Zcash is a privacy-centered, low-fee cryptocurrency. It has a price of $219.17, a circulating supply of 11.6 million, and a market cap of $2.55 billion, ranking #51 among all cryptocurrencies.
What Is Zcash?
Launched in 2016 and built on Bitcoin’s codebase, zcash bills itself as ensuring a higher degree of privacy and anonymity in digital transactions.
Bitcoin has a pseudonymous model of privacy, in which a user’s transactions are publicly viewable but their identity is not. While this system is secure to some extent, users’ identities can sometimes be deduced from their transaction history and other external information. The creators of zcash sought to solve this issue with a truly anonymous privacy model.
In their 2014 whitepaper, zcash’s developers presented a method for decentralized anonymous payments (DAPs) using a cryptographic technique called “zero-knowledge succinct non-interactive arguments of knowledge,” or zk-SNARKs. This technique allows zcash to validate transactions and reach consensus without revealing any sensitive information concerning the parties involved (e.g., user identity, transaction amounts, and account balances). In October 2016, zcash officially launched as a code fork of the Bitcoin protocol with a new token.
Zcash vs. Bitcoin
Since zcash is based on Bitcoin’s source code, the two cryptocurrencies have many similarities. Like Bitcoin, zcash uses a proof-of-work (PoW) consensus mechanism and has a maximum supply of 21 million. The mining rewards are the same as well, though Bitcoin is currently worth over 200 times more than zcash in USD. Like Bitcoin, zcash’s mining rewards are halved every four years.
In addition to its privacy-related improvements, zcash differs from Bitcoin in block time and transaction time. Zcash takes about 2.5 minutes to create a new block — approximately four times faster than Bitcoin, though still slower than privacy-focused crypto rival Monero.
Transaction time varies depending on the transaction type. Assuming solely private transactions, zcash has a base speed of about six transactions per second (TPS), which is roughly comparable to Bitcoin. However, public transactions take up less space on each block, and so zcash can reach about 26 TPS with solely public transactions. In practice, the combination of public and private transactions means that the actual TPS is somewhere in the middle. Transaction speed also depends on how busy the network is at any given time.
what is Zcash used for?
Zcash offers two types of addresses for holders: shielded and transparent. Like Bitcoin, the transparent address type is a pseudonymous system in which addresses and transactions on the blockchain are publicly visible but users’ identities are not. In contrast, the shielded type is an anonymous system. It takes full advantage of zcash’s encryption to hide the address and transactions associated with the address. It also allows users to send encrypted memos and information regarding shielded transactions to other trusted parties. Shielded transactions are also auditable for tax purposes, but only with the user’s permission.
This privacy can be important for various reasons. With transparent ledgers, users’ identities can be deduced from their balances and transaction history, leaving them vulnerable to fraud and other schemes. Privacy-focused coins like zcash and Monero protect users against being identified and/or targeted in this fashion. Such cryptocurrencies are also used to obtain goods and services that are illegal in one’s country, though a 2020 academic study found no evidence for large-scale illegal activities being conducted with zcash.
2 Low transaction fees
Besides its privacy features, zcash stands out through its low transaction fees. Zcash’s default transaction fee is 0.0001 ZEC — about $0.02 at the coin’s current value. This is much lower than that of Bitcoin and Monero, whose transaction fees have risen with increased adoption (recently, the average Bitcoin transaction fee reached $23).
However, one reason why zcash hasn’t faced such transaction fee issues is that there is less demand for it compared to Bitcoin and Monero. If zcash experienced the same demand, it would likely face similar scalability issues (particularly in the case of private transactions). It remains to be seen whether zcash’s developers can find a solution to this potential scalability problem.
Notably, zcash has been adopted by payment apps such as Flexa and Gemini, which means it can be spent at common retail stores such as Barnes & Noble, GameStop, and Whole Foods. This has significantly encouraged the currency’s adoption in real-world use cases.
Who Created Zcash?
Zcash has its origins in a protocol called Zerocoin, which was proposed in 2013 by academic scientists Matthew Green, Christina Garman, and Ian Miers. Zerocoin was to be an extension to Bitcoin that introduced privacy-related improvements to the blockchain.
When the initial Zerocoin proposal faced a lack of traction and acceptance within the Bitcoin developer community, the core Zerocoin team decided to launch an independent cryptocurrency. They approached noted cryptographer Zooko Wilcox-O’Hearn to lead the new coin’s development, and recruited other scientists including Eli Ben-Sassoon and Allesandro Chiesa.
Wilcox-O’Hearn remains the CEO of the Electric Coin Company, which has about 30 employees and leads zcash’s development. Notably, about 20% of all zcash mined has gone towards supporting its developers for the coin’s first four years of existence (ending in 2021). In 2018, Wilcox-O’Hearn disclosed that he was receiving about $3.6 million USD’s worth of zcash per year. This was the subject of some controversy within the crypto community. Some accused the coin of being too centralized while others defended Wilcox-O’Hearn and praised his transparency.
Zcash Price History
Zcash started out strong in October 2016, trading for over $4000 on its launch day. However, extreme volatility brought the price down to less than $1000 the following day, and lower than $100 in the following months. The coin’s fortunes rose again in the 2017 crypto bull run, reaching almost $700 in January 2018. But soon after, it fell below $100 a second time during the 2018 crash, and has remained relatively stagnant since then.
More recently, zcash has experienced something of a resurgence along with many other cryptocurrencies. It has not yet come close to reaching its hype-fueled initial 2016 valuation or its second 2018 peak. However, in the past three months alone, zcash has grown from $86.79 to $219.17, a 152% increase (Bitcoin experienced a 66% surge in the same period).
This rise can be partly attributed to the current ‘altcoin season,’ which has seen significant capital flowing into altcoins (cryptocurrencies other than Bitcoin). Another potential catalyst for zcash’s recent rise in value is the coin’s first ‘halvening’ — a major milestone that indicates reduced issuance of new zcash supply — in November 2020.
What Is the Future for Zcash?
Zcash’s outlook seems relatively stable for now, but it may be negatively impacted by its competition with other privacy-focused cryptocurrencies and by regulatory efforts targeting anonymous coins.
Zcash vs. Monero
From the start, zcash has competed with fellow privacy-focused cryptocurrency Monero (XMR). Introduced in 2014, Monero has enjoyed a status as a first-mover of cryptocurrencies enabling full anonymity. Released two years later, zcash has been playing catchup with Monero ever since. Monero currently has a market cap of about $7.19 billion, 2.8 times larger than that of zcash. Trailing behind both Monero and zcash are other privacy-focused coins such as Verge and PIVX.
As a privacy-centered cryptocurrency based on Bitcoin, the main features distinguishing zcash are its respected academic developers, its original cryptographic method, and its status as a second-mover. It has stood the test of time relatively well, but it remains uncertain whether these features can ensure its continued growth among competition from other anonymous coins.
Another potential concern for zcash is government regulation. Privacy-focused cryptocurrencies have long been associated with illegal activities on the internet. A few countries (e.g., Pakistan and Macedonia) have banned all cryptocurrency-related activity, and Japan has taken some relatively concrete actions against anonymous coins. In 2018, its Financial Security Agency announced a ban on Monero, zcash, DASH, and other anonymous cryptocurrencies, citing illegal activity.
If targeted by further regulation, zcash might be saved by its support for both private and public transactions, and the fact that users can disclose information for auditing purposes. Zcash’s relatively lower profile may also be an advantage in cases where Monero is specifically targeted by governments.
Zcash has undergone many upgrades over the years, the most recent of which is Canopy (c. November 2020). These updates aim to improve the blockchain’s security, privacy features, and efficiency. The most significant proposed update this year will be the Network Upgrade 5 (NU5), which will come into effect in October 2021. This will introduce the foundation for cross-chain integrations and layer-2 (i.e., off-chain) applications, which will enable much greater flexibility and more use cases for zcash. The development team is also planning to introduce its Halo 2 system to improve the protocol’s security and allow for further improvements to scalability. If these improvements are successful, zcash could experience greater adoption and developer support in the future.
Overall, zcash has carved out a small but notable niche in the crowded crypto market. It offers anonymity, it has many features similar to Bitcoin, and has a generally respected academic development team. It also has a small but dedicated community.
However, zcash’s current ranking among its competitors means that its continued growth may partly depend on the success of its planned improvements. It may also depend on whether its mostly academic team can effectively market zcash’s advantages to a wider public. In any case, zcash’s recent growth combined with its planned upgrades make it a coin to watch in 2021.