7 August, 2018
Zcash (ZEC) was launched at the end of October 2016. It is developed by Zerocoin Electric Coin Company, a.k.a. Zcash Company, founded by Zooko Wilcox-O'Hearn, who is also the CEO of the project.
Zcash is based on Bitcoin (BTC) and its primarily differentiator from BTC is that users have the option to encrypt the details of their transactions. This means that the sender address, recipient address and the amount sent can be obscured from public view on the blockchain.
Because Zcash solves the biggest disadvantage of Bitcoin– that BTC leaks information about your actions.
Many people still believe that using Bitcoin is private because their names or home address are not attached to the Bitcoin wallet. Just like in the early days of the Internet many people didn’t know that their identities may be discovered through their ip address.
Imagine that every payment in the world today is made with Bitcoin, despite the current technical impossibility of the protocol. Let’s assume that your salary is paid in BTC, when you go to the grocery store you pay with BTC, when you shop online you pay with BTC, etc.
In order your boss to transfer your monthly paycheck in Bitcoin he should know your public address. The problem is that by knowing it he can trace every transaction from that address. If everyone in the world is accepting Bitcoin your boss will be able easily to find out that you go to zumba twice a week, you eat junk food every evening and visit a striptease club on Saturdays.
On the other hand, you and all of your colleagues will be able to see your employer’s financial balance at any time because you will also know his public address.
As you see, the transparency of the blockchain will turn into a huge problem for many people and this example represents the most basic reason why Bitcoin will never be the only payment method in the world.
Zcash is built upon and extends the Bitcoin protocol and that’s why it uses Proof-of-work (PoW) as a consensus mechanism. However, its core difference with BTC is the technology that Zcash is using to hide users’ identities and balances. This is the zero-knowledge proof construction called zk-SNARK.
A zero-knowledge proof is a cryptographic method by which one party can prove to another that she knows a value X without revealing any information apart from the fact that she knows the value X. I know it sounds tricky, but I will try to illustrate it simpler.
Let’s say that Bob wants to take a shared ride from New York to Boston and he is looking for a driver through a Facebook group. He finds Alice who is willing to give him a ride. However, Bob would like to be sure that she has a driver license. You know, because he doesn’t trust women drivers very much.
So, he asks Alice to send him her driver license. However, Alice doesn’t want to share all of her personal information written on it. In order to hide her identity, but prove to Bob that she is a licensed driver she can use the zero-knowledge proof method.
I know what you are thinking right now: “Why the hell these two weirdos still want to travel together”, but continue paying attention for a second.
A zero-knowledge proof technology can provide a mathematical proof to Bob that Alice has a driver license. This proof will be a 100% trust-worthy, it will be based on some facts from Alice’s driver license, but won’t convey any of her personal information.
What Zcash does is to leverage the zero-knowledge proof in order to save its users’ anonymity. When person A make a transaction to person B on the Zcash network what the protocol does is to broadcast a message to the miners that says “Someone did control an X amount of money that has never been spent before, and those money is moved to someone else”. Miners can verify the transaction without the need of knowing which is the account ID of the sender and the receiver or how much money was sent exactly.
As of August 2018 the maximum block size on the Zcash network is 2 MB, the block time is 2.5 minutes and around 40 seconds are needed for a transaction to be created.
There is a huge segment of the market that really values privacy in cryptocurrency, so Zcash is facing serious competition. Its biggest competitors at the moment, based on market capitalization, are Monero, Dash and PIVX.
PIVX is a newer version of Dash and the key difference of both projects with Zcash is their governance model. PIVX and Dash rely on masternodes to be the decision makers on their networks which according to many critics makes the projects more centralized.
Unlike Zcash, Monero was built only with privacy in mind. This means that every transaction on the Monero network is private by default, whereas in Zcash you have the option to make traceable transaction – just like in Bitcoin.
Zcash is a fork of Bitcoin and as such there wasn’t an ICO to raise money for the project. However, in the summer of 2016 there was a private raise in which many notables people in crypto participated –Roger Ver, Erik Voorhees, Vlad Zamfir and many others.
Zcash was released for trading on October 28, 2016 and the first days of trading were literally insane. Upon launch some exchanges like Poloniex placed a value of $20 000 per ZEC. However, during the next several hours the price dropped to “just” $6300 which was around 9 BTC for 1 ZEC at that time.
Everyone who sold their Zcash coins at these levels made huge profits because in the next 3 weeks the price of 1 ZEC crashed to $50. Since then there were two impressive runs of ZEC worth-mentioning.
The first one started on May 20, 2017 and finished on June 14 when the value of Zcash surged from $90 to $430.
The second impressive raise was from December 10, 2017 when Zcash was trading for $290 to January 7, 2018 when the price of one ZEC reached $953. This is the current all-time high of Zcash if we don’t count the insane valuation during the first days the coin hit the exchanges.
Zcash has a maximum supply of 21 million coins, just like Bitcoin. The last ZEC is expected to be mined by 2032, but as of August 2018 the circulating supply is 4 479 631 coins and the price of one ZEC is $201. This places Zcash at number 20 of all cryptocurrencies, ranked by market capitalization with a market cap of $902 million.
Financial privacy is important for most of the people in the world - from the ordinary citizens to the huge corporations. Most business owners probably don’t want their competition to see the financial parameters of their trades. For example, if JP Morgan is conducting a trade with Goldman Sachs they don’t necessarily want Santander to see their trade.
Privacy is also necessary for consumer protection reasons. If you are running a large business and taking care of a lot of people’s personal information you can’t risk leaking that to the world.
Therefore, the demand for privacy focused cryptocurrencies probably will exist as long as cryptocurrencies exist. The question is – which one will be the most successful?
In my opinion the biggest advantage of Zcash is that it is backed by a team from proven experts and very influential investors. However, at the same time, I see the governance and the funding of the project as a disadvantage.
Zcash is created by a corporation and when it was founded the creators allocated 10% of the mining rewards to be distributed to the stakeholders in the Zcash Company — founders, investors, employees, and advisors.
The so called “Founders’ Reward” is 10% of the eventual monetary base and will be distributed to the creators during the first four years of the project. After that all of the mining rewards will go to the miners.
Only four years after the project is launched the creators will have 2.1 million ZEC which by that time will be around 20% from the circulating supply.
In contrast, the main competitor of Zcash - Monero is a structured as a grassroots movement and most of the funds for its development come from donations from the community.
So, in the end of the day, the question which of the privacy coins you should invest is more of a philosophical one. Do you want to invest in a grassroots movement or you want to use the same technology and invest in corporation? It’s up to you to decide.
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