On Feb 5, 2019, Edward Snowden offered his support for Zcash (ZEC).
Snowden praised Zcash’s Founder’s Reward as a tax which can prevent attacks on the network before they happen. To support his position, he cited recent news in which representatives of the altcoin claimed to have identified and remedied a vulnerability in 2018. (They also admitted to lying to the public to hide this vulnerability until it was fixed — a point Snowden did not comment upon.)
The Founder’s Reward is designed so that 10 percent of all mined rewards will be distributed to the stakeholders of the company. These include founders, investors, employees, and advisers. It has been a subject of maintained contention.
News and Lies
Also on Feb 5, Josh Swihart, Benjamin Winston, and Sean Bowe of the Zcash Company posted an article on the project’s blog about a counterfeiting vulnerability that was supposedly remedied in Oct 2018. They allege that the vulnerability was discovered by Ariel Gabizon of the Zerocoin Electric Coin (Zcash) Company on Mar 1, 2018. It was said that the vulnerability was present within the MPC protocol transcript released soon after ZEC’s launch. This means that the vulnerability existed for well over a year before it was identified by anyone.
Once the vulnerability was identified, the transcript was removed from the public domain. Though the vulnerability could still be exploited, exploitation supposedly became more difficult. To account for this missing data, Swihart and company assert that the ZEC Company created a cover story in which they stated that the transcript was deleted by accident.
[bctt tweet=”ZEC admits to having hidden information from the public and lied about it in their its article posted on their blog on Feb 5, 2019. This may be the only example of deception by ZEC but, if one lie exists, others may as well.” username=”beincrypto”]
The lies may have been successful or simply unnecessary. Exploitation of the vulnerability did not occur during the extended period the transcript was publicly available. It was not exploited during this period, and it may not have been exploited had it remained in the public domain.
Snowden cited an article written by representatives of the Zcash Company as evidence that the Founder’s Reward is a useful tax — despite the fact that the team admitted to mass deception.
Snowden is a former employee of the Central Intelligence Agency (CIA) who made news in 2013 when he released classified information from the National Security Agency (NSA) to the public.
His support of Zcash, according to recent comments, is based on his apparent belief that the Founder’s Reward is a tax which is used to prevent hacks and attacks that might cost users money.
He seems to use the recent post from Zcash as evidence that the Founder’s Reward is working to protect users. The report, however, does not include any mention of the Founder’s Reward. Claiming that funds used from the Founder’s Reward prevented this attack cannot be confirmed by the facts as they exist. Unless Snowden has insider information, his use of evidence to support ZEC seems flimsy at best.
Snowden does not comment on the admission of lies told by Zcash representatives in the post. It is ironic that he would support a company which admits to lying publicly when he illegally disclosed confidential information to the public. Nonetheless, his consideration of the Founder’s Reward as a form of taxation deserves further examination.
A New Type of Taxation
Cryptocurrency taxation often includes taxes against buyers, sellers, investors, and traders of cryptocurrency or other cryptoassets by a territorial government. Calling the Founder’s Reward a tax, as Snowden does, requires a new conceptualization of taxation. No longer are taxes simply waged against citizens by governments as fines for living, working, owning property, dying, or other reasons. They are now waged by cryptocurrency and cryptoasset companies against a certain group for possibly distinct purposes.
The ZCash Founder’s Reward tax is waged against miners, specifically. A portion of their rewards is taken as the totality of the tax. Using ZEC to buy or sell products or services is not a reason for its taxation. Thus, users are not directly impacted by this theoretical tax. Other cryptocurrencies and cryptoasset companies may, however, institute taxes for this purpose (or others).
There may be many reasons why such a tax would be raised. While it is possible that funds from the Founder’s Reward tax were used to prevent the exploitation of this vulnerability, they could also have been used for other purposes. Paying employees, advisers, and founders for services rendered is one such reason. Another is to generate a return on investment (ROI) for initial investors. Funds raised could also be used for other purposes. They are also susceptible to being misappropriated or misused as are other currencies.
This becomes especially concerning given that ZEC is a privacy coin. This means it allows private transactions. While BTC transactions are all publicly visible, ZEC transaction can take place between shielded addresses which hide the information about the parties involved.
Edward Snowden may have good reasons for supporting ZEC. It is possible that considering the Founder’s Reward a tax may enable a new conceptualization of cryptocurrency or taxation which enables founders, investors, employees, advisers, and other stakeholders to be properly compensated for services rendered.
A major problem still seems to remain, however — namely, that ZEC admits to having hidden information from the public and lied about it. This may be the only example of deception by ZEC, but if one lie exists it is possible that others do as well.
Do you think Zcash should be trusted or does this admitted deception steer you away? What do you think of Snowden’s statements regarding ZEC? Let us know in the comments below!