What is Zcash? | The Ultimate Beginner’s Guide
While most other cryptocurrencies expose an entire payment history to anyone via a public transaction ledger system or blockchain, Zcash is a proof-of-work privacy coin that has been designed to offer greater anonymity by hiding the sender, recipient and transaction value for all transactions.
Zcash is one of several cryptocurrency versions of the “Swiss bank account in your pocket”.
In this article we’ll explore more about what this means, how Zcash’s privacy system works, and the project’s current status by looking at the following topics:
- What is Zcash?
- The Technology Behind Zcash
- Zcash Roadmap
- Zcash Strengths & Advantages
- Zcash Weaknesses & Disadvantages
- How to Buy Zcash (ZEC)
- How to Store Zcash (ZEC): Best Wallets
The genesis of Zcash lies in the protocol’s first incarnation, Zerocoin. Initially proposed as an extension to Bitcoin, Zerocoin was designed to be one of the first cryptocurrencies to offer true cryptographic anonymity to blockchain transactions. Zerocoin launched its Zcoin (XZC) currency in September, 2016.
When the developers of Zerocoin—Johns Hopkins University professor Matthew D. Green and graduate students Ian Miers and Christina Garman—teamed up with computer security specialist, Zooko Wilcox-O’Hearn, and several others, together they formed the Zerocoin Electric Coin Company.
Prior to serving as the company’s founder and CEO, Zooko was an accomplished peer-to-peer hacker/cypherpunk. Among other achievements, he is known for the Tahoe Least-Authority File Store (or Tahoe-LAFS) as well as Zooko’s triangle, which defines the desirable traits of a network protocol.
Other members of the team include Nathan Wilcox (CTO), Daira Hopwood (Engineer and Protocol Designer) and Jack Gavigan (COO), along with a number of other computer scientists and engineers.
Further developments of the Zerocoin protocol led to an announcement that a new improvement “reduces proof sizes by 98% and allows for direct anonymous payments that hide payment amount”. This led to the rapid development of Zerocoin’s sister protocol, Zcash, and the release of the Zerocash whitepaper.
Zcash (ZEC) went live on October 28, 2016. Upon release, the founders of Zcash granted themselves 10% of the total supply of 21 million coins. The remaining coins are slowly entering circulation through mining and investment. The current circulating supply at the time of writing is 3,923,781 ZEC.
With Zcash’s market capitalization at nearly $1 billion USD, ZEC is currently placed in the top 25 cryptocurrencies. (View the current market cap and price for Zcash here).
Let’s take a closer look at the technology behind Zcash, how the platform functions and what solutions it hopes to offer.
Most cryptocurrencies validate transactions by linking the sender and receiver addresses along with the input and output values on a public blockchain. As a publicly encrypted blockchain, Zcash achieved a breakthrough by using zero-knowledge cryptography, which allows users to optionally shield their transactions with a brand new “zero-knowledge proof” called zk-SNARK. These proofs can verify transactions as valid on the blockchain ledger without revealing any sensitive information.
As stated on Zcash’s website page describing its technology –
“The acronym zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge,” and refers to a proof construction where one can prove possession of certain information, e.g. a secret key, without revealing that information, and without any interaction between the prover and verifier.”
These “succinct” zero-knowledge proofs—which consist of single messages sent from the prover to the verifier—can be verified within just a few milliseconds.
Zcash calls this new type of distributed ledger the “zero-knowledge security layer”, or ZSL.
Source: Zcash Blog
Zcash provides two types of keys: a “view key” and a “spend key.” While the latter is used to spend funds, the former is used to allow selected individuals to see private information about a specific transaction. View keys may be used for an audit or as a means of sharing information without disclosing it to the entire world.
The Zcash protocol also provides two types of addresses for its transactions. Private addresses (z-addr) are for shielded transactions, while transparent addresses (t-addr) are used for the more standard transactions on the public ledger that can be searched and viewed by anyone.
Whereas many other cryptocurrencies use complicated algorithms that require large pools of mining rigs to effectively mine their currency (for example, Bitcoin’s SHA-256 PoW system), the Equihash system was designed to combat mining centralization. This system is memory oriented, meaning that the amount of mining one can do is determined by the amount of RAM available. Zcash can be mined primarily using hardware powered by general purpose GPUs—widely used among PC gamers. This PoW system is proving to be popular and has been adopted by other cryptocurrencies such as Bitcoin Gold.
Zcash is scheduled to release several official source and binary packages for all supported platforms.
Scheduled for approximately June 25th, 2018, Overwinter will be Zcash’s first official network upgrade. The update will strengthen the protocol for future upgrades and will include versioning, replay protection for network upgrades (to guard against replay attacks), improvement to the performance of transparent transactions, as well as a new feature called “transaction expiry”.Transaction expiry will make unmined transactions expire after approximately 20 blocks (or 10 minutes). Users will be able to get their funds back at the end of the expiry period. This is meant to help clean out mempool congestion.
- Sapling 2.0
Scheduled for approximately September 17th, 2018, this core protocol upgrade will build on the already existing set of groundbreaking performance improvements for Zcash’s shielded transactions, speeding up the efficiency and processing time of zk-SNARKs.
Other areas of improvement that the Zcash team is currently working on include:
- Cross-Chain Atomic Transactions (“XCAT”) – allowing cross-chain trading between Zcash, Ethereum and Bitcoin.
- Payment Disclosure – allowing payment information to be revealed to specific parties if desired.
- Payment Off-loading – allowing light wallet users to send payments to shielded addresses.
- User-Issued Tokens – allowing users to issue their own tokens that use Zcash’s privacy features.
In April, 2017, Apple announced that it has accepted Zcash as a legitimate cryptocurrency and made Zcash available as a payment method to iOS users. The Zcash team stated that they aim to pursue these types of projects to further strengthen the cryptocurrency’s growth.
In June, 2017, developers of Ethereum and Zcash announced that they are working to establish a mechanism for integrating zk-SNARK into Ethereum’s network protocol without relying on a specific setup of network rules (such as Zcash’s) to do so.
Zcash recently announced that they are entering into a partnership with StarkWare Industries in an effort to improve the Zcash protocol’s zero-knowledge, succinct and transparent cryptographic proofs. This will help to make the blockchain more private and secure.
Privacy: One of Zcash’s key features is the flexible option to shield transactions and hide the identity of the sender and receiver on the blockchain. The practical applications of this include not only protecting users’ anonymity, but also blocking malicious actors from targeting an address with a high volume of currency. For enterprises, this can be advantageous to protect confidential information with regard to business transactions as well as employee payrolls. This is in contrast to transparent cryptocurrencies like Bitcoin that have all information visible on their public ledger.
Additional Applications of zk-SNARKs: The technology behind zk-SNARKs, which forms the basis for Zcash’s shielded transactions, has potential uses beyond payment transactions. The zero-knowledge security layer could be used to verify any relation without disclosing inputs or leaking information, and could have implications for coded security transmissions along with other possible applications.
Less Prone to Privacy Timing Attacks: Because Zcash conceals the quantity amount in a shielded transaction, it is much less vulnerable to a timing attack. This occurs when a hacker exploits knowledge of when a new coin is “minted” and effectively spends the coin before the user can.
Easily Accessible Mining: The Zcash protocol has adopted the Equihash proof-of-work system which allows miners to mine ZEC with freely available GPU hardware that is both affordable and less energy intensive than other PoW mining rigs.
Reputation and Track Record: So far, no security bugs have been discovered in Zcash protocols, and Zcash has had no network downtime or security breaches.
Limited Privacy Storage Options: From our list of wallet options for storing Zcash (see below), it can be seen that there are limited wallet options for storing and sending Zcash from private addresses. This is a key feature of Zcash and there are currently no mobile wallet options that support it. However, this might not be a big deal for Zcash users who don’t require privacy.
Potential for Misallocation of ZEC Quantity: In the Zcash protocol’s present state, if the network is exposed to a bug that allowed for people to generate more Zcash coins than the intended money supply, the resulting inflation would crash the price of Zcash for speculators. This risk could be minimized with security updates planned in future protocol upgrades.
ASIC Miners: ASIC mining hardware manufacturer, Bitmain, revealed that it has developed an ASIC miner capable of mining on Equihash-secured networks such as Zcash. If adopted in high numbers, this would centralize Zcash mining (like the present case with Bitcoin) and make it difficult for miners using GPU hardware to mine amounts of the coin that were achievable previously.
Questionable Decentralization: Some question whether Zcash is truly decentralized if 10% of the supply is held privately by team members within the company.
Privacy Adoption: Others also point out that the Zcash protocol and its transactions are not private by default. As a result of this, the majority of ZEC coins in circulation are located in transparent addresses (currently over 95%). The issue of fungibility also arises; it is possible for transparent transactions to be tracked, leading to the potential for traceable Zcash currency to be blacklisted or denied due to history unrelated to its current user (for example, if it were previously stolen from an exchange before the current user received it).
At time of writing, Zcash is available on 48 cryptocurrency exchanges and within 96 markets. There are several pairs that exist between ZEC and fiat currency.
There are also plenty of exchanges on which you can trade other popular cryptocurrencies (such as Bitcoin, Ethereum, Tether or Litecoin) directly for Zcash. The exchanges with the highest volumes and most responsive markets for this would be on Binance and Bittrex.
There is a wide variety of options for storing ZEC in a wallet. These can be broken down into wallets which support Zcash private addresses for shielded transactions, and wallets which can only use Zcash transparent addresses.
For wallet options that support private addresses, Zcash offers an official core client called zcashd, which is a desktop wallet that is built for Linux (64-bit). Kozyilmaz is a local desktop wallet for Mac that supports shielded addresses. There is also the WinZec wallet for Windows.
There are a range of third-party wallets that only support transparent addresses, including the Zcash Cockpit UI wallet (which allows users to access their wallet remotely via a web user interface).
The TREZOR and Ledger Nano S are hardware wallet options for safe offline Zcash storage. Multi-signature wallets that support Zcash on both desktop and mobile include Waterhole, JAXX, Carbon Wallet and HolyTransaction. Other mobile wallets for Zcash are the Cryptonator, Freewallet, Coinomi, Guarda, Bitpie, Blockchains and the Stratum SmartWallet. Exodus and Bisq are other Zcash wallets for desktop.
The main drawback of most of these wallets listed here is that they presently only support Zcash transparent addresses. This denies the wallet user from sending or receiving Zcash from a private address–a key feature of the cryptocurrency.
With the advent of social media companies harvesting personal user data for profit and other companies exploiting information which is assumed to be private, more and more people are seeking out solutions to protect and enhance their anonymity. Zcash and its zero-knowledge proofs is one step towards protecting consumers and commerce activity from unwanted eyes in an increasingly centralized and data-driven world. Whether Zcash can go the distance against other privacy coin competitors remains to be seen.
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