Zcash is an open-source peer-to-peer cryptocurrency with an advanced privacy protection system. It was originally created in late 2016 by the founder and CEO of the Zerocoin Electric Coin Company, Zooko Wilcox-O’Hearn.
Relative importance of Zcash
Zcash, in a nutshell, took the best of Bitcoin, and added improved privacy as well as some other features. It is itself based on a cryptocurrency project called ZeroCoin, developed at the John Hopkins University in Baltimore, US.
When Zcash launched during the second half of 2016 it experienced a few weeks of extreme volatility. Back then, on some exchanges, Zcash changed hands for as much as a few thousand Bitcoins. Of course, this didn’t last. During the first half of 2017, Zcash was traded for under 100 US$ before momentum picked up and the price increased to over 800 US$ during the 2017/2018 bull run. As the rest of the crypto universe, Zcash is experiencing a massive bear market and is valued at 130 US$ as of the time of this writing.
However, during the last months, Zcash quietly gained marketshare and is now approaching the top 20. With a market cap of roughly 640 million US$, it currently holds place 21, only 30 million short of Dogecoin, which currently holds place 20.
Moreover, especially if you compare it to other coins, the project’s GitHub page indicates a viral developer community with ongoing commits to the master branch.
Zcash’s privacy feature is best explained when compared to Bitcoin. Bitcoin is pseudo anonymous. That means, if someone happens to know your public address, he can see the current balance as well as any transactions to and from this wallet. Because all of the transactions ever made are publicly stored on the blockchain, someone could trace the whole way of a Bitcoin from the moment it was mined. So if anyone can link your address to you as a person, he can see exactly to which address you have sent your tokens.
Let me give you an example. Normally, you buy Bitcoins at an cryptocurrency exchange like Kraken. Due to legal requirements, in most cases you have to reveal your identity to this platform. If you send your tokens to a private wallet afterwards, of course they know the public address of this private wallet now.
This is why Bitcoin is called pseudo-anonymous. The average user only sees a public address. But if someone can link your name to your wallet address at one point in time, he can easily trace your transactions all down the line.
So how is Zcash overcoming this? Normally Zcash payments are stored on a public blockchain in a similar way, very much like Bitcoin. But users can optionally decide to shield their transactions. If you choose to do so, the transaction is still written to the blockchain, but the details about the sender, the recipient and the amount of money are not exposed. Zcash uses a technique called zero-knowledge proof to protect the transaction data. As it is put on the Zcash website, a transaction contains a string which is provided by the sender. Together with the encrypted transaction data this proves some properties of the transaction data, for example the fact that the sender couldn’t have provided the string if he didn’t have the spending key. It also makes sure that the sent tokens are marked as already spent. This makes double-spending impossible while protecting the transaction details.
Apart from that, Zcash uses a proof-of-work algorithm for mining and has a maximum supply of 21 million tokens, as does Bitcoin. They have also made some other adjustments to the protocol, like going with a 150 s block time compared to Bitcoin’s 600 s.
What you should know about Zcash
The Zcash launch ceremony
As the Zcash team says, because of the type of zero-knowledge proof they use, there is a necessity of a launch ceremony, which is commonly referred to as trusted setup. Basically it consists of a few people running a computer program on several machines and with this, get the blockchain going.
The Zcash team claims, if only one of these people is honest, follows the procedure correctly and runs the program on a non compromised PC, the Zcash launch is safe from that point of view.
The culprit is, if someone went wrong during the launch ceremony, there is a good chance we wouldn’t even notice. For example, if someone would create additional tokens and sells small amounts from time to time, it probably wouldn’t be noticed.
The Founder’s reward
10 % of the reward, miners get for creating a block during the first 4 years, goes to the founders. In more detail, 1.65 % goes to the initial investors, who founded the creation of Zcash, 5,72 % goes to founders, employees and advisors, 1,19 % goes to the Zcash Company strategic reserve and 1,44 % goes to the non-profit Zcash Foundation. This sums up to 10 % in total.
Are there alternatives to Zcash?
We strongly believe that privacy coins will gain a significant share of the total crypto market capitalization in the future. These include the top-10 coin Monero as well as the Zcash forks ZClassic and ZenCash which might also be worth investing in.
In the crypto community there is much controversy and an ongoing debate about Zcash. Especially that at least part of the mining reward benefits a commercial company, doesn’t suit everybody. Furthermore the Zcash launch ceremony is a topic which is discussed extensively. The trusted setup can’t be easily understood and the exact circumstances of it have not been revealed to the public completely.
We are not happy with it either. But we think that these two concerns will not necessarily prevent Zcash to become one of the top crypto projects in the industry. That said, it might be a risk, to not have Zcash in your portfolio. We would never go all in on such a project. But if Zcash permanently enters the top 20, everybody should make his own decision whether investing say 1 % to 5 % of his total crypto investment in Zcash might be worth it.
This article gives a brief overview of the history and the main features of Zcash. Moreover it shows the relative importance of the coin to the overall crypto industry. The two most popular concerns regarding this token are layed out. Last but not least we introduced you to competitors in the privacy coin market.
Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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