What is Zcash, and what makes it a praiseworthy cryptocurrency? Aside from also being quick, cheap, and a fruitful storer of value, Zcash is one of the leading entities in a special kind of privacy-centered cryptocurrencies

Overview

ZCASH
Original author/sMatthew Green, Zooko Wilcox
Date released28 October 2016
Ticker symbolZEC
AlgorithmEquihash
Consensus mechanismProof-of-work
HalvingYes (next halving in 2024)
Block reward 3.125 ZEC
Block time75 seconds
Supply limit21 million

One may be wondering the significance of a cryptocurrency currently ranked 38th (at the time of writing) of the most traded according to CoinMarketCap. However, Zcash is one of the leaders in a rare breed of privacy-centric cryptocurrencies, closely rivaling more established coins of its kind like Dash and Monero.

Zcash boasts a market capitalization of roughly $665 million with a per-token value of approximately $62 (at the time of writing). Despite its somewhat lower ranking, Zcash is well known as one of Bitcoin’s notable spin-offs and solves the privacy flaw of plentiful digital currencies.

This article will cover the beginnings, the basics of how it works, its ledger, what makes Zcash a special coin, and future developments.

Beginnings

As with most cryptocurrencies, the creation of Zcash was to fill a gap in the market by solving a lingering problem. Interestingly, Zcash is a hard fork of Bitcoin, led by American computer scientist Zooko Wilcox. 

While Wilcox was a proponent of Bitcoin, as is still the case, very little anonymity exists with its transactions. Several graduates, led by American cryptographer Matthew Green, preceded the development of Zcash as far back as 2013 using the ZeroCash cryptographic protocol. 

The Zcash Company (now Electric Coin Company), led by Wilcox, put the final touches. Backed by a $3 million Silicon Valley investment, the first official minting of Zcash began on the 28th of October, 2016. 

Two days later, due to massive investor speculation and hype, Zcash was one of the world’s most valuable digital currencies momentarily, reaching as high as $5941 per coin. Along with many other cryptocurrencies after the 2017 bull run, Zcash has yet to see that impressive gain.

How does Zcash work?

Put simply, Zcash is just like most decentralized, peer-to-peer digital currencies operating using blockchain technology. The key features of super-fast transactions and low fees are present, though privacy is one of the unique elements. 

Through what is known as zero-knowledge proof, users can transact with each other without any revelation of their details or transaction amount. There is also the option to selectively disclose certain information where necessary.

Like its predecessor, the magic number of Zcash’s finite supply is 21 million coins, of which about 10.7 million presently exists. At the current production rate, 2032 should be the year of reaching the milestone.

According to Zcash’s website, at least 250 vendors (a combination of physical and online stores) accept their coin as payment. Customers can buy Zcash directly from their site or from several major exchanges, both of which provide the necessary wallets for storage purposes.

Zcash’s ledger

Zcash employs a memory-hard mining algorithm known as Equihash. In layman’s terms, it means the success of mining on Equihash is highly dependent on the amount of RAM possessed by the miner. 

Prior to an increased network difficulty, this algorithm favored CPU (central processing units or just ordinary computers) and GPU (graphics processing units or graphics cards). However, over time, Bitmain, the world’s leading manufacturer of ASICs (application-specific integrated circuits), developed machines to mine Zcash. 

Owners of ASIC machines have a significant advantage over other miners in terms of computational speed. Nonetheless, for their intensive mining efforts, miners currently receive a reward of 3.125 ZEC for adding a block (a block forms roughly every 75 seconds). The blockchain halves the mining rewards every four years to control inflation. 

What makes Zcash valuable?

While the idea of any major cryptocurrency presents many benefits, a fundamental flaw is the lack of strong privacy. Theoretically, users do remain anonymous, but only to a certain extent. 

Though there are several more popular coins than Zcash, very few are heavily privacy-focused. A cryptocurrency that is not as privacy-conscious is susceptible to, among other drawbacks, the keys of token holders being stolen or hacked.

However, using the concept of zero-knowledge proof, Zcash’s keys are more secure, and the system allows for transaction verification without password exchange. In essence, most digital currencies allow users to see the full transaction history and holdings of others, a trait that bad actors can exploit. 

Zcash does not have this problem. Aside from the superior privacy and being highly attack-resistant, Zcash also ticks the boxes of fast transaction confirmation (each block takes around 75 seconds to form) and low fees (each transaction, on average, costs a measly 0.0001 ZEC).

Future of Zcash

Zcash recently experienced its halving of mining rewards from 6.25 ZEC to 3.125 ZEC in mid-November 2020. Historically, research suggests coins utilizing halving gain at least 78% six months after the event. 

Investors should be well aware of this analysis and will hope Zcash does eventually increase in value as a result. Like most cryptocurrencies, the Electric Coin Company will foster new developments to their coin to further improve confidentiality.

One proposed improvement is the fifth primary network upgrade named Canopy, which coincides with the recent halving. One aspect of Canopy is a collaborative effort where Zcash’s owners will split mining rewards where 80% will go to miners, 8% to the Major Grants Fund, 7% to the Electric Coin Company, and 5% to the Zcash Foundation.

Canopy will also continue its long line of ZIPs (Zcash Improvement Proposals) that seek to propose new features, collect community input, create a new development fund and funding streams, among other things.

Conclusion

Although there are plentiful cryptocurrencies with lightning-quick transactions and dirt-cheap fees, Zcash is clearly aiming to be a better privacy-centric coin. As time goes on, privacy is increasingly becoming more critical in all global transactions today. 

Furthermore, aside from being quick, cheap, and private, we should also consider Zcash, like many of its ancestors, as a wonderful storer of value and hedge against inflation and potential economic downturns.