomenon is reminding users that their consent is necessary for centralized systems today to make profits higher and more concentrated than any in history.

Understanding the business and strategy of the blockchain space.