What is Zcash (ZEC)?
Zcash is a privacy coin, originally created as a fork of Bitcoin.
Zcash uses the Bitcoin algorithm but features zk-proofs and shielded addresses. Shielded addresses are similar to Monero’s stealth addresses, but unlike Monero, they can be activated for both the sender and recipient simultaneously.
Similar to Monero (XMR), Zcash also uses a version of non-interactive zk-proofs called “zk-SNARK” (zero-knowledge concise non-interactive proof of knowledge). Furthermore, Zcash senders can include private memos in their shielded transactions.
Zcash is unique because it offers both completely private and completely public transactions, allowing users to expose certain transaction details while obfuscating others. In fact, the vast majority of Zcash transactions are public. This raises concerns that third parties can identify private transactions through the obfuscation process.
The Origins and Development of Zcash
Zcash’s history dates back to the release of the Zerocoin white paper in 2013 (written by Professors Matthew Green and Eli Ben-Sasson, along with many other cryptographers and academics).
The authors argued that Bitcoin’s design compromised user privacy, and in response, they offered new solutions. However, the project had its limitations. For one, Zerocoin was designed for Bitcoin, requiring numerous complex changes to its blockchain.
This work was later advanced by cryptographer Zooko Wilcox in 2015, when he founded a startup to explore how to leverage the ideas behind Zerocoin to create a new cryptocurrency.
Zcash was announced in 2016 and released to the public that October.
Zcash Network Vulnerability
Zcash strives to maintain its leading position in the privacy coin space, consistently ranking among the top 50 cryptocurrencies by market capitalization. However, its position was severely threatened in 2018 by a critical network vulnerability.
The vulnerability, discovered by Zcash cryptographers in March 2018, exists in the underlying cryptographic technology of zk-SNARKs zero-knowledge proofs used for Zcash privacy transactions. This flaw, known as the unlimited minting vulnerability, theoretically allows malicious hackers to mint an unlimited number of counterfeit Zcash (ZEC) privacy tokens without detection. If this were to occur, it would completely destroy the trust foundation of Zcash, causing the value of ZEC to collapse.
Faced with this catastrophic vulnerability, the Zcash main development team adopted a highly confidential approach:
1. Long-term secrecy: To prevent attacks before a fix was completed, the vulnerability was kept strictly confidential for eight months, with only a very small number of kernel personnel aware of it.
2. Secret fix: The team finally quietly implanted the fix during a major Sapling network upgrade on October 28, 2018, successfully resolving the issue without causing market panic.
3. Delayed Disclosure: Zcash only released a detailed report in February 2019, disclosing this harrowing history to the public, after the Sapling upgrade was successful and the fix was confirmed.
Advantages and Disadvantages of Zcash (ZEC)
Zcash’s biggest selling point lies in its leading zk-SNARKs privacy technology and optional transparency, but its greatest risk stems from the increasingly stringent global regulatory environment.
Advantages of Zcash
1. High Level of Network Privacy: Employing zero-knowledge proof (zk-SNARKs) technology, it can verify the validity of transactions without revealing details such as the sender, receiver, or amount, achieving true untraceability.
2. Selective Anonymity: Users can freely choose to conduct transparent transactions or protected/privacy transactions. The visible key feature allows users to selectively disclose their transaction details to auditing agencies or individuals, helping to meet regulatory compliance requirements.
3. Continuous Technological Innovation and Optimization: Through multiple upgrades such as Sapling and Orchard, privacy transactions have become faster, lighter, and less computationally burdensome, improving the user experience. Continuous development of features such as Zebra nodes, Zallet, and Zashi wallets aims to improve performance, reduce computational load, and simplify the use of privacy features.
4. Fair Distribution and Scarcity: Zcash has no pre-mining or ICO, uses Proof-of-Work (PoW) mining for fair distribution, and like Bitcoin, it has a halving mechanism (limited supply).
Zcash’s Disadvantages
1. Regulatory Uncertainty and Delisting Risk: Due to their anonymity, privacy coins have always been a focus of attention for regulatory agencies (e.g., the EU’s MiCA). Stricter regulations or exchange compliance pressures may lead to some exchanges delisting ZEC, impacting liquidity and investor confidence.
2. High Network Computing Requirements: Despite continuous technological optimization, the generation and verification of zk-SNARKs transactions (especially earlier versions) still require significant computing resources, making them more time-consuming than transparent transactions. (Note: The latest NU6.1 upgrade and v5 transaction format are actively addressing this issue.)
3. Intense Competition: In the privacy coin space, it faces fierce competition from other privacy-focused projects such as Monero (XMR), while upgrades like Bitcoin’s Taproot have slightly diminished its privacy differentiation advantage.
4. Potential issues with earlier/legacy technologies: There were concerns about potential information leaks or “trusted settings” related to public key setup or initialization settings in older versions of Zcash (before v4), but these issues have been significantly improved or eliminated in subsequent Sapling and Orchard upgrades.
How ZEC Works
Zcash provides the cryptocurrency community with a truly secure solution for hiding the sender, receiver, and amount of money transferred. Utilizing zk-SNARKs technology, it perfectly conceals information that can be accessed by outsiders. Its unique “zero-knowledge proofs” ensure true privacy for cryptocurrencies on public blockchains.
1. What is a Zero-Knowledge Proof?
A zero-knowledge proof is a cryptographic protocol. Its essence lies in the fact that the prover does not need to reveal the information to the verifier, yet the verifier can still prove whether the prover truly possesses the information.
Imagine a safe. How can you prove you know the combination without revealing the numbers? The simplest way is to open the safe in front of someone else, thus proving you know the combination without revealing any information.
2. zk-SNARK
zk-SNARK is Zcash’s anonymity technology, combining zero-knowledge proofs with blockchain technology. As mentioned above, zk-SNARK can completely hide remittance data. Miners can maintain the ledger and prevent double-spending while the data remains hidden. Within the Zcash network, there are two different types of wallets: Transparent Wallets and Shielded Wallets. When a Transparent Wallet remits 1 Zcash to another Transparent Wallet, this record is published on the Zcash ledger just like a regular Bitcoin remittance. However, if a Transparent Wallet remits 1 Zcash to a Shielded Wallet, the Transparent Wallet will show 1 Zcash being exported from the Transparent Wallet on the Transparent ledger, but it will be impossible to trace which wallet the funds ultimately reached.
Conversely, if an anonymous wallet sends money to a public wallet, the public ledger will only show that one person sent 1 Zcash to that public address, but the sender’s identity cannot be traced. Finally, if an anonymous wallet sends money to another anonymous wallet, all information can be hidden, achieving true anonymity.
With the continuous optimization of Zcash network technology (especially upgrades like Sapling and Orchard that have greatly reduced the cost and time of privacy transactions), the usage rate of privacy transactions has significantly increased. Although the specific percentage fluctuates and is difficult to quantify precisely, the Zcash kernel development team and community are actively promoting the default setting of all transactions as privacy transactions to further enhance the overall privacy of the network.
ZEC Token Economics
Like Bitcoin (BTC), Zcash (ZEC) has a cap of 21 million tokens. However, 10% of these will be automatically distributed to the development team, and all 2.1 million Zcash tokens will be distributed in 2021. All tokens are expected to be mined by 2032, while Bitcoin is expected to be mined by 2140. Therefore, Zcash’s overall supply inflation rate is much higher than Bitcoin’s.