What is Zcash (ZEC)?

What is Zcash (ZEC)?

One of the best known cryptocurrencies in privacy, Zcash (ZEC) takes advantage of advances in cryptography to provide users with optional anonymity when performing transactions.

Before Zcash, the criptomoedas were designed primarily to be "pseudonymous" like Bitcoin (BTC), that is, user data, number of cryptocurrencies traded, addresses to which they sent funds and addresses from which they received funds were always recorded in the block chain so that everyone could see.

So while you can hear people talking about crypto coins for privacy, this isn't the case by default. Data can (and sometimes is) linked to individuals who have transacted, whether by companies, governments or nefarious agents.

Launched in 2016, Zcash offered a higher level of privacy by presenting “shielded addresses”, designed to encrypt the transaction and address data stored on its blockchain.

Still, Zcash lets users choose the level of anonymity they want, offering two types of addresses: transparent addresses (which appear on the blockchain) and protected addresses (which don't).

Users can also send transactions between the two types of addresses, although this brings additional privacy considerations.

Who Created Zcash?

What is Zcash (ZEC)?

Zcash's history dates back to 2013 with the publication of the Zerocoin white paper (authored by Professors Matthew Green and Eli Ben-Sasson, among a larger group of cryptographers and academics).

The authors believed that Bitcoin's design compromised user privacy and, in response, they offered new solutions.

However, the project had its limitations. On the one hand, Zerocoin was designed for Bitcoin, which would require a series of complex changes to your blockchain.

This work was further developed by cryptographer Zooko Wilcox in 2015, when he founded a startup to explore how the ideas behind Zerocoin could be used to create a new cryptocurrency.

Zcash was announced in 2016 and released to the public in October of that year.

Why Does Zcash Have Value?

By copying and modifying Bitcoin code, ZEC retains several properties that give BTC value and allow it to serve as digital currency.

As with the BTC, there will only be 21 million ZEC. The new ZECs are also introduced in a process called mining, in which computers devote power to solving puzzles and winning computers add blocks to the Zcash blockchain.

Zcash's additional privacy features can also increase your perceived value.

Some investors view privacy-focused cryptocurrencies as a subset of the larger cryptographic asset class, so they allocate a portion of their portfolios to this opportunity.

The thesis is that, as the cryptocurrency market grows, more users and applications will integrate or look for alternatives like the Zcash blockchain, which offers greater privacy.

Zcash price


How Was Zcash Released?

To enable its high end encryption, the Zcash blockchain had to be configured differently from other cryptocurrencies. This process (called the “Zcash ceremony” or “trusted Zcash setup”) remains the basis of much criticism of the project.

On the one hand, it required the creators of Zcash to trust people around the world to cooperatively create what was essentially a key public master for your blockchain using fragments of a private key.

Participants were instructed to destroy the remaining data to protect it from further manipulation.

The downside of such an approach is that, while theoretically sound, no one can prove that the ceremony was conducted as planned. (Perspectives on this issue remain diverse.)

As of 2020, Electric Coin Company, headed by CEO Zooko Wilcox, employs a large team of cryptographers working to develop the Zcash blockchain. This work is further supported by the non-profit Zcash Foundation.

Both groups receive part of their funding through the launch of a new ZEC under the Zcash protocol.

What Makes Zcash Private?

Zcash's secret ingredient is a cryptographic technique whereby anyone in possession of private data can convince someone seeking to verify it that the data is true, without revealing anything but a true or false statement.

To do this, Zcash uses a variant of zero-knowledge proofs called zk-SNARK for its secured transactions.

This guarantees:

  • The verifier does not learn anything about the data, except that it is true or false.
  • The proof is small enough to be verified in milliseconds.
  • There is no communication between the tester and the tester
  • No tester can make a verifier accept false information.
  • A taster cannot prove information unless there is verifiable information to prove it.

By offering these properties, it can be said that transactions between addresses protected by Zcash provide strong guarantees of anonymity for users.

How Does Zcash Work?

In addition to its privacy features, Zcash operates similarly to other cryptocurrencies.

Secured and unsecured Zcash transactions are verified by us and recorded in the blockchain.

Blocks are added by an open network of computers using an algorithm called Equihash, which calculates how much RAM a miner is devoting to protecting the blockchain.

This design was created to mitigate the impact of specialized mining equipment, allowing smaller computers to compete better for rewards. (In 2018, however, large-scale mining companies developed Zcash-specific mining machines.)

Another unusual attribute of Zcash was how its cryptocurrency was configured to be distributed.

During the blockchain's first four years of operation, 80% of the block's reward was programmed to go to the miners, with 20% allocated to the Electric Coin Company, the Zcash Foundation, as well as some of its employees and key stakeholders.

This subsidy was due to expire in 2020, at which time the protocol undergoes its first “half reduction”, when the supply of new ZEC that the protocol can produce is reduced.

In early 2020, a vote to extend the allocation of rewards to these companies was yet to take place.

Why Use Zcash (ZEC)?

The future of Zcash, like any cryptocurrency, is difficult to predict. However, it is notable that Zcash has attracted the attention of several groups in its short history.

Ethereum (ETH), for example, sought to integrate its privacy features into its technology.

Large financial institutions such as JP Morgan have also incorporated Zcash technology into various blockchain software, with the idea that this could allow them to continue to comply with business requirements and regulations when using blockchains.

However, Zcash faces obstacles when it comes to broader adoption.

Because of the computation involved, the Zcash blockchain is much larger than those of other cryptocurrencies, which means there are concerns about network decentralization.

Crypto Privacy rivals like GRIN, BEAM and XMR are also available and may prove that these (or even other alternatives) offer a preferable option for privacy-conscious users.

Still, there has also been a backlash from regulators, who fear technologies like Zcash could be misused by criminals. As a result, some exchanges have gone so far as to remove the ZEC and other privacy cryptocurrencies due to questions about their legal status.

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