DEFINITION of ZCash
ZCash is a cryptocurrency with a decentralized blockchain that provides anonymity for its users and their transactions. As a digital currency, ZCash is similar to Bitcoin in a lot of ways including the open-source feature, but their major differences lie in the level of privacy and fungibility that each provides.
The currency code for ZCash is ZEC.
BREAKING DOWN ZCash
The success of Bitcoin which was launched in 2009 has paved the way for hundreds of alternative cryptocurrencies (altcoins), some of which have thrived, others which have fall short along the digital track. As the demand for privacy increased as big data became easily accessible, cryptocurrency users began seeking other digital currencies that could fill the privacy hole that Bitcoin couldn’t. Digital currencies like Dash and Monero provide complex anonymization techniques that obscure transactions and the parties involved in those transactions. Another digital currency, ZCash, seems to provide an even greater level of fungibility by allowing its users to remain completely anonymous.
ZCash was founded by Zooko Wilcox-O’Hearn in October 2016 in an effort to address an open financial system with the privacy feature that internet users wanted. Bitcoin is a pioneer in the open financial system, and ZCash seeks to maintain the same structure but with privacy and fungibility included. Fungibility is the ease at which a commodity can be substituted for another, which is important in the crypto world as it ensures that one user’s coin is as good as another. So while Bitcoin is an open ledger system, ZCash is an encrypted open ledger. This means that even though all transactions are recorded on a blockchain, the transactions are encrypted and can only be viewed by users that have been given access to them.
Most digital currencies that provide anonymity such as Monero, rely on private keys that are built with alphanumeric characters. Users in the crypto world are also given a unique public address which acts as their identity, just like an IP address. The public address is required to receive funds from another user which means that the sender has to be given the address in order to facilitate the transfer. The user’s private key gives him access to his funds and the key is attached to certain transactions that he makes. However, with enough transactions made over time, his public address can be linked to these transactions, making it easier for inquirers to identify the public address holder. This is also where the level of fungibility comes into play. If a seller of a product is able to track a buyer’s previous transactions based on the public address given to the seller by the buyer, the seller may feel morally inclined to reject payment from the buyer if the revealed purchase history of the buyer does not align with the seller’s beliefs or moral stance.
ZCash employs a cryptographic tool called Zero-Knowledge Proof which allows two users to engage in transactions without either party revealing their addresses to the other. Zero-knowledge proof makes ZCash transactions untraceable on its blockchain by obfuscating the addresses of both parties, as well as the amount involved in each transaction. Because the addresses recorded on the blockchain are shields and not the actual user’s payment address, it’s close to impossible to trace the path of any given funds to its sender or receiver. This is unlike Bitcoin and many other blockchains which show the amount transferred from one’s actual public address to another. Zero-knowledge proof provides a high level of fungibility given that a party involved in a transaction is not privy to the other party's identity and hence, payment history and so cannot reject his coin payment.
ZCash and other highly anonymized cryptocurrencies such as Monero are often criticized for potentially providing a secure haven for untraceable transactions related to illegal activity; however, use of ZCash is not just for cybercriminals who engage in illegal transactions in the dark web. There are a number of legitimate reasons why a user would opt for anonymous cryptocurrencies such as ZCash. An individual with a chronic medical condition who would like to purchase his pills online anonymously; a company who would like to protect its trade secrets or supply chain information from competitors; an entity who would like legal services for a private matter like bankruptcy; a couple who are into eye-brow raising bedroom toys; etc. are all examples of individuals seeking anonymity for privacy reasons.
As of July 2018, ZEC (currency symbol for ZCash) has proven fairly successful, trading for $202.20 and with market capitalization of over $870 million. ZCash executed its first hard fork in June 2018, which had long been planned for the day that block 347500 had been successfully mined, and has scheduled a much larger hard fork for October of the same year.