Cryptocurrencies are touted as providing anonymous, decentralized options for conducting business online. However, not all cryptocurrencies are created equal with most blockchains only allowing a degree of privacy and users can potentially be identified.
ZCash promises to bring true privacy to the blockchain landscape. It offers private transactions that are as anonymous as cash with all the benefits of digital currency.
What is Zcash?
ZCash is a privacy-focused decentralized blockchain project that was designed as an alternative to Bitcoin. Bitcoin was originally touted as an anonymous blockchain for conducting business online.
However, people realized that identifying information could be found as wallet addresses were only pseudonymous. This meant that the identity of users, though hidden, could be found out.
In the wake of this, ZCash was launched to meet the demand for online privacy. It is an open-source project like Bitcoin and uses Proof-of-Work to mine tokens. ZCash uses a cryptographic technology involving zero-knowledge proofs to hide the identity of the two parties in a transaction.
The platform uses the native Zcash token (ZEC). The token is used as a form of digital cash for online payments. This coin is fungible which means every coin is interchangeable and ZCash does not track its individual history.
Like Bitcoin, ZCash has a final maximum supply of 21 million tokens. Blocks are created much faster than Bitcoin at a rate of one every 75 seconds. As such, the block rewards are lower per block but with a higher volume of rewards available daily. 3.125 ZEC are mined every block and this number is halved every four years until all tokens are in circulation.
The core idea of ZCash was conceived of originally by a team at John Hopkins University as an extension of the Bitcoin network. In January 2016, Zooko Wilcox-O’Hearn set up the ZCash company and announced the ZCash project and ZCash Foundation.
October 2016 saw the launch of the ZCash blockchain and the first block mining. Upgrades are scheduled regularly to keep ZCash at the cutting edge of privacy coins.
ZCash is supported by several popular cryptocurrency payment networks like Gemini Pay and Flexa. ZEC can be used as a form of payment at more than 3,900 locations. Notably, whistleblower Edward Snowden has come out in favor of the cryptocurrency over its competitor, Monero, in allowing financial privacy.
Zcash Use Case: Digital Cash
ZCash has enjoyed its success due to its ability to facilitate private and efficient transactions between users. It is designed to be used for everyday transactions while retaining the identity of the user if needed.
ZEC token holders can easily choose to hide or display their identity by using specialized wallet addresses. This has helped the image of ZCash as many mainstream companies and regulatory bodies can associate anonymity with illicit activity. By having a large portion of the transactions be public and transparent transactions, ZCash has made privacy focused blockchains more palatable.
Identity is hidden using a type of zero-knowledge proof called zk-SNARKS (zero-knowledge Succinct Non-Interactive Argument of Knowledge). It essentially allows users to conduct business by validating the necessary information for the transaction but keeping the identity of the users encrypted. Users can prove they have the ZEC tokens needed for the transaction and the authorization while all other information is kept private.
Zcash Use Case: Privacy and ZEC
Many online cryptocurrency users wish to conduct their business anonymously for a myriad of reasons. Using the ZEC coin, a user can pay for goods or transfer money online with their identity completely hidden. These transactions retain all the security and ease of Bitcoin with added user privacy and lower transaction times.
ZEC can be seen as having the same anonymity as cash transactions. The fungible tokens are interchangeable like fiat coins or notes and there is no identifying information given to the public ledger. Fees are kept low at about 0.0001 ZEC (valued at about $0.014) and transactions can clear within minutes (Bitcoin transactions take about an hour).
Using the ZEC token allows a user to transfer money globally within minutes. Using traditional fiat currency, a person must pay fees and provide identification. There can also be long delays as the money is moved between institutions. Money transferred outside of business hours experiences further delays. Transferring money like this is expensive, slow and unattractive to users with privacy concerns.
With ZCash, a ZEC token holder can transfer $10,000 in ZEC coins using an anonymous or “shielded” wallet address (this will begin with “z” while unshielded or transparent addresses begin with “t”) to another shielded address. The transfer will be complete within minutes but the identity of both users will be protected. On average, the shielded transaction will only cost 0.0001 ZEC.
Examples of Private Transaction Use Cases
There are many reasons a ZEC token holder would want to retain privacy when conducting business online. While a portion of this can be illicit activity, privacy is of concern to many people across the globe.
- Medical privacy – Not everyone feels comfortable about keeping their medical history on a government file. Some people may wish to buy medication using ZEC tokens from abroad or pay for treatments without it affecting their medical record.
- Personal purchases – ZEC tokens can be used to pay for services or goods that may not be illegal but the user wants to keep private or away from the public eye. This includes legal pornography and drug use. Many people use cryptocurrency to help separate their personal and professional lives.
- Company records – companies in competitive industries or who have trade secrets may use ZEC to prevent competitors from researching their supply chains and financial details.It allows the purchases of goods without a trail that other companies can follow.
- Protecting wealth – many high earners have strong needs for privacy and security. Being public about purchases can lead to targeting, harassment and blackmail. With Bitcoin, other users can track wallets and spending histories. ZCash can hide all this, allowing high-net worth individuals to conduct business safely online.
- Accessing funds – people facing government persecution can use ZEC to receive payments that cannot be frozen by governments. Often, when a person is facing charges in one country, their bank accounts can be frozen and payments to them stopped. ZCash provides a new avenue for funds and safety. Edward Snowden accepts ZEC donations through his fundraiser because of this.
- Data Privacy – Other users wish to have privacy out of concern for the wide sharing of data online. There are many passionate proponents of privacy for privacy’s sake. In an age of constant data mining and regulations, private cryptocurrency and the decentralization of finance is seen as an alternative to the current direction of the world.
Users may also wish to use cryptocurrency for illicit purchases including drugs, weapons, contraband and services. ZCash provides them with a secure and private method of payment. While public perception of these activities may be negative, the public ledger of transactions and the opportunity for transparent transactions has helped ZCash be adopted as a reputable privacy coin.
Zcash Use Case: ZCash Mining
ZCash uses the same consensus mechanism as Bitcoin, Proof-of-Work. This involves solving complex mathematical computations using a huge amount of resources and power. Miners compete to validate a block of transactions by solving these problems.
Miners are rewarded then for each block they mine or add to the blockchain. This reward is given to miners in ZEC tokens. The current block reward is 3.125 ZEC but this will be reduced over time. Rewards are halved every four years.
Of this reward, 80% goes to the miner and the remaining portion goes to the ZCash team and platform. This allows the network to be self-funding.
So any user with the computing resources to mine blocks can earn ZEC tokens in reward. However, like many Proof-of-Work systems, the average user cannot mine blocks due to the specialized equipment needed for mining. The equipment uses a large amount of electricity and is expensive to buy, meaning many users are priced out of the consensus system.
ZCash: A Successful Privacy Coin
ZCash was launched to a large amount of hype and spiked hugely upon its launch. The price has stabilized since and the platform has a strong core group of users who are passionate about online privacy. Many users have chosen the platform over Monero or other private cryptocurrencies, believing ZCash to provide better security and features.
The ZCash fungible token, ZEC, can be seen as digital cash allowing users to transfer value online while retaining privacy. It is primarily used as a currency token and users with the resources can mine new ZEC tokens.