Zcash activates NU7, removing 60% of transaction fees for future block rewards

Zcash activated the NU7 upgrade early Friday at block 3,543,405, introducing the Network Sustainability Mechanism (NSM). The mechanism aims to sustain funding for network security as block subsidies decline. The NSM removes 60% of transaction fees from circulation for gradual reissuance as future block rewards. Reissuance will start in 2031 and follow a smooth curve alongside the existing halving schedule. The mechanism retains Zcash's supply limit of 21 million ZEC. The NSM addresses uncertainty over whether transaction fees alone can adequately compensate miners as halvings reduce block subsidies, a problem Zcash inherited from Bitcoin.

Shielded Labs developed the mechanism, and Shielded Labs' Jason McGee described the activation as a major milestone for the organization. McGee said the NSM was Shielded Labs' first project and developed from Nate Wilcox's earlier proposal, originally named the Zcash Posterity Fund. Another proposal under consideration would oblige Zcash Community Grants to transfer 50,000 ZEC from the grants treasury to the NSM.

The Zcash Foundation said NU7 lowers the target block interval from 75 seconds to 25 seconds. NU7 also retires Sprout, the original Zcash privacy pool introduced in 2016, leaving approximately $16 million worth of coins locked there. Shorter block intervals increase the risk of orphan blocks, which are valid blocks discarded because a competing block reaches the network first. Zakura developers tested 80 nodes across 11 regions with private transactions filling every block. The developers measured orphan rates of 3.43% with 25-second intervals, versus 1.57% with 75-second intervals. The developers expect an orphan rate below 1% on the live network because actual mining is more concentrated and blocks contain far fewer transactions. Zakura proposed a quantum privacy fix for shielded swaps last month. The upgrade specification also limits private transaction activity per block, reducing the data wallets need to scan to locate payments.

Shielded Labs initially designed the NSM to replace halvings with a smooth issuance curve. Community panels supported that approach, but coinholders opposed the change, prompting development of an alternative that preserved halvings. McGee said Shielded Labs still considered the original approach simpler and better but respected the process behind the adopted design. McGee argued that protocol changes should be difficult and that the process should resist control by any single organization, group or influential person.

Zcash's community is separately debating the future of Zcash Community Grants (ZCG) and ZCG's allocation from the Dev Fund. The Dev Fund directs part of block rewards toward development. Coinholders and community panels will vote this month on the allocation's future. Project Tachyon, Shielded Labs, Valar Group, the Zcash Foundation and ZODL coordinate coinholder voting and have established an accelerated proposal and polling schedule. The organizations said tensions were high and warned that prolonged debate could deepen community divisions. The schedule sets November 8 as the proposal deadline and November 16 to November 30 as the polling period for coinholders and community panels. The organizations will support another network upgrade, NU 7.1, to implement an outcome if rough consensus emerges.