What Is ZCash?
ZCash (ZEC) is a decentralized blockchain-based cryptocurrency aims to provide anonymity for its users and their transactions. As a cryptocurrency, ZCash is similar to Bitcoin. Like Bitcoin, ZCash has its open-source code, but their major differences is the level of privacy and fungibility that each provides.
The success of Bitcoin paved the way for lots of alternative cryptocurrencies, including ZCash, to emerge. The demand for privacy increased as cryptocurrency users understood that their transactions were easily traceable and viewable in the blockchain. ZCash was launched by Zooko Wilcox-O’Hearn in October 2016 in response to Internet users’ demands for an open financial system with more privacy features.
Fungibility is the ease with which one commodity can be substituted for another. Money–whether it is gold or a fiat money like the U.S. dollar–is fungible because you can trade it for something else.
Because fungible instruments can be in danger of fraud and theft, gold is kept in underground vaults and fiat currencies require constant surveillance by treasuries and central banks. Bitcoin’s solution to fraud and theft was to make all transactions totally visible and one hundred percent traceable.
Unfortunately, Bitcoin’s deprecation of privacy is also a flaw that it has sought to solve. Some of Bitcoin’s original users mistakenly thought that because wallet addresses were pseudonymous, that using Bitcoin was anonymous. However, legal action against dark net sites proved that all it takes is a small amount of information in order to reveal the true identity behind a Bitcoin wallet.
ZEC innovated by adopting Bitcoin’s open ledger system and encrypting information about the ledger’s users. This means that even though all ZCash transactions are stored on a blockchain, the transactions are encrypted and can only be viewable by users that have been given access to them.
Most digital currencies that provide anonymity rely on private keys that are built with alphanumeric characters. Crytocurrency users are also given a unique public address which performs as their identity. The public address is required to receive funds from another user; this also means that the sender has to be given the other user’s address in order to transfer. The user’s private key gives them access to their funds and the key is attached to the specific transactions that they make.
With enough transactions made over time, their public address can be linked to these transactions, which makes it easier for interested parties to identify the public address holder. Moreover, if a seller of a product is able to track a buyer’s previous transactions based on their public address (given to the seller by the buyer), the seller may feel more inclined to reject a payment from the buyer, especially if their purchase history reveals a difference in moral opinion or behavior.
ZEC employs a cryptographic tool called zk-SNARKs, which stands for Zero-Knowledge Proofs. This tool allows two sides to engage in transactions without either party revealing their payment addresses to each other. This tool also makes ZCash transactions untraceable on ZCash’s blockchain by obfuscating the payment addresses of both parties and the amount involved in each transaction.
As the payment addresses recorded on the blockchain are not the actual user’s address, it’s unlikely to trace the path of any given funds to its sender or receiver. This makes ZCash different from Bitcoin and other blockchains that make public the amount transferred from one user’s real payment address to another user’s address.
Like Monero and other highly anonymized cryptocurrencies, ZCash is criticized for providing a secure haven for illegal transactions; however, ZCash is not just used by cybercriminals who engage in illegal transactions in the dark web.
There are many legitimate reasons why a user would opt for an anonymous cryptocurrency, such as ZCash. For instance, an individual with a chronic medical condition who wants to purchase his pills online anonymously; a company that would like to hide its trade secrets or supply chain information from competitors; an entity using legal services for a private matter like bankruptcy, etc.
As of May 2020, ZEC is ranked 26 on CoinMarketCap’s list of ranked cryptocurrencies. As of April 30, 2020, ZCash’s total market capitalization is about $403 million.