What is Zcash (ZEC): privacy coin is moving with the times
With a hands-on developer community and exciting plans, Zcash’s future looks strong
Contents
- Zcash tokenomics
- Can I mine Zcash coin?
- What are zk-SNARKs?
- Future of crypto
- How fast are Zcash transactions?
- Where next for Zcash?
- FAQs
Zcash, launched in October 2016 by the Colorado-based Electric Coin Co, is a cryptocurrency with privacy at its core.
It came out just before the initial coin offering (ICO) boom of 2017 and received a kickstart by securing more than $3m in funds from Silicon Valley private equity investors.
What is Zcash (ZEC)? It was built on Bitcoin source code and, though not a fork, it shares many similarities with its bigger crypto brother, namely in the ZEC mining process and similar tokenomics.
While Zcash offers greater anonymity than bitcoin, it shares other problems, namely scalability, transaction finality and excessive energy consumption.
Throughout its lifespan, Zcash has faced scrutiny over the anonymity of its transactions, with one report from a major US university labelling the company’s claims as “questionable”, primarily because many users failed to interact properly with the privacy features of the Zcash cryptocurrency.
Today, Zcash is a highly traded cryptocurrency with a multi-billion-dollar market capitalisation.
So precisely what is Zcash and its key features? How does Zcash work and what is Zcash coin used for?
Zcash tokenomics
Zcash’s tokenomics closely mirror those of bitcoin (BTC)’s, even down to the fixed maximum supply of 21 million. With a circulating supply of 13.32 million, ZEC coin is roughly 63% through its inflationary life cycle.
As an aside, the smallest unit of ZEC coin, the 0.00000001 zatoshi, is a nod to bitcoin’s anonymous creator.
Circulation is directly tied to mining rewards distribution. Just like BTC, ZEC mining rewards are halved every four years to control the circulating supply and increase scarcity.
ZEC mining rewards are distributed at a rate of 50 ZEC every 10 minutes. With a recent block reading of 77 seconds, that gives 7.79 ZEC in rewards dished out per block, equal to just over $1,248.5 at the latest trading value.
As of November 2020, the Zcash community agreed on a proposal to distribute 20% of mining rewards to founders and developers, meaning $998 in ZEC rewards per block go directly to miners at current rates.
ZEC’s trading value as of 17 December 2021 was $147.02, with a market capitalisation of $1.95bn, making it number 65 on the crypto charts. A recent trading high of $379.65m represented a healthy 0.17% of market cap; ZEC is clearly a highly active cryptocurrency.
Can I mine Zcash coin?
Zcash uses a proof-of-work (PoW) consensus, the same as Bitcoin. This is the most power-hungry consensus method out there, and becoming a PoW miner requires an intense amount of processing power, out of grasp of a typical home set-up.
Instead, specialist mining rigs called ASICs – with price tags typically over $11,000 per unit – are required to generate any noticeable return.
Thus, unless you have a ready supply of cheaper-than-average electricity, mining is uneconomical for most people. The PoW method is roundly criticised for promoting centralisation and being bad for the environment.
For that reason, the proof-of-stake (PoS) method, which prioritises “held value” over computing power, is becoming more popular. Tellingly, Ethereum, the world’s second largest crypto, is slated to move to PoS some time in 2022, in a development called ETH 2.0.
What are zk-SNARKs?
Looking as if as much work went into inventing the acronym as writing the code, zk-SNARKs, short for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, is the technology allowing for strong transaction privacy.
The idea is that zk-SNARKs proves that the conditions for a valid transaction have been met without revealing the sender’s address, the receiver’s address, or the input and output values.
To achieve this, the method strips away up to 90% of on-chain computations while at the same time relaying the relevant information proving the computation is correct.
The zk-SNARKs protocol is becoming more popular. Polygon went as far as to host its own zk Summit in December 2021 when it announced a $400m acquisition of Predictive Labs, a leader in zero-knowledge technology and developer of the Mir blockchain.
Future of crypto
Ethereum co-founder Vitalik Buterin, in a December 2021 blog post on his personal website, gave the introduction of zk-SNARKs as part of Ethereum’s future roadmap, although more concrete information was not given.
There is a strong possibility that the blockchain industry will move towards zero-knowledge technology in the years ahead, but Zcash is the trailblazer.
Given the lighter on-chain computational requirements made possible by implementing zero-knowledge methods, it could go a long way to solving the scalability issues plaguing blockchain technology.
Less discussed are the ethical issues around non-traceable money being used for criminal and illicit behaviour. However, a report by Rand Europe said: “While there are certainly some indications or anecdotal evidence that Zcash may have been used or advertised for illicit purposes, there is no evidence of widespread illicit use of Zcash.”
The report points to bitcoin, and even the privacy coin competitor monero, as the currencies of choice on the dark web.
How fast are Zcash transactions?
Transaction times are contingent on block times. Until December 2019, Zcash cryptocurrency block times shuffled along at approximately 2.5 minutes.
After the Blossom network upgrade, transaction times were effectively halved to 75 seconds. Although this is up to eight times the speed of Bitcoin, for comparison, newer cryptocurrencies, particularly those built on Solana, are practically instantaneous.
Transaction confirmation requisites (ie the number of block confirmations required to authorise a transaction) actually vary depending on the exchange. Some, like the Kraken exchange, require 24 block confirmations, whereas Coinbase’s requirement is 18.
Let’s assume a confirmation requisite of 21. With a 75-second block time, that gives us a transaction speed, on average, of 26.25 minutes for Zcash.
Transaction finality is thus quite far behind industry leaders. But even if transaction finality on the blockchain is slow, transacting at point-of-sale (POS) scenarios is instantaneous, for all intents and purposes.
Extremely low transaction fees is one major factor contributing to Zcash’s significant uptake among both e-commerce and brick-and-mortar vendors.
Where next for Zcash?
Is Zcash planning to move to proof-of-stake (PoS)? Founder Zooko Wilcox previously signalled his openness to the transition in August 2021.
Citing staking opportunities for ZEC holders, environmental benefits and increased decentralisation, he said: “While there are many who prefer PoW, I believe that PoS would make ZEC more valuable to more people! The benefits are great, and they far outweigh the drawbacks and risks.”
According to parent company Electric Coin Co.’s recently-published roadmap, those plans now seem official.
Zcash has proved to have a hands-on developer community through its regular network upgrades and optimisations. It seems that this trend is set to continue.
FAQs
How many Zcash coins are there?
Just like BTC, there is a maximum supply of 21 million ZEC. Current circulation is 13.131 million, roughly 63% of total circulation
Is Zcash secure?
Parent company Electric Coin Co. stresses that “Zcash is fully compatible with global AML/CFT standards, including the FATF Recommendations, the European Union’s Fifth Money-Laundering Directive, and the United States’ Anti-Money Laundering regulations”.
What makes Zcash unique?
Zcash uses zero-knowledge technology to allow for anonymous transactions on the blockchain. Although zero-knowledge is gaining momentum, most cryptocurrencies have yet to implement it.
