Undisclosed and actively relevant conflicts of interest on the Zcash Foundation Board of Directors

Update: please see my apology for having posted this.

[Please also see my follow-up post: “handling of potential conflicts of interest: it’s all about disclosure to the community”]

[This post has been edited multiple times for clarity and to add an update, as well as removed once and then reinstated. I reinstated it because Jack Gavigan re-posted the Internet Archive copy of it, which was an earlier revision. You can find some previous versions of it in The Internet Archive: https://web.archive.org/web/*/https://medium.com/@zooko_25893/undisclosed-and-actively-relevant-conflicts-of-interest-on-the-zcash-foundation-board-of-directors-d9a91fa0c015]

A few years ago, Arthur Breitman from Tezos talked to me privately about hiring Ian Miers (member of the Zcash Foundation Board of Directors). Later, I learned that Tezos had cloned the “Sapling” technology from Zcash. I inferred that Ian Miers had taken personal payment to help them do that.

This integration of the Zcash technology into Tezos is good for the world, but it occurred with no compensation to the ZEC holders or win/win partnership between Zcash and Tezos. Nowadays, it is routinely used by random Tezos boosters to promote Tezos as being able to consume all the value out of other coins such as ZEC.

Matthew Green (member of the Zcash Foundation Board of Directors) and Eran Tromer (active contributor to Zcash community governance discussions) have told me privately that they have formed a company to commercialize a shielded money protocol (with law enforcement compliance features), named “Sealance”. Based on my knowledge of technology, Zcash Orchard is the only current Ceremony-free (“trustless”) technology that could implement the shielded money protocol that such a business would need. (They’d have to add the law enforcement compliance features themselves.)

There is nothing wrong with Tezos and other blockchains adopting technology that we’ve innovated. There is also nothing wrong with people in leadership positions engaging in potentially conflicting business efforts as long as they follow the two cardinal rules of potential-conflict-of-interest management:

1. They must disclose the business engagement to the potentially affected stakeholders so that the stakeholders can be aware and can evaluate any impact on their incentives, and
2. They must recuse themselves from decisions that affect their separate business interests.

These two cardinal rules do not appear to be honored in an important current governance issue in Zcash, which is why I’m publishing my knowledge about this now and asking the Zcash Foundation Board to clarify their position on this and answer several important and urgent questions.

The reason this is important and urgent is because the Zcash Foundation holds a powerful legal right, under the Zcash Trademark Agreement, with which they can strip new Zcash Network Upgrades of the legal right to be called “Zcash”.

The Electric Coin Co — thanks to the funding and support of the Zcash community (the ZEC holders) through the Dev Fund — has produced Network Upgrade 5, which is not only the most important upgrade in the history of Zcash, but is an important step in the history of human society. (Please read my twitter thread about what Network Upgrade 5 is and why it is so important.)

As part of this upgrade, Electric Coin Co is experimenting with a new open-source licence, the Bootstrap Open Source Licence. The purpose of the Bootstrap Open Source Licence is to prevent some of the value-extraction that can afflict open source software development. The purpose of putting the new Zcash shielded money (codenamed “Zcash Orchard”) under the Bootstrap Open Source Licence is to prevent some of the value-extraction that can happen from other coins or other businesses using Zcash’s innovations without giving anything back to the ZEC holders who funded it.

According to the Trademark Agreement, once notified of intent to upgrade Zcash, the Zcash Foundation has ten business days to affirm that they’ll allow the new upgraded blockchain to be called “Zcash”, or to state that they will not allow it, in which case it will not have the right to use that trademark. If they do not sign off on their decision either way within ten business days, then the upgraded Zcash blockchain retains the right to be known as “Zcash”.

Electric Coin Co notified the Zcash Foundation verbally in the “Arborist” community videocall on Thursday, May 5, and we notified them in writing on Wednesday, May 11 in this blog post. As of today, they have not yet signed off on the upgraded blockchain having the right to use the trademark. During this same period, the Zcash Foundation in the persons of Jack Gavigan (Executive Director and member of the Board of Directors), Ian Miers, Matthew Green, and also Matthew Green’s business partner Eran Tromer have been stoking debates about Electric Coin Co’s open-source licensing and calling on Electric Coin Co to change our licensing.

Now, that would be fine! Calling on us to reconsider our decisions is always valid, and Jack Gavigan and the others have many valid and important points about open-source licensing that we have learned from.

However, since the Zcash Foundation has not signed off on Network Upgrade 5’s right to use the Zcash trademark, then we can’t know if these requests to us come with the implicit threat that they will withhold the trademark rights if we don’t agree to their requests, which would strip the upgraded Zcash from being legally allowed to be called “Zcash”.

[UPDATE: Jack Gavigan has stated that the Zcash Foundation is ready to give their sign-off on NU5! This is a huge relief to me, and I’m very grateful to him for moving quickly.]

In this context, and in the context where members of the Zcash Foundation Board of Directors and their business partners have personal business interests which could potentially result in value transfer from the ZEC holders to their personal financial interests, which the Bootstrap Open Source Licence might interfere with, resulting in less value extraction from the ZEC holders, and in the case that the Directors involved have not disclosed their potentially conflicting business interests to the ZEC holders, nor have they recused themselves from the issue but instead are actively trying to persuade the ZEC holders to adopt a licence (the permissive MIT licence), which potentially would be more amenable to their personal business interests at the expense of the ZEC holders…

This is not okay.

Questions for the Zcash Foundation Board of Directors:

• I am aware that the Zcash Foundation has a conflict-of-interest policy which requires Directors to disclose, privately, to the Board, if they have potentially conflicting business interests. Did Ian Miers disclose his engagement with Tezos to port the Zcash Sapling technology, and if so when?
• If he did, then why did the Zcash Foundation Board of Directors choose not to publicly disclose this to the Zcash (ZEC holder) community?
• I am aware that Ian Miers has actively engaged in the public discussions about that issue, advocating to the Zcash community that they should reject the Bootstrap Open Source Licence. Has he recused himself from discussions and decisions in the Zcash Foundation Board of Directors around the Foundation’s policy with respect to licensing of the new Orchard technology?
• Has Matthew Green disclosed his personal business interest in the new Sealance Company to the Zcash Foundation Board of Directors?
• If so, why did the Zcash Foundation choose not to disclose this to the Zcash (ZEC holder) community?
• Has Matthew Green recused himself from discussions and decisions in the Zcash Foundation Board of Directors with respect to licensing of the new Orchard technology?
• Are there are any other personal business interests among the Zcash Foundation Board of Directors which could be affected by the Electric Coin Co’s decision to licence Zcash Orchard under the Bootstrap Open Source Licence?
• What role does the ZEC coin play in The Zcash Foundation’s long-term strategy? (Please see this related thread in which I point out that the Zcash Foundation has not made any public statement of what role if any ZEC plays in their long-term strategy, and ask for clarification.)
• Is the Zcash Foundation intending to sign off on Network Upgrade 5, using the power granted to it under the Trademark Agreement, so that the Zcash blockchain after Network Upgrade 5 can still be legally called “Zcash”?

As a final word, I need to state that in my opinion — based on extensive public and private exposure over the course of years to all of the members of the Zcash Foundation Board of Directors and many of the Zcash Foundation employees — I believe they are almost all honest and mission-driven people, and I sincerely hope that the Zcash Foundation can address these important issues, clarify its long-term alignment with the Zcash community, and grow into a powerful and effective force for good in this titanic struggle for the future of human society.

— — — — footnote: my relationship with the Tezos project

In 2017, I agreed to serve as an advisor to my friends Arthur Breitman and Kathleen Breitman, founders of Tezos. At that time, Arthur had already been serving as a technical advisor to the Zcash project, a role in which he has contributed and is continuing to contribute extensively to our understanding of consensus algorithms, proof-of-stake, and tokenomics. He continues to serve today on Electric Coin Co’s Scientific Advisory Group.

I publicly disclosed this engagement, the financial terms, my reasons for why I believed doing so could turn out to be positive for Zcash and for the world.

My advisor relationship with Arthur’s company kind of wound down but throughout the years, I gave advice to Arthur, first as an advisor and then as a friend on topics such as corporate structure, security incident response process, dealing with governance take-over attempts in concert with dishonest and adversarial press coverage (see the cover story in Wired about that), and other such topics. And, I offered a lot of sympathy and encouragement for the inevitable slings and arrows that come with being the public face of a publicly-traded coin.

I don’t recall ever being asked for advice about transferring Zcash’s privacy innovations to Tezos. If I had been, I would have sought to find a win/win deal that benefited the ZEC holders in addition to benefiting the XTZ holders, such as the recent deal that we at Electric Coin Co struck with the Filecoin and Ethereum projects.

The Tezos tokens that I received for my advising services are all still in my possession. I didn’t feel right just selling them to use for my personal gain, so I’ve been waiting for some kind of opportunity to invest them in a project that benefits both ZEC and XTZ.