The difference between Zcash and most other types of cryptocurrencies is the privacy it offers. There is a common misconception that cryptocurrencies are confidential or untraceable, and this may not be true in practice. Most of them record all transactions on a public blockchain. They do not have names attached, but show the amount and wallet addresses for the sender and receiver. If a person’s name is linked to their wallet address, other people can find out how much cryptocurrency a particular person sent and received. Zcash keeps the amounts and wallet addresses secret. If you send or receive ZEC tokens, you can choose to shield your wallet address and amount. While other cryptocurrencies usually only offer confidential transactions, Zcash has transparent transactions available. If you choose this option, your wallet address and transaction amount will be public information.
Where did Zcash come from?
In 2013, Johns Hopkins University professor Matthew Green and several of his graduate students came up with the idea for Zcash (then referred to as “Zerocash”). It was originally intended to be an extension of Bitcoin’s privacy, but the main developers of that cryptocurrency were not on board. The Zcash developers ended their project on Bitcoin’s original code base.
The team behind the protocol founded the Zcash Company, hired CEO Zooko Wilcox-O’Hearn and raised more than $3 million from venture capitalists. Underscoring the importance of privacy, former NSA whistleblower Edward Snowden claims to have played a role as one of six people who collectively generated Zcash’s first public address before the network was launched. The cryptocurrency’s launch dates to October 28, 2016. Zcash Company later renamed itself Electric Coin Company. Today, the non-profit Zcash Foundation manages the Zcash protocol and blockchain.
How does Zcash work?
It has two types of wallet addresses: Z-addresses and T-addresses. The former is a private address, while the latter is transparent. They are mutually compatible, and users can choose which type they want to use for each transaction.
This means that there are four types of transactions, depending on what the sender and receiver use:
- Private: the sender and receiver use Z addresses. Both the address and the amount of the transaction are private.
- Deshielding: The sender uses a Z address and the receiver uses a T address. The sender’s address is private. The recipient’s data and the amount received by the recipient are public.
- Screening: the sender uses a T address and the receiver uses a Z address. The sender’s data and the amount they send are public. The recipient’s address is private.
- Public: The sender and receiver use T addresses. The information of this transaction is fully public.
For Z addresses – Zcash encrypts the address and amount. There is a record of the transaction in the blockchain, proving that it took place and that fees were paid. The details are encrypted using zero-knowledge evidence, a proof-of-concept construct in which possession of certain information can be proven without revealing the information itself. The owner of a Z address may choose to disclose the address and transaction details to trusted third parties. This allows them to meet audit and compliance requirements if necessary.
Zcash itself relies on cryptocurrency mining to add transactions to the blockchain and earn new tokens. It uses a Proof-of-Work mining algorithm that requires miners to solve complex equations to earn the right to approve a block of transactions.
The miner who solves the equation first adds the block and receives a reward for it.
Partnerships
Zcash gained an important partnership in 2017 when it began working with JPMorgan Chase. The banking giant used Zcash’s zero-knowledge security layer on its own blockchain project, which is built on Ethereum, to improve security. Ethereum is also linked to Zcash. Electric Coin Company, has entered into a partnership with the Ethereum Foundation and the companies that manage Filecoin, Protocol Labs and the Filecoin Foundation. The partnership began in 2021 to explore how Ethereum and Filecoin could implement Zcash’s Halo 2 technology, a zero-knowledge protocol. The companies are also looking at how they can increase interoperability between their blockchain projects.
Exceptional risk
There are doubts that Zcash actually provides private, untraceable transactions. For a cryptocurrency that protects privacy, this is a serious concern. Some of these doubts stem from statements made by the Zcash team. According to the Zcash website, there is no backdoor, and screened transactions are private. Keep in mind, however, that Zcash’s private transactions are also only private if enough users choose screened addresses. In 2020, Carnegie Mellon University researchers evaluated the privacy of Zcash and rival Monero. They reported that Zcash’s “privacy guarantees are questionable,” in large part due to the high volume of public transactions.
Zcash as a privacy cryptocurrency
Zcash is a privacy cryptocurrency, so its main target market is those who want to remain anonymous.
If someone wants to remain that way, it’s safe to assume they want the most private option with the least risk of tracking anything. Monero, not Zcash, is the cryptocurrency that best fits this description.
The argument for Zcash is that it also offers public transactions. However, for people who don’t care about anonymity, there are hundreds of cryptocurrencies that work just as well. Ultimately, Zcash ends up in a place where it is not the best option, either for private or public transactions.
