playingpoodles (OP)
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June 23, 2017, 11:14:39 AM
Last edit: June 24, 2017, 07:51:53 AM by playingpoodles |
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In this post I will attempt to compare two cryptocurrencies that both have privacy features, DASH and ZenCash. These two coins are at very different stages in their development cycle. This is reflected in their different circulating supply, price and marketcap. Dash was released three and a half years ago, in January 2014, which in the cryptocurrency space makes it something of a veteran. Today Dash is worth just over $180 a coin, has a circulating supply just over 7.3 million, and has a marketcap of over $1.3 billion. Not bad for three and a half years of development. By contrast Zencash - released less than a month ago as fork of and evolution of an earlier community based zkSNARKs implementation - today is worth $6.70 a coin, has a circulation just over 1.5 million, and a market cap of approximately $10 million.
Dash and ZenCash have fundamental differences above and beyond obvious differences of time in market, development stage and market weight. But first I would like to discuss similarities between the coins.
Dash and ZenCash both have a funded development model whereby a portion of the block reward is reserved to fund the development of the project, for example hiring staff, paying consultants, marketing and the like. This is different from the situation with other better known coins like Bitcoin where the miners receive the 100% of the block reward. For Dash, 10% of the block reward is reserved for treasury to pay for development and promotion of the coin, and the remaining 90% is split 50/50 between miners and master node operators so each of these parties get 45% of the block reward.
ZenCash is quite similar in that 8.5% of the block reward is reserved for the DAO and the core team to fund developers, outreach, and partnerships. This is similar to Dash, ie. a funded treasury to fund the coin’s development. ZenCash will have secure nodes. The complete details of the stake requirement and incentive entitlement of ZenCash secure nodes is yet to be completely finalised, but one proposal has been that they will receive 3.5% of the block reward. This is in some ways similar to Dash masternodes, but with a much smaller share of the block reward, although ZenCash nodes will also be different in ways that will be explained below. Dash and ZenCash also have similarities to Bitcoin, and each other, with a total maximum coin supply of 21 million.
ZenCash and Dash are also fundamentally different in key ways. Dash has a coin mixing option called PrivateSend. This mixing is supposedly one of the masternodes key jobs - although I will discuss below my thoughts on the real purpose of Dash masternodes. PrivateSend is better viewed as a privacy enhancing feature, rather than a feature that provides a private transaction. I have written elsewhere that simply mixing one’s transaction with say three other people’s transactions is not sufficient to stop a resourced adversary from tracing links in the broader network (Dash blockchain) to “see through” the mixing process, and identify the true sender and recipient. PrivateSend does not conceal the amount sent.
ZenCash on the other hand implements a very recent zero knowledge cryptographic protocol known as zkSNARKs, which shields both the sender address, recipient address, and the amount sent. This process implements zero knowledge cryptography, so there is no mixing process involved and therefore no mixing process an advanced adversary could compromise through network analysis.
Another difference is Dash mining has now moved to ASICs, whereas ZenCash uses the Equihash algorithm and is not mined with ASICs. Equihash is considered far more ASIC resistant than Dash’s X11, and this in fact appears to be the case as X11 mining quickly transitioned to ASICs. ASIC resistant mining algorithms are considered to promote better decentralization of mining on the network, whereas ASICs - due to their specialization and high price - promote centralization. Greater decentralization is considered to better secure the network, or, to put it better, greater centralization increases risks to the security of the network.
I wish to now discuss strengths and weaknesses with both coins. Beginning with Dash, its masternode system and governance model have been a resounding success. It paid for marketing and all sorts of other things that anyone who has kept an eye on coinmarketcap.com knows worked very well. In fact, ZenCash was almost certainly guided by the success of this model when deciding to itself reserve 8.5% of the block reward for treasury. Dash masternodes clearly reduced the supply of the coin in the market and this too drove up prices.
ZenCash is fairly clearly superior in terms of privacy to Dash, and this is important for some people. ZenCash secure nodes, while they will not be incentivized to the degree that Dash masternodes are, will be sufficiently incentivized to ensure their profitable operation. ZenCash nodes also fulfill a genuine and necessary role on the network in addition to reducing circulating supply and potentially putting upward pressure on the coin price. They’ll provide constant encryption, including certificated encryption, and domain fronting. This will encrypt the entire network, and will have practical implications like holding a permanent and encrypted InterPlanetary File System available to ZenCash users.
Dash and ZenCash are also not without weaknesses. Dash, back when it was called Darkcoin, had a shady start, with about 10% of the final total supply of 21 million instantly mined in the first couple of days be the founder and his associates. This was because nobody else had any working mining software and so couldn’t mine. But to be fair, he’s spent the last several years dedicated to Dash, and I’m sure there would not be a single early Dash investor who would hold this against him. In fact there would be numerous millionaires among those early investors who bought in when it was $2.00. Dash masternodes also don’t really serve a purpose other than to starve supply of the coin and push the price up. This has been great up until now, but now Dash wants to continue growth by becoming a mainstream payments system with its development Evolution. It’s hard to see how this squares with having well over 50% of the coin supply out of circulation as masternode stakes.
ZenCash is not without its embarrassing moments either. One of the former developers had something of a meltdown and attacked the coin. Fortunately the rest of the team managed this, and managed his exit, but still not a good look. Of course, ZenCash is also very early in its development. It has great plans, and a good model, but it will need to implement.
Overall, what are my views on these two coins? I like both of them. I think both have excellent funding models that allow proper development and marketing and I think both have dedicated, capable teams. I think both have the opportunity to rise in price, although given its much smaller marketcap and earlier stage of development I view ZenCash as having more opportunity for exponential growth. ZenCash nodes will also provide an opportunity for passive returns, the same way Dash masternodes did before the exponential price rise of Dash made them an unaffordable investment for most.
Dash masternodes are so highly rewarded and numerous that with over 50% of the supply staked to them I do worry about it, notwithstanding their success in driving the price up to this point. To me having over 50% of possible supply out of circulation is quite at odds with their Evolution goal to become a widely adopted mass payment system. Then again, they’ve overcome other challenges in the past, so perhaps they can again.
Well, anyway good luck out there on these wild seas!
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