Zcash

What is Zcash (ZEC)?

Zcash is one of several prominent cryptocurrencies known as “privacy coins.” Contrary to popular belief, most cryptocurrencies are extremely transparent by nature, given their use of decentralized public ledger technology and public key cryptography.

Unlike a bank, which might use internal ledgers that they may never show anyone, it’s generally a very bad idea to use cryptocurrency if you want to hide the details of the transactions you make.

Most major cryptocurrencies, like Bitcoin and Ethereum, allow users to remain pseudonymous. That is, the details of their transactions (such as wallet addresses they send to and receive from as well as the amounts involved) are visible to all if you know that a certain public key is connected to a certain person or entity.

This, for example, is one of the wallets known to belong to the Ethereum founder, Vitalik Buterin. While he may have other wallets, anyone who knows that this is his wallet has a full view of any activity made using it. This includes balances and where tokens come from and go to.

That’s the sort of thing that privacy coins, including Zcash, try to prevent. While Zcash transactions still appear on a public blockchain, the sender, the recipient, and the number of coins transferred are hidden by default.

It is important to note that there is an option to reveal this data for auditing, compliance, or regulatory purposes.

When Was Zcash Launched?

The story of Zcash dates back to 2016 and the Zerocoin protocol that aimed to fix Bitcoin’s “privacy issues.”

Zerocoin was a proposal by cryptographer Ian Miers to upgrade Bitcoin that would obscure the trail of publicly available addresses, making the cryptocurrency anonymous. However, this proposal was shot down at the 2013 Bitcoin Conference by Peter Todd, the core developer of Bitcoin.

Miers then approached the founders of Zcash, who eventually created a hard fork, or a copy of the Bitcoin blockchain, and made a few key changes that modified how the protocol works. This launch followed audits by NCG Group and Coinspect.

Among the initial changes made were a block time reduction from 10 minutes to 2.5 minutes, an increase in the block size from 1MB to 2MB, the introduction of a confidential value transfer scheme, and, perhaps controversially, a “founders’ reward,” giving 20% of all Zcash block rewards to the founders for the first four years.

Who are the Founders of Zcash?

Zcash is the brainchild of cypherpunk and computer security expert “Zooko” Wilcox-O’Hearn, born Bryce Wilcox. He also founded the for-profit Electronic Coin Company (ECC), which manages the development of Zcash.

Wilcox has a significant resume in the world of cryptography. It boasts contributions to the now-defunct electronic money firm DigiCash, peer-to-peer data storage software Mojo Nation, Mnet Network, SimpleGeo, and Tahoe Least-Authority File Store. Wilcox also founded Least Authority enterprises and the BLAKE3 cryptographic hash function.

According to a report by Forbes, Wilcox and his team of cryptographers selected a group of participants to hold a separate part of Zcash’s creation key. Afterward, to obscure the origins of the cryptocurrency, each destroyed its key segment. One even wore a gas mask and burned his computer down. In fact, one of the six hand-picked participants in this “trusted setup ceremony” was the exiled National Security Agency whistleblower Edward Snowden. According to ECC, Snowden was not compensated for his participation.

Notably, in January 2018, Chainalysis alleged that Zcash was increasingly being used for criminal activity. This led to the delisting of Zcash from several prominent exchanges at the time.

In an eventual response, Wilcox’s firm ECC hired the Rand Corporation, a famous non-profit consultancy, to investigate how widely cryptocurrencies, including Zcash, were being used for criminal activity. ECC stipulated that the full report would be made public regardless of Rand’s findings.

The Rand report was published in 2020 and concluded that “while privacy coins may intuitively appear likely to be preferred by malicious actors due to their purported anonymity-preserving features, there is little evidence to substantiate this claim.” 

Rand’s proprietary Dark Web Observatory software scanned the eight largest dark web markets and found that, of the illegal and illicit offerings found via scraping, less than 1% mentioned Zcash. Bitcoin was accepted in 59%, Monero in 27%, Ethereum in 12%, and Litecoin in 1% of these listings.

How Does Zcash Work?

Zcash uses an advanced cryptographic technique called zero-knowledge proofs (zk-SNARKs) to guarantee the validity of transactions without actually revealing additional information about them.

Zk-SNARK, which stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, allows the proof of possession of certain information without revealing said information or any interaction between the prover and the verifier.

The incorporation of zk-SNARK technology is what allows Zcash to obscure transaction details while still verifying them on a public ledger.

Interestingly, zk-SNARKs were introduced to the Zcash founder, Zooko, by a then-grad student, Andrew Miller. Miller had joined a chat group for Least Authority intending to prove that Wilcox was actually Satoshi Nakamoto, the creator of Bitcoin.

However, Miller ended up exchanging cryptographic lessons with Wilcox instead and is credited with this major element of Zcash’s technology.

What Makes Zcash Unique?

Zcash is notable, if not truly unique, for the ability of users to choose between shielded and transparent transactions.

Transparent transactions, as the name implies, work similarly to Bitcoin, wherein they are sent between public addresses and no information is obfuscated. This means that the sending and receiving addresses can be seen, along with the amount sent.

Shielded transactions, meanwhile, use zk-SNARKs to hide the addresses on both sides of the transaction as well as the number of coins involved.

In addition to the ability to shield addresses and amounts, Zcash also allows users to add encrypted memos with their transactions. These fields can be used for many things. For example, you can send a message to the receiver or add a reference code to the transaction.

Importantly, Zcash uses two different types of keys to enable a form of selective privacy. A special type of key, called a “view key,” can be shared with others to allow them to view the details of shielded transactions and the contents of the memo field.

However, the view key only allows those third parties to view activity. A "spend key" is required to actually sign transactions and send money from a wallet.

Therefore, it’s possible for Zcash users to carry out shielded transactions and still allow audits or regulatory oversight by sharing their view key, safe in the knowledge that their funds are safe as long as the spend key remains private.

How is the Zcash Network Secured?

Zcash is a proof-of-work (PoW) cryptocurrency that uses the same SHA-256 hash function as Bitcoin, which it is a hard fork of. Both cryptocurrencies rely on a network of computers, called miners, solving increasingly difficult cryptographic puzzles.

The miner that solves the puzzle is allowed to create the next block for the blockchain. A block is a collection of transactions that have taken place on the network, along with a cryptographic hash of the previous block to create the “chain.”

The puzzles that miners compete to solve are difficult to solve but easy to verify by all of the other miners on the network. The successful miner, meanwhile, is awarded what’s called a “block subsidy” of a certain amount of ZEC. This reward is what incentivizes miners to keep the network secure.

What is a Hard Fork?

Hard forks are permanent changes that happen when a new version of a blockchain splits from the original, creating two distinct chains that are entirely separate from each other. After splitting, these two chains no longer communicate.

Bitcoin hard forks have given rise to several other cryptocurrencies, including Bitcoin Cash, Bitcoin Gold, and Bitcoin SV, along with Zcash.

Soft forks, meanwhile, are a change to the protocol that is backward compatible, meaning that the new protocol will be recognized by the old nodes of the system. This doesn’t launch a new cryptocurrency as a hard fork does.

What is the Use of ZEC?

Zcash is used to allow people to send and receive funds fast, with low fees and increased privacy. In a context where international remittances can take days and incur significant fees, ZEC transactions can be confirmed in two and a half minutes and cost very little, irrespective of the amount transferred.

Privacy coins, or those with the ability to obscure transaction details, often get accused of enabling illicit or illegal activity. However, there are plenty of legitimate users who want an element of privacy in their transactions while enjoying the benefits of blockchain, like fast settlement and no international restrictions.

Despite the “crypto-crime FUD,” often propagated by entities who either don’t know better or have an agenda, cryptocurrencies aren’t the usual modus operandi for criminals.

In fact, the global criminal elite, like El Chapo and his Sinaloa Cartel, tend to use big banks for their illegal activities, such as money laundering. Many of these giant financial institutions tend to have their own novel approaches to ensuring privacy, although the punishment rarely fits the crime.

Who Controls Zcash?

Zcash is controlled by the Electronic Coin Company, headed by Zooko Wilcox, who is the face of the project. Wilcox is active on social media and plays a prominent role in the research and direction of the ZEC protocol.

Nathan Wilcox, an experienced software developer and Ethereum alum, serves as CTO, while the engineering and science teams include prominent members of their fields like Sean Bowe, Ariel Gabizon, Christina Garman, Ian Miers, and Madars Virza.

Tezos founder Arthur Breitman and Ethereum founder Vitalik Buterin are advisors to the project.

According to Crunchbase, ECC’s early seed investors include the Digital Currency Group and Pantera Capital, while the Winklevoss twins’ Winklevoss Capital is the most recent investor in the firm. Many reports additionally claim that Barry Silbert, Roger Ver, and Erik Voorhees have also invested in the project. ECC releases a transparency report every quarter with details on company income, expenditures, use of funds, and ZEC holdings.

How Much ZEC Is In Circulation?

The total supply of Zcash is designed similarly to that of its predecessor Bitcoin, with a total supply limit of 21 million ZEC.

As of August 2022, there are over 15 million ZEC in circulation, with more being issued as a block reward every 2 and a half minutes. The amount of ZEC issued as a block reward is currently 3.125 ZEC.

Controversially, the entire Zcash block reward isn’t paid out to miners. For the first four years, the founders’ firm ECC received 20% of the block reward as a “founders’ reward,” with the remaining 80% going to miners as a “block subsidy.”

With the Zcash Canopy upgrade that coincided with its first halving, this structure was amended to only grant ECC 7%, while the new Major Grants Fund for the development of the ecosystem would get 8% and the Zcash Foundation 5%.

What is Halving?

Halving refers to the reduction of the Zcash block reward paid out to miners upon the successful creation of a new block.

These halvings and the predefined nature of the ZEC’s supply make its monetary supply almost perfectly transparent, similar to that of Bitcoin. This stands in stark comparison to fiat currency, which is simply printed, increasingly so in recent years, by central bankers across the world.

How Do You Buy ZEC?

Despite being a privacy coin and being delisted from exchanges previously, Zcash is currently available on many of the top global cryptocurrency exchanges.

It is popularly paired with many fiat currencies such as AUD and USD, but the majority of liquidity may be found in stablecoin pairings such as USDT and BUSD.

Zcash can also be purchased peer-to-peer since it was designed to be a form of peer-to-peer electronic cash used privately.

Is It Possible to Buy ZEC Instantly?

Zcash has a faster block confirmation time than Bitcoin, at just two and a half minutes.

However, if you’re used to some of the newer cryptocurrencies, buying Zcash peer-to-peer might seem slow since transactions take more than just a few seconds.

Still, this two-and-a-half-minute confirmation time certainly beats the traditional financial system, which can take days to settle international remittances.

Purchasing ZEC on an exchange is instant, though, since most exchanges don’t engage the blockchain when you trade on their platforms.

How Do You Store ZEC?

Like any cryptocurrency, Zcash is stored using a wallet. Since ZEC is a popular cryptocurrency and has been around for a long time, there are a lot of different wallets you can choose from based on your requirements.

Mobile wallets are quick and easy to use, and there are many mobile wallets with support for shielded ZEC transactions. YWallet and Zecwallet Lite can be used on both mobile and desktop, while Nighthawk, Unstoppable, and Edge are supported, too, according to Zcash’s website.

If you’d like to mine ZEC and become part of the block validation process, you could run a full-node wallet on your computer like Zecwallet or Zcashd. Just keep in mind that full-node wallets need to sync the entire blockchain, which could take a while and require a lot of memory.

Zcash Energy Consumption

ZEC is a proof-of-work cryptocurrency, meaning that it is one of the more energy-hungry coins out there. The PoW relies on a great number of computers actively carrying out tasks—the more machines, the better.

This means that the bigger and the more popular the network gets (or the higher the ZEC price gets, making mining it more lucrative), the more energy it will end up consuming.

However, a sense of perspective is needed to really make any judgments about how much of an energy hog Zcash is. As per Galaxy Digital’s estimates in 2021, the banking industry consumes a conservative 260 TWh each year, far exceeding the consumption of Ethereum and Bitcoin. Meanwhile, a 2020 report by researchers at the Technical University of Munich rated the Zcash network at 49,022 kW, compared to Dogecoin’s 157,000 kW, Monero’s 210,000 kW, Ethereum’s 719,000 kW, and Bitcoin’s 4.2 million kW. 

This puts Zcash in a favorable range compared to other PoW coins, especially Dogecoin, which had a lower “market cap” at the time.

It is notable, however, that in March 2022, ECC’s Nathan Wilcox confirmed that research is ongoing toward proposing the transition of Zcash from proof-of-work to proof-of-stake to the community.

Is ZEC a Good Investment?

As cryptocurrency continues to threaten the power of central bankers and the traditional financial industry, regulation is one of the biggest risks that many cryptocurrencies face.

Privacy coins are often considered to be at the forefront of this, even though there are workarounds, such as Zcash’s view key, that would allow users to voluntarily reveal transaction data.

Stories of privacy coins being used for criminal activity never seem to go away, and between this sort of FUD and the ever-present possibility of a regulatory crackdown, Zcash is viewed by some as a risky investment.

Added to this bear thesis is the controversial founders’ reward system that Zcash uses. However, this sort of system may well prove to be better than those coins that have used a pre-mine to reward founders instead, since the threat of being branded a “security” by regulators may be lower in Zcash’s case.

On the flip side, Zcash has an attractive economic system similar to Bitcoin, with its total supply cap and periodic halving that could see supply tighten as time goes by.

It is also an attractive solution when it comes to being an easy-to-use, private cryptocurrency that nonetheless retains the ability to comply with regulatory or audit scrutiny. In an environment where privacy is increasingly compromised by the common services we use, alternatives like Zcash may be what we end up turning to.