Zcash vs Bitcoin debate exposes Naval Ravikant’s conflicts of interest

Naval Ravikant earned millions of impressions for a controversial assertion this week that Zcash (ZEC) is insurance against Bitcoin (BTC). Almost nobody agreed with him.

In various posts on social media, the crypto community pointed out the differences between insurance and price performance, the positive correlation between ZEC and BTC, the inferior performance of ZEC, Naval’s financial conflict of interest in promoting his early allocation of ZEC, and Zcash’s pro-VC and anti-cypherpunk culture of compliance.

Insurance versus a price rally

Naval’s citation for this claim was a price chart of ZEC embedded in his post. He selected a timeframe of less than two months in order to manufacture an up-only rally from $49 to $68.

This citation fails on multiple levels.

First of all, the price of something going up doesn’t mean that it’s insurance. Prices of thousands of publicly traded assets which insure nothing — options, for example — rally by thousands of percentage points every day.

Insurance, in contrast to a random price rally, provides a contractually guaranteed payout to a policyholder if a prespecified loss event occurs.

Unlike insurance, ZEC positively correlates with BTC

Rather than trading inversely to the price of BTC like an insurance product should trade, the price of ZEC is actually positively correlated with the price of BTC.

When BTC rallies, ZEC tends to rally. Worse, its positive correlation is weakening over time as it trends down against BTC over long time frames.

Specifically, a historical review of ZEC reveals that its price is an embarrassing 95% below its all-time high, and 80% below its 2018 high.

In contrast, BTC is within 5% of its own all-time high and is one of the best-performing assets of all time since inception.

ZEC is worth less than $150 today despite trading at $9,000 on Poloniex — and a couple days in the thousands of dollars — during its 2016 debut.

Read more: Zcash: Snowden wants it known he wasn’t paid to attend crypto ceremony

Worse performance than bitcoin since inception

Unlike ZEC, BTC had no pre-sale and was free or nearly free via faucets, donations, or home mining for its first two years of operation. Many early investors paid a few pennies per BTC.

The first USD-denominated transaction for any BTC occurred via PayPal at $0.001. The price of BTC traded for pennies many times on MtGox, and even as below $2 on Bitstamp through 2011.

Any investor in BTC below $2 has gained more than 6,000,000%.

In contrast, the earliest investors in ZEC paid about $1-2 per coin. The Electric Coin Company raised about $3 million through private investment rounds during its seed and venture rounds, which enjoyed a portion of the Zcash company’s Founders Reward for about 2.1 million coins.

Certain investors paid less or more per coin, of course, depending on their seniority and level of contribution.

Even calculating a return from $0.50 apiece, any founding ZEC investor today has earned less than 30,000% since inception — a far cry from the 6,000,000%+ return publicly available to any random investor around the world who had two years to acquire BTC for less than $2 apiece.

Naval was an investor in that founding round. In 2015, he and other investors like Barry Silbert and Roger Ver put $715,000 into the Zerocoin Electric Coin Company, later renamed the Electric Coin Company, which would be Zooko Wilcox-O’Hearn’s entity for developing Zcash.

Naval has also served on the board of the Zcash Foundation.

Therefore, not only should Naval know better — i.e. his ZEC investment has not outperformed others’ early investment in BTC — it also makes his financial conflict of interest obvious.

Zcash’s anti-cypherpunk compliance and VC capture

Cypherpunks created BTC during the 2008-09 financial crisis as a stateless monetary network and a statement against government bailouts and too-big-to-fail banking policies.

Venture capitalists, in contrast, funded ZEC and ensured its compliance with government regulations over the years. VCs agreed to a payout structure that benefited founder Zooko at an alleged $250,000 per month.

Unlike other private cryptocurrencies like Monero, Zcash doesn’t default to private transactions. VCs ensured that the vast majority of its network stayed open to state surveillance and chain analysis.

The Electric Coin Company literally boasted about how it complies with the US Treasury’s Financial Action Task Force recommendations.

On its blog, it took pride in “allowing VASPs to conduct sanctions screening, or restrict withdrawals to whitelisted addresses.”

It listed the data available to government monitors, such as “the customer’s identity, the amount of Zcash that was deposited, the destination address, the source address, and the transaction ID.”