Taxes Explained

Each decentralized payment system (aka cryptocurrency) relies on its most active participants, who maintain its hardware. The system is alive when it has a big enough number of nodes, which are servers working online 24/7, communicating according to the pre-defined protocol. Zold is not different. However, the way cryptocurrency users reward those enthusiasts is different in Zold, comparing to most other cryptos. There are no transaction processing fees. Instead, there are wallet maintenance taxes. Here is how they work.

BTW, an official description of taxes you can find in our White Paper. This blog post is a less formal explanation, to help you understand the concept.

The principle is simple: a wallet is in good standing if its taxes are paid. If taxes are not paid, no node in the network will accept the wallet via PUSH operation. They will still maintain the wallet, but will not allow it to do any modifications.

The amount of taxes each wallet has to pay depends on the age of the wallet and the amount of transactions it contains. The larger the wallet and the older it is, the more taxes it has to pay. Say, a one-year-old wallet with 4096 transactions has to pay 16 ZLD of taxes. If, say, only 5 ZLD is paid, the wallet won’t be eligible for modifications—the network will reject any attempts to modify it. Again, it doesn’t mean the wallet will be thrown away. It will remain inside nodes, but only for verification purposes.

How does a wallet owner pays taxes?

It is done with a command line command taxes. First, you check how much taxes is owed (replace 00000000000ff1ce with your wallet ID):

$ zold taxes debt 00000000000ff1ce

The current debt is 0.05 ZLD and doesn’t need to be paid as of yet. The debt of up to 1 ZLD is tolerable and the network won’t complain about it. If the debt is larger, the network will start rejecting wallet modifications.

To pay taxes you do this:

$ zold taxes pay 00000000000ff1ce

Zold command line software will go through the network, find the best looking and the closest nodes with the highest scores, and pick one of them, randomly. Then, it will make an outgoing transaction from your wallet to the wallet of that node. The transaction will contain the information of the score of that wallet in the “details” section.

Thus, the wallet runs a “lottery” among all visible nodes and the one that wins—gets the taxes. The maximum amount of taxes paid in one transaction is no more than 16 ZLD. Thus, the wallet owner will run a number of lotteries is the tax debt is more than 16 ZLD. Since node owners are interested to win these lotteries more often, they will try to make their servers more stable and available—this is how Zold clients decide which nodes to work with, and that’s who they will choose to participate in the lotteries. BTW, the numbers may change in the future, the exact numbers are configured in tax.rb file.

Then, you will have to push your wallet to the network:

$ zold push 00000000000ff1ce

Now, your taxes are fully paid.

This procedure is done automatically every time you make a payment. However, you can skip it with --dont-pay-taxes option:

$ zold pay 00000000000ff1ce 1234123412341234 \
  19.99 'For the pizza' --dont-pay-taxes

Unless that option is specified, the pay command will always check whether the taxes are paid and will pay them if not.

Of course, if the wallet balance is smaller than the tax debt, you can just abandon the wallet and never pay the debt.

Why did we invent this tax paying mechanism instead of more traditional payment processing fees, like Bitcoin, Ethereum and many other cryptocurrencies have? Because Zold doesn’t process transactions, as Blockchain does (in blocks), but works with wallets as solid pieces of data. It’s impossible (or it would be very expensive, time wise) to verify all transactions in a wallet and make sure all of them were covered by processing commissions. Blockchain can do that because the verification happens only once per a large block of transactions and never needs to happen again. In Zold, a wallet may be verified multiple times over the course of its lifetime, and it may contain thousands of transactions.

Thus, it is more convenient to tax an entire wallet, and do it less often than once per each payment. Moreover, Zold is a cryptocurrency for micropayments, which implies that potentiall there will be many of them in each wallet.

To check whether your wallet is in good standing, run this:

$ zold taxes show 00000000000ff1ce

The formula for taxes calculation may be changed in the future, but the taxes you paid before will cover your wallet as promised. This means that no matter how expensive wallet maintenance may be in the future, previous periods will be covered by previous payments. If it was 16 ZLD per year for your wallet and you already paid for two years, you will have two years covered even if it will cost 32 ZLD per year for future users and younger wallets.