Zcash (ZEC) – A Beginner’s Guide, Review & More
What is Zcash?
Zcash is a privacy-centric cryptocurrency which is built upon the Zerocash protocol (an improved version of the Zerocoin protocol). Similar to Bitcoin it has underlying blockchain which is accessible for everyone.
The difference to Bitcoin is that optional private transactions can be executed with Zcash. This is achieved through a cryptographic technique called “zero-knowledge proofs.” Zcash uses a special version of zero-knowledge proofs called Zk-SNARKS, with this technique the correctness of computation can be proved without actually executing it and without knowing what exactly is executed.
But you can prove that it can be or was correctly executed. Users have the option to obfuscate sender, recipient and the amount sent. The native asset is called ZEC and the average block time is 2.5 minutes.
Zcash has two type of addresses, one type starts with a “t,” and they behave just like Bitcoin addresses, the other type starts with a “z” and are so-called “shielded addresses” where zero-knowledge proofs are activated.
For Zk-SNARKS to function correctly, there is the need for some public parameters to be generated that need to be used to generate and validate zero-knowledge proofs. These parameters are created from a so-called “secret” (referred to as “toxic waste” in the Zcash community).
To kickstart zero-knowledge proofs within Zcash, a “ceremony” was held where six people gathered and generated the public parameters from the “secret” and then destroyed their “toxic waste” (the secret). The critical point is that if they did not destroy the toxic waste, they could secretly inflate Zcash and “print” new ZEC, and nobody would ever discover it because of Zcashs unique private setup. This would inflate the currency; this problem is referred to as “the hidden-inflation problem.”
The six people involved in the ceremony were Zooko Wilcox, Peter Todd, Derek Hinch, John Dobbertin, Peter Van Falkenberg and Andrew Miller. The setup was a multi-party protocol and if at least one person of the six would destroy their part of the “toxic waste” they master-key could not be composited again, and the Zcash setup would be completely safe.
The problem is that if these six people work together and have bad intentions, then the network is not secure, because the could counterfeit unlimited ZEC coins without anyone being able to detect it.
I don’t think that any of the involved persons have malicious intentions, but it can’t be ruled out. Zcashs team has provided third-party audits that their ceremony has not been compromised. Also, factors like espionage or compromised hardware cannot be ruled out. Six people are a far too small group for me to have complete trust.
But Zcash is about to change that by holding a bigger ceremony shortly, and the implementation of Zk-STARKS (improved version of Zk-SNARKS) will render the trusted setup completely irrelevant.
Zcash was launched at 28 October 2016. The project is a fork from Bitcoin with added privacy features and changes parameters. The founding company is the Zerocoin Electric Coin Company (also referred to as Zcash company), which was formed by Zooko Wilcox-O’Hearn. Eary investors were, among others, Pantera Capital, Barry Silbert’s Digital Currency Group, Roger Ver, Eric Vorhees, and Fred Ehrsam from Coinbase. Vitalik Buterin and Gavin Andresen participated as advisors.
Zcash did not have an ICO and could only be obtained through mining, before the first exchange listing. Shortly after launch, ZEC was listed by Poloniex, and the madness began.
ZEC spiked insanely; the highest trade was 3299 BTC for 1 unit of ZEC, this equals ~2.3 million USD!
Then came the crash, as crazy fast as the rise and ZEC lost 99% of its value in lightspeed. Zcash made history and will always be remembered as one of the most violent speculative bubbles of all times.
Can Zcash be mined?
Yes, Zcash is Proof-of-Work based and uses the Equihash algorithm. 20% of the mining reward within the first four years of operating are distributed to the stakeholders of the Zcash company, this is known as “founders reward.” This equals roughly 10% of the total supply that will ever be mined.
What differs Zcash from other Cryptocurrencies?
Zcash differs from his competitor Monero in the fact that privacy in Zcash is optional and not mandatory.
This means that Zcash does not force users to use shielded addresses and privacy is an additional feature. ZEC differs from Bitcoin by using different mining-and difficulty adjustment algorithms and by reducing the block time from 10 to 2.5 minutes.
How much is Zcash worth today?
What is the total and the circulating supply?
The total supply of ZEC is 21,000,000 and the circulating supply at the time of writing is 3,846,619 ZEC.
Where can you buy ZEC?
You can buy ZEC on several cryptocurrency exchanges, most notably Binance, HitBTC, and Huobi.
Can ZEC be sold for cash?
You can sell ZEC for cash on several cryptocurrency exchanges that have fiat-pairings, most notably Bitfinex.
Zcash has a lot in store for 2018. Here are some key points from the roadmap:
- Sapling Network Upgrade: implemented via a hard fork in September, brings massive improvements in security and performance of shielded transactions, implementing a new elliptic curve construction, reduces proving time of transactions from 37 to 7 seconds, reduces memory usage from 3GB to 40MB.
- Powers of Tau Ceremony: multi-party computation protocol that enables a new trusted setup with an unlimited number of participants, eliminates one of ZECs biggest criticisms which is that the previously trusted setup ceremony was only executed with six persons
- Next generation of Zk-SNARKS, named Zk-STARKS: eliminate the need a trusted setup, improves scalability
Verdict and Rating
Extremely fascinating technology and the team behind it is as reliable as it gets. A clear use-case is given, and I think that a lot of hidden wealth will be stored in digital assets in the future. Swiss bank accounts are not suitable for tax evasion anymore, I expect a lot of offshore wealth to move to privacy-centric digital assets in the future.
Zcash has the advantage over Monero in this particular scenario, because it has a fixed supply and more Store-of-value characteristics. I rated Monero 0.5 points higher because it is actively used in the dark markets.
The downsides are that I expect that regulatory bodies will force traditional exchanges to delist privacy-focussed assets, Japans Financial Services Agency (FSA) already pressed Japanese exchanges to delist Monero, Zcash, and Dash.
But this risk can be made invalid with the rise of decentralized exchanges, where you can exchange your coins against BTC and then sell that BTC for fiat. The more significant risk that I see is that Bitcoin already works on improved privacy solutions, like MimbleWimble and Grin protocol and Schnorr signatures.
I believe that BTC will rule in that space too. Maybe with a side chain that has Zk-STARKS implemented. Technologically fascinating, but risky from an investors perspective.
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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