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Guide to Zcash Cryptocurrency

February 18, 2021 · 5 minute read

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Guide to Zcash Cryptocurrency

Zcash is a potentially private cryptocurrency that offers unique “shielded” features. The set-up allows for addresses and amounts in a Zcash transaction to be encrypted on the blockchain. Here’s a guide to its privacy features, price performance, technology and history.

What Is Zcash?

Zcash crypto falls under the category of cryptocurrencies known as “privacy coins,” or different types of cryptocurrency that make it hard for outside observers to detect details of the coins’ movements.

Zcash is basically a bitcoin clone with one key difference – the ability for shielded transactions, as mentioned. Zcash relies on a technology known as zk-SNARKS to hide the particulars of Zcash wallet activity.

Zcash transactions are not private by default. For users seeking privacy, the “shielded” feature must be turned on to prevent the transaction from appearing on the public Zcash blockchain.

Zcash Price and Performance

Zcash has soared more than 400% since the end of 2019 to $146.38 in mid-February. Its market cap is $1.62 billion, making it the 47th biggest cryptocurrency market, according to data from CoinMarketCap. Zcash has the third-largest market cap of any privacy coin (with Monero being #1 and DASH being #2).

Zcash Privacy

Zcash was created in response to Bitcoin‘s lack of anonymity. Activity on the Bitcoin blockchain and most other blockchains is transparent. Anyone can see everything that has ever happened on a public blockchain. The details of each transaction, including the parties sending and receiving coins, the time of the exchange, and the amount of value exchanged, are all public knowledge.

Zcash functions differently than Bitcoin in the sense that Zcash activity can be “shielded,” or hidden from the public, so users can transact privately. But if no one can see the details of a transaction, how can they be sure that it even happened? That’s where the privacy tech behind Zcash known as zk-SNARKS comes in.

Zcash is the first large-scale, real-world implementation of a privacy technology called zk-SNARKS. This tech allows for shielded Zcash transactions to be fully encrypted (private) while at the same time being validated under the network’s consensus rules (so everyone knows they really happened).

How “Shielding” Works

Zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” This is a way of sharing data that allows one party to prove to another that they have specific information without revealing what that information is, and without requiring any interaction between the parties.

The exact details of how zk-SNARKs work and how they are applied to the Zcash blockchain are quite technical. Interested readers can reference the Zcash website for all of the intricate workings of this type of encryption technology.

While some people believe this tech offers the best, most comprehensive solution to the issue of private crypto transactions, others have criticized the security of a coin like Zcash.

The fact that the encryption technology used is so new and that the coin was launched using an unorthodox “ceremony” (more on this later) are key points of contention for some crypto observers. On top of that, most Zcash isn’t even private.

As mentioned earlier, transactions made on the Zcash blockchain are not private by default. For the currency to be used privately, a transaction must be “shielded.”

The vast majority of Zcash transactions are not shielded (as of April 2020, only 6% of the Zcash network had been using fully shielded transactions). This could be due to the fact that most wallets and exchanges use public Zcash addresses by default, something many users might not be aware of.

Types of Zcash Transactions

There are four different types of transactions that can be made on the Zcash blockchain. They are:

•  Private
•  Deshielding
•  Shielding
•  Public

Zcash addresses begin with either a Z or a T. Those beginning with a Z are private addresses, and those beginning with a T are transparent. Using different combinations of these two types of addresses allows for the four specific types of transactions.

In a private transaction (Z-to-Z) will be visible on the public blockchain. There’s proof that it occurred and the necessary network fees were paid. The specific details like the transaction amount and addresses involved, however, are encrypted and can’t be seen by the public.

A public transaction (T-to-T) works in the same way that a typical Bitcoin transaction works – everything can be seen on the public blockchain, including the sender, receiver, and amount transacted.

The Zcash website notes that most exchanges and wallets today use T-addresses by default, although more are allegedly moving to shielded addresses over time.

The other two types of transactions involve sending funds between T and Z addresses. In other words, either sending funds from a private address to a public one (Z-to-T, or Deshielding), or sending funds from a public address to a private one (T-to-Z, or Shielding).

Zcash History

Zcash cryptocurrency launched in 2016. The coin was forked from the original Bitcoin code, so both are minable proof-of-work cryptocurrencies that have a hard supply cap of 21 million. The block reward for Zcash also gets cut in half every four years or so to keep the currency deflationary by limiting supply, just like bitcoin.

Zcash has its roots in a 2013 publication called the Zerocoin white paper, which was written by professors Eli Ben-Sasson and Matthew Green. They saw the design of Bitcoin as being a threat to user privacy, and offered their own solutions in response.

But Zerocoin was designed for Bitcoin, meaning Bitcoin developers would have had to implement a lot of complex changes to the Bitcoin blockchain technology to make Zerocoin work. This led to the project being shelved for a time.

Then, in 2015, a cryptographer named Zooko Wilcox created a startup to discover ways that the Zerocoin concept might be successfully implemented in a new cryptocurrency. In 2016, Zcash was announced, and the coin launched in October of that year.

Launch of Zcash

The launch of Zcash is a focal point of many criticisms against the privacy coin. To make its new type of cryptography workable, the Zcash blockchain had to be created using something known as the “Zcash ceremony.”

This “ceremony” involved people from around the world collaborating to create what amounts to a master public key for the blockchain using pieces of a private key. Those involved were instructed to destroy the data they used so that it couldn’t be taken advantage of by someone else in the future, who could potentially use it to compromise Zcash.

Of course, no one has any way to verify that those involved actually destroyed the data they used in this ceremony, and no one can verify that Zcash was created in the way it claims to have been created.

Today, Zcash is operated by the Electric Coin Company with Zooko Wilcox as its CEO. The company employs a team of cryptographers to continue developing the Zcash blockchain. There is also a non-profit organization known as the Zcash Foundation that helps support this work. Both groups are funded in part by the issuance of new Zcash (ZEC) tokens.

Is Zcash a Good Investment?

Privacy coins in particular have a very uncertain future. Coins like Monero, Zcash, and DASH were delisted from the Bittrex exchange at the start of 2021. Because many people associate them with illicit activity, privacy coins could see their use restricted in various ways.

Exchanges could continue to delist coins with privacy features or regulatory authorities could seek to punish anyone who deals with them through new crypto regulations, perhaps claiming that people use privacy coins to avoid paying taxes on crypto, for example.

Many altcoins have gone to zero over the years, so that possibility also can’t be ruled out.

How to Buy Zcash

Some U.S. exchanges offer Zcash on their platform. Here’s a step-by-step guide on how to buy and trade it:

1. Sign up for an account with a cryptocurrency exchange that offers Zcash.
2. Verify your account. This may involve providing documents that confirm your identity and address.
3. Deposit fiat currency or digital money into your account.
4. Buy Zcash with the deposited funds.
5. Withdraw Zcash into your hot or cold wallet.

The Takeaway

Zcash is a privacy coin that allows for completely private or “shielded” transactions. It is the first practical implementation of the zk-SNARK encryption technology. The vast majority of transactions made on the Zcash blockchain are not private and function in the same way as Bitcoin transactions because Zcash was forked from the original Bitcoin code.

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