Zcash: Everything to Know

By  Beluga Research July 31, 2023

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Summary

  • Zcash is a privacy-focused cryptocurrency enabling shielded transactions and zk-SNARKs technology for enhanced anonymity
  • It launched in 2016, using zero-knowledge proofs to enable private transactions through its shielded transactions
  • The project was founded by Zooko Wilcox-O'Hearn and began as a fork of Bitcoin, focusing on addressing the lack of privacy in cryptocurrency transactions
  • Zcash utilizes zk-SNARKs to enable selective transparency, allowing users to prove the validity of a transaction without revealing sensitive information

Overview

Zcash is a privacy-focused cryptocurrency enabling shielded transactions and zk-SNARKs technology for enhanced anonymity. It was launched in October 2016 as an open-source cryptocurrency that utilizes zero-knowledge proofs to enable private transactions.

It is based on the Zerocash protocol, developed by a team of researchers and scientists from institutions including MIT, Johns Hopkins University, and Tel Aviv University. Zcash offers two types of transactions: transparent and shielded. Transparent transactions operate similarly to Bitcoin, where the transaction details are publicly visible on the blockchain. On the other hand, shielded transactions utilize zero-knowledge proofs to ensure the privacy of the sender, recipient, and transaction amount.

A Brief History

Zcash was founded by Zooko Wilcox-O'Hearn, who has a background in decentralized systems and cryptography. The project initially began as a fork of the Bitcoin codebase, and it aimed to address the lack of privacy in transactions. To achieve this, the Zcash team introduced zero-knowledge proofs, a cryptographic method that allows one party to prove knowledge of something without revealing the actual information. This breakthrough in privacy technology attracted significant attention from the cryptocurrency community and investors.

What is Zcash?

  • Privacy. Zcash's main differentiating factor is its focus on privacy. By using zero-knowledge proofs, Zcash provides users with the ability to conduct shielded transactions, where the transaction details remain private. This ensures that the sender, recipient and transaction amount are concealed from public view, offering enhanced privacy compared to transparent cryptocurrencies like bitcoin.
  • zk-SNARKs . Zcash employs a technology called zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) to facilitate shielded transactions. zk-SNARKs allow users to prove the validity of a transaction without revealing any sensitive information. This cryptographic method enables Zcash users to maintain privacy while still ensuring the integrity of the network.
  • Selective transparency. Zcash offers selective transparency, which means that users have the option to disclose transaction details if they wish to. This feature allows for regulatory compliance and auditability while still preserving the privacy of sensitive transactions. Users can choose to conduct transparent transactions or utilize the shielded pool for enhanced privacy.
  • Mining. Zcash, like bitcoin, is a mineable cryptocurrency. The mining process involves solving complex mathematical problems to validate transactions and add new blocks to the blockchain. Zcash uses the Equihash algorithm, which is memory-intensive and designed to be resistant to ASIC mining. This algorithm aims to promote a more decentralized mining ecosystem by allowing individuals to mine using commodity hardware.
  • Supply. Zcash, like Bitcoin, has a fixed supply cap of 21 million coins. The initial distribution of zcash involved a "slow-start" mechanism, where the block rewards gradually increased over the first 20,000 blocks. This approach was implemented to provide a fair launch and incentivize a broad distribution of the cryptocurrency.
  • Community and development. Zcash has an active community of developers and supporters who contribute to its ongoing development. The Zcash Company, a for-profit entity that initially launched the project, has since transitioned to the Electric Coin Company (ECC), a non-profit organization focused on the development and promotion of Zcash. The ECC collaborates with various stakeholders to enhance the protocol and drive adoption of the cryptocurrency.

Getting Started

To get started with zcash, setting up a digital wallet is the first task. There are various wallets available that support zcash, including both desktop and mobile options. Once a wallet is chosen, download and install it. During the setup process, users are provided with a unique wallet address, which they can use to send and receive zcash.

To acquire zcash, there are a few options. For one, it can be purchased on cryptocurrency exchanges that support zcash trading. It's important to choose a reputable exchange and follow the necessary security practices to protect funds. Another option is to mine zcash, which involves using a computer's processing power to solve complex mathematical problems and validate transactions on the network. Mining can be resource-intensive and may require specialized hardware to be profitable.

Unique Aspects

One of the key features that sets zcash apart from other cryptocurrencies is its privacy-enhancing technology. Zcash uses a cryptographic technique called zk-SNARKs (zero-knowledge succinct non-interactive arguments of knowledge) to enable private transactions. This technology allows users to prove the validity of a transaction without revealing any sensitive information. With zcash, users have the option to send both transparent and shielded transactions. Transparent transactions are where the transaction details are publicly visible on the blockchain whereas shielded transactions use zk-SNARKs to obscure the transaction details, providing strong privacy guarantees.

Zcash also offers selective disclosure, which allows users to share transaction details with specific parties. This can be useful in scenarios where regulatory compliance or audit requirements come into play. With selective disclosure, users can prove that a transaction occurred and comply with financial regulations without revealing the full transaction details to the public.

Another aspect worth mentioning is Zcash's approach to governance. The Zcash community has implemented a decentralized governance model, where decisions regarding network upgrades and funding are made through a process called "ZIP" (Zcash Improvement Proposal). This ensures that the development and evolution of the protocol are driven by community consensus, with input from various stakeholders.

In terms of scalability, Zcash has implemented a feature called Sapling, which significantly reduces the computational and storage requirements for shielded transactions. This improvement makes shielded transactions more efficient and accessible, paving the way for broader adoption of privacy-enhancing features.

Advantages

  • Privacy. Zcash offers strong privacy features by utilizing a technology called zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge). This allows users to shield the sender, recipient and transaction amount from public view. Unlike other cryptocurrencies like bitcoin, where transaction details are publicly visible on the blockchain, zcash transactions remain confidential.
  • Selective transparency. Zcash introduces the concept of selective transparency, which means that users have the option to disclose their transaction details if they wish. This feature strikes a balance between privacy and regulatory compliance, making Zcash suitable for various use cases.
  • Enhanced Security. Zcash's privacy features also enhance security. By keeping transaction details private, it reduces the risk of targeted attacks or theft of sensitive information. Users can transact with confidence, knowing that financial information is not readily accessible to prying eyes.
  • Opt-in privacy. Zcash allows users to choose whether they want their transactions to be transparent or shielded. This flexibility is particularly useful in scenarios where privacy is paramount, such as business transactions or personal finances. Users have control over their data and can exercise privacy when needed.
  • Decentralization. Zcash, like many other cryptocurrencies, operates on a decentralized network. This means that no single entity or authority has complete control over the system. Decentralization reduces the risk of censorship, manipulation or single points of failure, making Zcash more resilient and robust.

Disadvantages

  • Complexity. Zcash's privacy features, while powerful, introduce complexity to the system. The cryptographic techniques used, such as zk-SNARKs, require a deep understanding to implement and verify. This complexity may deter some users who are not familiar with the underlying technology.
  • Trusted setup. During Zcash's launch, a trusted setup ceremony took place to generate initial parameters for the zk-SNARKs protocol. This process raised concerns about the potential for a malicious actor to compromise the system. While the ceremony was designed with multiple participants to mitigate this risk, it still introduces an element of trust that some users may find concerning.
  • Performance overhead. Zcash's privacy features come at a cost in terms of performance. Shielded transactions, which provide the highest level of privacy, require more computational resources and time to process compared to transparent transactions. This performance overhead may impact scalability and transaction throughput.
  • Limited adoption. Despite its innovative privacy features, Zcash has seen relatively limited adoption compared to more well-known cryptocurrencies like bitcoin or ether. The preference for other cryptocurrencies may be attributed to their established network effects, larger user bases and wider acceptance among merchants and exchanges.
  • Regulatory challenges . Zcash's privacy features have raised concerns among regulators in some jurisdictions. The ability to shield transaction details can potentially facilitate illicit activities, leading to increased scrutiny and regulatory challenges. This can create hurdles for broader adoption and integration into existing financial systems.